Get out of Muni Bond Funds Now

[Ehud]

Get out of Muni Bond Funds Now
December 10th, 2010
By David Goldman
I’ve been warning for months that a few state and municipal bankruptcies (actually, a few states and a great many city bankruptcies) will be required to slay the beast of government-union pension liabilities. The total size of the muni bond market is about $2.4 trillion. Unfunded pension liabilities (calculated with a realistic discount rate) are almost as high, according to one study. Now comes James Pethokoukis of Reuters to tell us of a “secret GOP plan” to bankrupt local governments and crush the government unions.

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

I’m not going to trade in Capitol Hill rumors, but whether there is a secret plan or not, the US federal government is in the same position that Germany is with respect to Greece — the creditors (in this case public employee pensions) have to take a massive haircut for the numbers to add up. The delayed effect of the real estate collapse (which is still getting worse) is going to hit local revenues next year due to massive downward adjustment in tax assessments. This is the killer:

http://www.bloomberg.com/news/2010-12-0 ... towns.html

It’s cities, not states, that live off real estate taxes. Local government was riding the real estate boom along with everyone else but it takes a couple of years for the price collapse to work its way through tax assessments. What’s going to happen is two, three, many Harrisburg bankruptcies. The cities will collapse and the states will push them over the edge (like NY State with NYC in 1974). They’ll make a horrible example of a couple of states — California and Illinois — others will hold the line as the cities go down like ninepins

There are nearly 11 million local government employees (not counting 3.56 million part-time), or a full-time equivalent of 12.2 million. Full-time equivalent for states is only 4.4 million. So most of the savings (and union-busting) has to come from local governments in the first place.

There’s a limit to how far they can take this: Banks and insurance companies together have about $700 billion of munis. You can wipe out mom and pop (did so already with the auction securities market) but a 40% haircut would take out about $300 billion of financial institutions’ capital — not pretty. And that’s not to mention the spillover effect on other markets. That’s yet another reason not to own the banks’ common equity.

Individuals Mutual Funds1 Banking Institutions Insurance Companies Other Total

2010

Q1 1,034.3 959.1 269.2 444.4 137.6 2,844.6
Q2 1,033.3 955.2 255.5 444.1 145.0 2,833.1
36.5% 33.7% 9.0% 15.7% 5.1%
My best guess is that two states go down — Illinois and California — and lots of Democratic city machines. In lots of states, Republican governors and state legislatures will actually win support by running against the machines.

If you have to own munis, own the better-quality states–in fact, own bonds that have first claim on revenues rather than General Obligation debt. The municipal bond funds are loaded with School District of West Squashbug and the general obligation bonds of Death Gulch. Even if you own bullet-proof munis (and I own some myself) be prepared to take a big mark to market hit as the crisis plays out.

[Ehud]

David,

Our first confirmation of this political rumor can be found on minute 27:40 of the following speech given by Dick Morris. I'm not a particular fan of his, but what he is telling us starting from around minute 26 forward is the Republican strategy, step by step of how they are going to break the Democratic Party Machine using the bond market.



http://bigpeace.com/dreaboi/2010/12/11/ ... -pathetic/

[Collingwood]

So, Spengler, which states and cities are the Republicans planning to write off for the 2012 elections? You've lived in New York City long enough to remember its debt crisis, and its political consequences.

Bizarrely, my wife, an MBA but a government employee, will be forced by law to retire at age 65, absent some change in legislation. Altering a few things like that might be a nice first step.

[Ehud]

Collingwood,

Whether we like it or not, Republicans and Democrats will have to get used to living within their means. In this country, people are so used to living outside their means it may require a debt crisis to knock the baby-boomers especially out of their stupor. Government employs far too many people and has far too many connected liabilities that are unsustainable. Many people will have to be cut loose. Then eventually the nation will have to come to terms with Social Security, Medicare and Defense. That will be the hard part.

[Michael]

At what point does the withdrawal of panem et circenses lead to a breakdown of public order?

After all, as Tallyrand observed « gouverner n’a jamais été autre chose que repousser par mille subterfuges le moment où la foule vous pendra, et tout acte de gouvernement rien qu’une façon de ne pas perdre le contrôle de la population. » {governing has never been anything other than postponing by a thousand subterfuges the moment when the mob will lynch you, and every act of government is nothing but a way of not losing control of the people.]

Will the force of law, backed by bayonets, be enough to keep the underclass in check? If we want to curtail welfare spending, are we ready for a repetition of les journées de juin 1848, following the closure of les Ateliers Nationaux?. Then, the Liberals secured a victory over the Radical Republicans, but at the cost of 1,500 dead in the streets and thousands of summary executions of prisoners. The Assembly, one recalls, welcomed the surrender of the last barricade with cries of “Long Live the Republic!” What they got, inevitably, was Napoleon III; as Marx observed of this, history repeats itself, the first time as tragedy, the second time as farce.

Nowadays, when governments depend for their legitimacy on media coverage and the cult of personality, it is pretty generally recognised that welfare cheques, drug-dealing and cheap alcohol are indispensible guarantees of the political order.

[ellens]

At what point does the withdrawal of panem et circenses lead to a breakdown of public order?

After all, as Tallyrand observed « gouverner n’a jamais été autre chose que repousser par mille subterfuges le moment où la foule vous pendra, et tout acte de gouvernement rien qu’une façon de ne pas perdre le contrôle de la population. » {governing has never been anything other than postponing by a thousand subterfuges the moment when the mob will lynch you, and every act of government is nothing but a way of not losing control of the people.]

Will the force of law, backed by bayonets, be enough to keep the underclass in check? If we want to curtail welfare spending, are we ready for a repetition of les journées de juin 1848, following the closure of les Ateliers Nationaux?. Then, the Liberals secured a victory over the Radical Republicans, but at the cost of 1,500 dead in the streets and thousands of summary executions of prisoners. The Assembly, one recalls, welcomed the surrender of the last barricade with cries of “Long Live the Republic!” What they got, inevitably, was Napoleon III; as Marx observed of this, history repeats itself, the first time as tragedy, the second time as farce.

Nowadays, when governments depend for their legitimacy on media coverage and the cult of personality, it is pretty generally recognised that welfare cheques, drug-dealing and cheap alcohol are indispensible guarantees of the political order.

Michael,

That post was a tour de force. Beautifully written with relevant historical precedents and sadly applicable to our current predicament. Tallyrand especially is always delicious for his cynicism.

I think McDonalds (fast food) and commercial TV has served as our modern version of bread and circus, without us really appreciating it until now. Nowadays, the educated classes spend more time reading or on the internet than watching TV and rarely eat in McDonalds anymore because of its image of unhealthy, lower class food. This shows how much polarization has occurred in American society since the 1950's when both TV and fast food were considered proud staples of the American middle class lifestyle.

Yes, we are all in for an "interesting" next 20 years as the modern welfare state and culturally normless society produce their inevitable results. We may be in for another Napoleon III or something equivalent. I have always felt that liberal democracy was a weird historical interlude, likely to give way to something much more historically typical like some form of autocracy and/or feudalism, but never thought I'd live long enough to see my prediction born out. I may yet accomplish that feat!

[Michael]

Ellens

I think you might be interested in de Tocqueville's comments on the June Days, of which he was an eye-witness - Rather a lengthy one, I'm afraid, but I cannot bring myself to abridge it:

I come at last to the insurrection of June, the most extensive and the most singular that has occurred in our history, and perhaps in any other: the most extensive, because, during four days, more than a hundred thousand men were engaged in it; the most singular, because the insurgents fought without a war- cry, without leaders, without flags, and yet with a marvellous harmony and an amount of military experience that astonished the oldest officers.

What distinguished it also, among all the events of this kind which have succeeded one another in France for sixty years, is that it did not aim at changing the form of government, but at altering the order of society. It was not, strictly speaking, a political struggle, in the sense which until then we had given to the word, but a combat of class against class, a sort of Servile War. It represented the facts of the Revolution of February in the same manner as the theories of Socialism represented its ideas; or rather it issued naturally from these ideas, as a son does from his mother. We behold in it nothing more than a blind and rude, but powerful, effort on the part of the workmen to escape from the necessities of their condition, which had been depicted to them as one of unlawful oppression, and to open up by main force a road towards that imaginary comfort with which they had been deluded. It was this mixture of greed and false theory which first gave birth to the insurrection and then made it so formidable. These poor people had been told that the wealth of the rich was in some way the produce of a theft practised upon themselves. They had been assured that the inequality of fortunes was as opposed to morality and the welfare of society as it was to nature. Prompted by their needs and their passions, many had believed this obscure and erroneous notion of right, which, mingled with brute force, imparted to the latter an energy, a tenacity and a power which it would never have possessed unaided.

"That imaginary comfort with which they had been deluded" - That sums it up, really.

[Marcus]

. . McDonalds (fast food) and commercial TV has served as our modern version of bread and circus, . . Nowadays, the educated classes spend more time reading or on the internet than watching TV and rarely eat in McDonalds anymore because of its image of unhealthy, lower class food. . .

. . we are all in for an "interesting" next 20 years as the modern welfare state and culturally normless society produce their inevitable results. . .

I dunno, ellens. The problem might be a bit deeper than that. Whether or not the "educated classes" eat at McDonalds, they still eat out—or should I say "dine"—and the hormone/antibiotic-laced beef they eat comes from the same feed lots as does a McDonalds burger, their pork from the same factory farms as does McDonalds bacon, and their chicken from the same broiler barns as do McNuggets. The salads enjoyed by our intelligentsia come from the same chemically-impregnated soil as does the lettuce on a Big Mac. Not much salmon at fast food restaurants, but maybe that's because their customers can't afford the farmed salmon that must be fed dye-impregnated food to make its flesh pink.

And, yes, there's network TV that only the truly mindless can endure, but entertainment is entertainment. A circus is a circus whether held in some field in Oklahoma or at Lincoln Center. A "normless" society is not defined by education, money, class, status, or taste.

Dig deeper. . .

[All the ancient wisdom] tells us that work is necessary to us, as much a part of our condition as mortality; that good work is our salvation and our joy; that shoddy or dishonest or self-serving work is our curse and our doom. We have tried to escape the sweat and sorrow promised in Genesis - only to find that, in order to do so, we must forswear love and excellence, health and joy.

— Wendell Berry (The Art of the Commonplace: The Agrarian Essays of Wendell Berry)

[Michael]

. . McDonalds (fast food) and commercial TV has served as our modern version of bread and circus, . . Nowadays, the educated classes spend more time reading or on the internet than watching TV and rarely eat in McDonalds anymore because of its image of unhealthy, lower class food. . .

. . we are all in for an "interesting" next 20 years as the modern welfare state and culturally normless society produce their inevitable results. . .

I dunno, ellens. The problem might be a bit deeper than that. Whether or not the "educated classes" eat at McDonalds, they still eat out—or should I say "dine"—and the hormone/antibiotic-laced beef they eat comes from the same feed lots as does a McDonalds burger, their pork from the same factory farms as does McDonalds bacon, and their chicken from the same broiler barns as do McNuggets. The salads enjoyed by our intelligentsia come from the same chemically-impregnated soil as does the lettuce on a Big Mac. Not much salmon at fast food restaurants, but maybe that's because their customers can't afford the farmed salmon that must be fed dye-impregnated food to make its flesh pink.

And, yes, there's network TV that only the truly mindless can endure, but entertainment is entertainment. A circus is a circus whether held in some field in Oklahoma or at Lincoln Center. A "normless" society is not defined by education, money, class, status, or taste.

Dig deeper. . .

[All the ancient wisdom] tells us that work is necessary to us, as much a part of our condition as mortality; that good work is our salvation and our joy; that shoddy or dishonest or self-serving work is our curse and our doom. We have tried to escape the sweat and sorrow promised in Genesis - only to find that, in order to do so, we must forswear love and excellence, health and joy.

— Wendell Berry (The Art of the Commonplace: The Agrarian Essays of Wendell Berry)

But can we, without producing a breakdown of public order, dismantle the Welfare State, to the point that the most recalcitrant - those who will work only when faced with the alternatives of dying of hunger or stagnating in gaol -are lured back into wage-labour? Personally, I doubt it; there is no "Party of Order," with the self-confidence and social cohesion to attempt it.

[ellens]

No we can't dismantle the welfare state, as much as the Republican Party would pretend to want to. It is supported, in its limited American version, by the vast majority of the population who nonetheless complain that they oppose excessive government spending. Try to reconcile that little bit of hypocrisy.

Margaret Thatcher once explained her opposition to socialism by saying that it corrupted human morals. She was right about that, but we certainly cannot have a civilized society without a welfare state and safety net of some sort.

Lee Quan Yew hit the nail on the head concerning this problem, many years ago, when he said the only way you can avoid the family breakdown and other social problems caused by the welfare state is by also inculcating moral and traditional values (by which he meant Asian family values). He viewed religion, mainly Christianity presumably, as the only way to do that successfully. No secular ideology of morals has ever been able to produce a stable and civilized society, as the horror of communism certainly showed. The modern welfare state can only serve the positive purposes it is meant to serve if the society at large also adheres to a moral framework that makes people want to live functional, nondecadent lives, ie, to use welfare only as a last resort and in a limited way, and to depend on individual initiative and striving mostly.

The problem is, as Spengler and all of us have been discussing for years, if people no longer believe in the old-time religion they won't be likely to follow its prescripts because sociologists tell them "it will be good for you and your children". Without belief, people will drift away to bread and circus.

Regarding DeToqueville, he was a perceptive genius. I read his "Democracy in America" years ago and was amazed how timely his analysis was (and depressing). He said that the great thing about Europe was its high culture. The bad thing was its hereditary aristocracy that unfortunately seemed to be needed to support that high culture. The great thing about America was its democracy and individual liberty, which unfortunately seemed to lead to a debasement of culture down to the lowest common denominator.

I don't see any solution to this problem. Is it possible to have high culture and democracy?

[rhapsody]

Government employs far too many people and has far too many connected liabilities that are unsustainable. Many people will have to be cut loose. Then eventually the nation will have to come to terms with Social Security, Medicare and Defense. That will be the hard part.

I don't think these are the hard parts. The hard part is to modernise the financial industry a.s.a.p. ie. now, so that after the crash the nation can recover into a more stable socio-economic track and health, instead of becoming a rehab-relapse cycle junk. Social Security, Medicare and Defence just need to be budgeted in a balanced way via alternating leftwing-rightwing governments.

[Marcus]

But can we, without producing a breakdown of public order, dismantle the Welfare State, to the point that the most recalcitrant - those who will work only when faced with the alternatives of dying of hunger or stagnating in gaol -are lured back into wage-labour? Personally, I doubt it; there is no "Party of Order," with the self-confidence and social cohesion to attempt it.

Well, I suspect you're quite right about the lack of a Party of Order with the cajones to man up and say what needs be done much less try it. As Luther said, "Events are in the saddle and we are ridden." All we can do is refuse to be part of what rotten about our society.

"Love the quick profit, the annual raise,
vacation with pay. Want more
of everything ready-made. Be afraid
to know your neighbors and to die.

And you will have a window in your head.
Not even your future will be a mystery
any more. Your mind will be punched in a card
and shut away in a little drawer.

When they want you to buy something
they will call you. When they want you
to die for profit they will let you know.
So, friends, every day do something
that won’t compute. Love the Lord.
Love the world. Work for nothing.
Take all that you have and be poor.
Love someone who does not deserve it.

Denounce the government and embrace
the flag. Hope to live in that free
republic for which it stands.
Give your approval to all you cannot
understand. Praise ignorance, for what man
has not encountered he has not destroyed.

Ask the questions that have no answers.
Invest in the millenium. Plant sequoias.
Say that your main crop is the forest
that you did not plant,
that you will not live to harvest.

Say that the leaves are harvested
when they have rotted into the mold.
Call that profit. Prophesy such returns.
Put your faith in the two inches of humus
that will build under the trees
every thousand years.

Listen to carrion — put your ear
close, and hear the faint chattering
of the songs that are to come.
Expect the end of the world. Laugh.
Laughter is immeasurable. Be joyful
though you have considered all the facts.
So long as women do not go cheap
for power, please women more than men.

Ask yourself: Will this satisfy
a woman satisfied to bear a child?
Will this disturb the sleep
of a woman near to giving birth?

Go with your love to the fields.
Lie down in the shade. Rest your head
in her lap. Swear allegiance
to what is nighest your thoughts.

As soon as the generals and the politicos
can predict the motions of your mind,
lose it. Leave it as a sign
to mark the false trail, the way
you didn’t go.

Be like the fox
who makes more tracks than necessary,
some in the wrong direction.
Practice resurrection."

— Wendell Berry

Michael, you have a PM.

[Marcus]

. . Lee Quan Yew . . said the only way you can avoid the family breakdown and other social problems caused by the welfare state is by also inculcating moral and traditional values . . The modern welfare state can only serve the positive purposes it is meant to serve if the society at large also adheres to a moral framework that makes people want to live functional, nondecadent lives, ie, to use welfare only as a last resort and in a limited way, and to depend on individual initiative and striving mostly.

The problem is, as Spengler and all of us have been discussing for years, if people no longer believe in the old-time religion they won't be likely to follow its prescripts because sociologists tell them "it will be good for you and your children". Without belief, people will drift away to bread and circus.

We are born into a condition of moral corruption . . original sin and all that. What the welfare state does is subsidize moral corruption rather than demand virtue.

"Every social order has an implicit creed, and this creed defines and informs it. When a social order begins to crumble, it is because the basic faith, its creed has been undermined. But the political defense of that order is usually made the first line of defense; it becomes the conservative position. But because the defense is politically rather than creedally informed, it is a superficial defense and crumbles steadily under a highly doctrinaire and creedal opposition. Thus, Cicero's defense of the Roman republic was a spirited and heroic effort, but it was also the epitome of impotence. The republic was already dead; Cicero himself did not believe in the religion on which the republic had been based. When Cicero could not accept the religious foundations which made an aristocracy sovereign, how could he expect to rebellious masses to accept it? Cicero's position was essentially personal, and the various defenders of the republic were more linked by purely personal tastes and interests than a creedal position. . . . . The conservatives attempt to retain the political forms of the Christian West with no belief in Biblical Christianity. Apart from vague affirmations of liberty, they cannot defend their position philosophically. The conservatives therefore become fact-finders: they try to oppose the humanists by documenting their cruelty, corruption, and abuse of office. If the facts carry any conviction to the people, they lead them only to exchange one set of radical humanists for reforming radical humanists. It is never their faith in the system which is shaken, but only in a form or representative of that system. The success of the subversive rests on their attack on the creed of the establishment, and its replacement by a new creed. When the foundations are provided, the general form of the building is determined. When the creed is accepted, the social order is determined. There can therefore be no reconstruction of the Christian civilization of the west except on Christian creedal foundations."

(The Foundations of Social Order, R. J. Rushdoony, page 225-6)

[rhapsody]

R. J. Rushdoony, Reconstructionist and Racist Bigot

They do exist, Christian Taliban!

[Marcus]

R. J. Rushdoony, Reconstructionist and Racist BigotThey do exist, Christian Taliban!

Naughty, naughty, rhap . . What would one expect from such a Web site?

From the site's "About Us" information:

About

about.png (5.14 KiB) Viewed 2989 times

I’m Daniel Florien. I was an evangelical Christian for over a decade, completely convinced that God was real and Jesus was alive today. I attended Bible college and worked at a Christian organization for many years. I have “led people to Christ.” I have left tracts in bathrooms. I have knocked on hundreds of doors asking people to repent and believe in Jesus.

I was wrong.

I no longer believe in a personal God or that Jesus was born of a virgin, worked miracles, and rose from the dead. I don’t believe in heaven or hell, angels or demons, holy books or prophecy. I don’t believe the earth was created 6,000 years ago, or that God intelligently designed every species.

I now consider myself an atheist and a skeptic.

Try this site for an up-to-date, less biased perspective. Here's another in the same vein for those of you across the pond. Cruise the sites for us, rhap, and post any "taliban" material you run across . . okay? Don't take an Atheist's smear job at face value . . you know better than that. Go to the source, and report the truth.

Keep in mind too that one can find anything on the Web that one is predisposed to believe.


PS: For what it's worth, while I didn't and don't agree with all Rush said, he was a personal friend. Moreover, I read through the quotes on the site you referenced, and every, single one of them is taken out of context.