Thursday, November 5, 2009

more Muni Bonds

"Nov. 5 (Bloomberg) -- U.S. state and local government pensions are underfunded by $1 trillion and may need to seek federal guarantees for their debt, according to Orin Kramer, chairman of New Jersey’s Investment Council.

Pension underfunding eventually will make it impossible for some governments to raise money in bond markets and will require federal intervention through explicit or “implied guarantees” of municipal debt, Kramer, 64, said in an interview today at Bloomberg News headquarters in New York.

“The collective deficits should not be and will not be overcome by an aggressive investment strategy,” Kramer said. “I think that actually, ultimately, the severity of the problem will become publicly visible and you’ll have more entities that will have difficulty accessing the bond markets.”

The 100 largest U.S. public-employee pension plans had assets of $2.2 trillion as of June 30, down from $2.8 trillion a year earlier, according to a U.S. Census Bureau report. The 21 percent decline compared with the 28 percent fall in the Standard & Poor’s 500 Index during the worst recession since the Great Depression"

It's possible that Uncle Sam will use the already broke FDIC to back up this mega mess. The FDIC has a $500 billion backstop from the Fed, and between bank failures, muni failures and other failures, may need every dime of it. Someone has to pick up the pieces.. and yes, it's us.

In other news, the equities markets continue to rise.. along with unemployment and reduced consumer spending. It has something to do with the USD "carry trade", which makes it easy for banks and others to get loans from the Fed at near zero rates and then gamble them on the stock markets. Roubini had an article about this, saying that there is a danger that should the USD begin to strengthen again, a huge whipsaw effect could bring about severe deflation. In addition, Bernanke seems determined to keep the USD weak to avoid deflation. At some point, all stock market bubbles burst if not supported by the facts on the ground..

In other news, Fannie Mae needs another $15 billion dollars from Bernanke. FNM's loss for Q3 is $18.9 billion, up from $14.8 billion in Q2.

There are rumors that Uncle Sam wants to break apart the "too big to fail" banks.. they'll need to be careful how it's done so as to not trigger a stockholder stampede out the backdoor and thus trigger credit default swaps.

1 comment:

  1. Hey there Mr. Kowalski,
    Great blog so far. In fact I hope that you decide to stick around for a while because you've definitely got a talent for laying out the facts without a lot of baloney in between. I'm also interested in how you'll make out with your 'investments'. Anyways, great job so far, keep a going!!