Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The State of the States: Post-Bernanke Bellum

Politics / US Politics Feb 02, 2014 - 05:16 AM GMT

By: Fred_Sheehan

Politics

One can almost imagine ex-chairman Bernanke shaking his head in disbelief. (For the record, I cannot conceive of Simple Ben possessing the capacity for what follows, so this is an indulgence in creative writing.):


"I gave them every opportunity to get out of the mess they had created. Here we were, after the bust in 2009, a generation of irresponsible and sometimes criminal municipal management was obvious. States and cities had spent money like a ship full of drunken sailors, who then sold the ship to keep drinking. They built the most unnecessary monuments to satisfy contractor payoffs, union shakedowns, and school-board extravagances." [Bloomberg, January 24, 2014 - "Engineers spotted 'hundreds' of cracks in welds on parts produced for the San Francisco-Oakland Bay Bridge in 2008 and were encouraged to stay quiet rather than delay the $6.4 billion project.... 'This is the first time in my career the engineering wasn't allowed to be done right,' said Douglas Coe, a former Civil Engineer for the California Department of Education."]

"The phony housing boom had mushroomed property tax receipts, but even these temporary handouts had not been enough to balance their budgets. I have done my best to keep property-tax receipts at such an inflated level ["Home prices in 20 cities climb by most in seven years" - Bloomberg, December 31, 2013], but only a fool could think the central bank can keep prices for 100 million houses rising forever. The huge increase of income tax, sales tax, and capital-gains receipts had also increased beyond belief. This once-in-a-century transfer could not sate these spendthrift governments.

"We at the Fed ignored the preposterous 8% earnings rate assumption made for public-pension assets. This assumption extends into the hereafter. All I could give them was through 2013. I produced 8% rates-of-return across markets for four years! This was their chance to get their affairs in order; to whittle down the rate-of-return for the future when markets are bound to regress. [As I said, this goes well beyond Ben's potential imagination. - FJS] To stop spending as if the Fed could QE their pleasure palaces without losing the world's trust in the dollar. To stop building professional football fields when consumers could not possibly continue their animalistic buying, with incomes falling.

"We worked every contrivance to keep them doing so. Such as: Financial Times - January 24, 2014: 'In Vegas, a panel on securitizations of subprime auto loans - made to riskier borrowers who want to buy cars - was standing room only. Investor demand for the higher-yielding securities has led to intense competition to originate and bundle the auto loans.... 'At some point there will be a failure [of a subprime auto lender]. There will be some consolidation,' said Chris D'Onofrio, of rating agency DBRS." [Not mentioned in the story, but you may have gathered from the "intense competition," most subprime auto loans now being made are to buyers (sort of) whose credit is so poor, they do not even have credit scores. - FJS]

"I offered an opportunity to municipal bond markets: for ratings firms and bond managers to read the fine print. To understand municipalities had started (by 2009) to borrow for operating expenses, even the operating expenses they were forecasting, two or three years in the future. All of this is illegal and remains unspoken.

"We at the Fed thought [sic - FJS] municipal bond managers would pick and choose through the wheat and chaff. Yet, today, almost every municipal bond fund has at least one percent of its assets in Puerto Rican bonds. I knew the average mind at the FOMC was senile, but what gives with these managers? Their funds are often leveraged. And the rubbish being sold is as revolting as the justification for these issues. For example, from Bloomberg, December 17, 2013: 'Phillips Academy, the oldest incorporated boarding school and one of the most exclusive, is tapping the municipal bond market for over $80 million this week in new money and refunding debt....The school has an endowment of $869 million. The fall, 2013 enrollment was 1,129. Only 13% of the applicants were admitted.... 'These schools need to compete for students and invest in their facilities,' said [Susan] Fitzgerald, [senior vice president at Moody's].'

"She's a senior vice president? I can get away with not knowing what I am talking about before a bunch of senators, but she has a real job. Or, maybe not."

"And now, reading the Wall Street Journal from January 31, 2014: "DETROIT - This bankrupt city is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations..."

"Et cetera, et cetera."

For those not up on Bernanke's limited verbal energy, see "The Professor Who Did Not Save the World."

Note: The question of pensions vs. bondholders will probably wind its way to the Supreme Court, even though there are many jurisdictions. In the meantime, there will be plenty of reasons for municipal bondholders to run, the Puerto Rican holdings being immediately pertinent.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in