Tuesday, February 21, 2012

Moody's reviewing thousands of U.S. muni obligations | Reuters

Moody's reviewing thousands of U.S. muni obligations | Reuters

(Reuters) - Moody's Investors Service is sweeping a magnifying glass over thousands of U.S. municipal sector obligations that are linked to 26 banks currently under review for possible credit rating downgrades, it said on Tuesday.

"The news could cause worry in the $3.7 trillion municipal bond market, where issuers have for the most part been successfully extending or replacing letters of credit and other expiring facilities backing their debt.

A bubble in bank letters of credit developed when the auction-rate securities market collapsed and issuers moved their money into variable-rate bonds, which need the facilities to serve as lines of credit during remarketing.

Many facilities provided during the financial crisis of 2007-08 expired last year, affecting approximately $130 billion of variable-rate bonds and issuers began turning to U.S. banks as concerns grew over financial problems in Europe."

Monday, February 13, 2012

China tells banks to roll over local government loans: FT | Reuters

China tells banks to roll over local government loans: FT | Reuters
"China encouraged banks to lend to local governments for new projects during the financial crisis to buoy the economy, but its provinces and cities now face $1.7 trillion in debts. More than half those loans were scheduled to come due over the next three years, the newspaper said. Banks had started extending maturities for local governments to avoid a wave of defaults, the paper said, citing bankers and analysts familiar with the matter."

Fred Leeb: Is the global house of cards built on a house of cards?

Sunday, February 12, 2012

Atlantic City's future looking bright after week of positive news - pressofAtlanticCity.com: Atlantic City | Pleasantville | Brigantine

Atlantic City's future looking bright after week of positive news - pressofAtlanticCity.com: Atlantic City | Pleasantville | Brigantine

Maybe we can learn something from Atlantic City's efforts and success in implementing a long term plan. Please see excerpts from the article below:

While casino win figures released Friday were not positive, Atlantic City’s overall economy is on the brink of a turnaround likely to result in an investment stampede, predicted Israel Posner, executive director of Lloyd D. Levenson Institute of Gaming, Hospitality and Tourism at the Richard Stockton College of New Jersey.

“It’s the idea that we’ve been discussing for many years, that Atlantic City is transforming into a full-scale entertainment resort,” Posner said. “That transformation, that vision, is emerging in full bloom. You can see it this summer. You can feel the energy all over the city.

Posner also said that investors who have been shunning the city for the past few years now will be tempted to take a second look. He cautioned that they could lose out if they wait too long.

“I think that what could happen very quickly is that investors will be tripping over each other,” he said. “If you’re late, the opportunities are not there. The early participants that are drawn by the excitement have the most to gain because they are coming in during the threshold of the transformation. If you wait, the risk will be lower, but the reward will be lower, too.”

The Atlantic City Tourism District Master Plan, approved by the CRDA Board Feb. 1, advised that Atlantic City diversify offerings and perhaps partner with other towns on artistic, cultural and other nongaming initiatives. The marketing strategies behind the events themselves matter, too, particularly with social media, the 300-page document stated.

“Everyone is excited and understands we’re in it together, and need to work as a team,” Palmieri said.“That’s a positive thing. And from what I understand, that’s a new thing for this city.”

Saturday, February 11, 2012

How the Stimulus Fell Short - NYTimes.com

How the Stimulus Fell Short - NYTimes.com
"... The stimulus — a historic package of tax cuts, safety-net spending, infrastructure projects and green-energy investments — certainly did a lot of good. As the economists Alan S. Blinder and Mark Zandi have noted, it’s one of the key reasons the unemployment rate isn’t in double digits now.
But the stimulus ultimately failed to bring about a strong, sustainable recovery. Money was spread far and wide rather than dedicated to programs with the most bang for the buck. “Shovel-ready” projects, those that would put people to work right away, took too long to break ground. Investments in worthwhile long-term projects, on the other hand, were often rushed to meet arbitrary deadlines, and the resulting shoddy outcomes tarnished the projects’ image...."
Fred Leeb: I find it ironic that after spending $840 billion we now may be concerned about whether these programs accomplished anything. I also find it interesting that it takes the NYT Sunday Review to consider the concept newsworthy that the government should generate a significant return on its investments.
I think one of the biggest failures of government is that this simple business concept (return on investment) is barely an afterthought. It is a tragedy that the US government collected and spent almost a trillion tax dollars, generated by millions of people working very efficiently and very hard to provide, without a clear idea of the projected benefits.

People need to ask what it means in the first place for the government to create jobs. There is a big difference between jobs for government employees and jobs that are created due to a nurturing environment for the private sector. For example, some of this money could have been spent on improving government decision-making, developing multiple-year growth plans, consolidating and rationalizing government entities, making government more efficient, providing venture capital, jobs training, adding funding for community colleges and public schools, etc. Programs like cash for clunkers did bring forward car sales, causing lower car sales immediately thereafter. Temporary jobs repaving roads were just that, temporary jobs. We must make the government much more accountable before the dollars are spent.

Friday, February 10, 2012

Commentary: Detroit faces worse fate than an EM | The Detroit News | detroitnews.com

Commentary: Detroit faces worse fate than an EM | The Detroit News | detroitnews.com

The article from February 10, 2012 by John E. Mogk, a law professor at Wayne State University, states, "... municipal bankruptcy under Chapter 9 of the Federal Bankruptcy Act, which could be more damaging to the city and the state and take much longer to complete.

Seeking bankruptcy relief would downgrade the city's credit rating, reduce its ability to borrow funds, and drive up the city's interest rates. The credit standing of other municipalities in Michigan and the state will also be affected. Bankruptcy requires substantial additional management responsibilities, leaving staffers less time to actually govern.
Perhaps the most damaging aspect of bankruptcy is that it will place a stigma on the city, causing new businesses to avoid locating in Detroit."

Fred Leeb: My own question is, how do we know that this conventional wisdom is true? The business world lived in fear of the bankruptcy stigma but this has changed over the last 35 years and bankruptcy is now virtually just another tool in the toolbox to enable lasting structural change. Are GM's borrowing rates higher or lower now than prior to their bankruptcy? In addition, I believe there have been a number of studies showing that publicly traded stocks rise after there is an announcement of a major cost reduction program. This is because the action is an indicator that the management has finally recognized the depth of the problem and is willing to do something constructive rather than just cover it up.

Everybody already knows that Detroit is in terrible financial shape. It will remain that way until people believe that the city's leadership is willing to bite the bullet and implement a realistic multiple-year turnaround plan. As far as the city's bond rating goes, the only reason it is able to sell bonds at all now is because they are backed by other entities such as the state. This has only enabled the problem to fester and get worse. If people knew that other entities would not stand behind the city's bonds, they probably could not be sold at all, even now, before a bankruptcy has been filed. The only people we are kidding about Detroit is ourselves.

Friday, February 3, 2012

The Cost-Benefit Imperative

The Cost-Benefit Imperative

It's very refreshing to see in the following article by Susan K. Urahn that one of the most fundamental financial concepts, return on investment, is becoming an essential element of government spending plans. It is clear that even governments no longer have enough money today to just throw it at make-work projects to create jobs that are a bridge to nowhere. This analytical approach also has been a means of breaking partisan gridlock, a byproduct that also is sorely needed.  Unless the government does its homework so that each dollar generates a high return for the taxpayer it shouldn't take the money.

Susan K. Urahn is managing director of the Washington, D.C.-based Pew Center on the States, where she leads the Pew Charitable Trusts' efforts to help states identify and implement policies that are fiscally sound and provide a return on investment to taxpayers.


The Cost-Benefit Imperative

A group of states is adapting a successful model to target scarce funds for the greatest return on investment.

While the states' revenues are beginning to recover, almost all of them expect to have less to spend in 2012 than they had in 2008, before the Great Recession began exacting its toll. Since then, many states have relied on across-the-board cuts, but others have looked for ways to make more strategic decisions that target funds toward programs and policies that yield the greatest benefits in the most cost-effective way.

Cost/benefit analysis can play a key role in helping government leaders make better decisions on allocating limited tax dollars. This technique estimates the long-term costs and benefits of potential investments in public programs, allowing policy makers to compare options and identify those that most effectively achieve outcomes (such as reducing crime, improving high-school graduation rates or reducing child maltreatment) at the lowest cost to taxpayers.
Cost/benefit analysis has been used to a limited degree at the federal level for many years. Some states, including Oregon, Georgia and New York, have used this technique to assess individual programs, such as evaluating whether an economic development incentive is cost-effective in creating jobs. But one state has developed an approach that goes much further.
Since the 1990s, legislators and executive agencies in Washington State have used a cutting-edge model to identify evidence-based policies that provide the best return on taxpayers' investment. The model was developed by the nonpartisan Washington State Institute for Public Policy, which the legislature created to analyze and provide data for policy makers.

The model goes far beyond traditional methods. It:

• Analyzes all available research across an entire policy area to systematically identify which programs work and which don't, rather than relying on a few studies or anecdotal evidence.
• Predicts the impact of policy options by applying the combined evidence of all sufficiently rigorous national studies to the state's own data.
• Calculates the potential return on investment of policy options, taking into account the effect on taxpayers, program participants and residents most directly affected in both the short and long term.
• Assesses the investment risk if the initial assumptions behind the estimates turn out differently than predicted.
• Ranks the projected benefits, costs and risks of all programs in a guide to policy options.
• Identifies ineffective programs that could be cut or eliminated so that policy makers can make strategic decisions instead of across-the-board reductions.
• Analyzes the combined benefits and costs of a package or "portfolio" of policies instead of judging each program separately.
• Works with legislators and the executive branch to make these analyses highly accessible for policy and budget decision-makers.

Washington State's most extensive experience with this model has been in the criminal-justice arena. Officials have used the analysis and recommendations generated by the model to direct funding toward proven crime-prevention and treatment programs. Those initiatives have contributed to a greater improvement in crime rates and juvenile-arrest rates compared with the national average, an incarceration rate lower than the national average, and savings of $1.3 billion per two-year budget cycle—eliminating the need to build new prisons and making it possible to close an adult prison and a juvenile-detention facility.

Legislators from both parties say the model has helped them get the best return on investment, transcend partisan gridlock, make decisions based on facts and choose options that are the most cost-effective in the long run, even if they are not the most politically appealing in the short term.

Please click on the link above to see the rest of the article.