Thursday, November 19, 2009

Mumbo Jumbo Public Finance

Awful lot of fodder out there to poke at. Might as well focus on the esoteric that will get lost in the noise otherwise.  Maybe just a note on the state Auditor General's press release on the use of investment 'swaps' by local governments in Pennsylvania.  I still think this news commentary is one of the best and most direct editorials on what was going on in Pennsylvania was this from Bloomberg's Joe Myslak some years ago: 

Magic, Mumbo-Jumbo Were Used to Sell Muniland Swaps

and kind of related to that.  But you would think that with 253 legislators in Harrisburg all looking for something to do at least one of them would take up a cause similar to what New York State is making progress on.   If anything this is needed here more than in New York.  See this news from late yesterday:  NY strikes deal to reform public authorities.  Maybe Joe or someone would be interested in a story on our Stadium Authority without a stadium anymore? You could say it was all mumbo jumbo debt issued by mumbo jumbo governments in Pennsylvania. 

and I pointed this out recently, it does look like the PWSA is out from under the gun on some of it's own swaps induced public finance miasma.  Yet you have to wonder what they had to pay JP Morgan for that privilege.  When you add up the original cost of that debt and all the subsequent costs to get out of it.... not a small number.  and as best I can tell, the current deal is just a temporary measure effective to 2011 or so. So the story is not over with.  If I were bond counsel it's like the debt that keeps on giving. 

I do have one really serious suggestion for our friends in Harrisburg.  The problem with all the small governments in Pennsylvania that got caught up with all these ill-advised debt structures is that they really don't have the wherewithal to negotiate their ways out of the deals... even in cases where they were clearly bamboozled (that is a technical financial term) by the banks.  The state, like maybe even the auditor general even?,  really ought to collectively take on the task of negotiating some form of restitution and relief.  That comes to mind because that is exactly what is in the news today over a lot of Auction rate debt and a deal negotiated between states and Wells Fargo.


Anonymous Anonymous said...

After reading Myslak's article, I still don't quite get it, but it helped.

Thursday, November 19, 2009 9:05:00 AM  
Anonymous Anonymous said...

Here's a Bloomberg article that predates Msylak's and lays out the entire issue

it is a shame how voters will unwittingly blame elected officials when its really the bankers that scuttled their communities.

Thursday, November 19, 2009 9:20:00 AM  
Anonymous Anonymous said...

it is a shame how voters will unwittingly blame elected officials


Thursday, November 19, 2009 11:58:00 AM  
Anonymous Anonymous said...

I thought that the PWSA was planning on five percent annual hikes in fees in order to finance the debt problem? That hardly seems like getting "out from under the gun". That sounds like passing along their mistakes to the ratepayers. This, from a system that the P-G reports cannot account for 6 out of every 10 gallons of the water shipped out of its treatment plant. Independent, unaccountable authorities are a big, ugly mole on the face of PA politics.

Thursday, November 19, 2009 1:53:00 PM  
Anonymous James Sands said...

There's a new book out called "Army of the Republic", by somebody somebody Cohen.

Here's a description of an excerpt from one of the chapters:

"This section introduces James Sands, an entrepreneur who has built a billion-dollar corporation that privatizes bankrupt municipal water supplies."

Thursday, November 19, 2009 1:55:00 PM  
Anonymous Anonymous said...

The interesting thing about the article posted at 11:58 is how similar the situation is to the PWSA debacle that took place here in Pittsburgh.

The same firm: JP Morgan
The same type of issuer: Water and Sewer
The same type of questionable unregulated financial hedging strategy.

What are the chances there are other similarities to what happened in Alabama?

Thursday, November 19, 2009 7:13:00 PM  
Anonymous DBR96A said...

The city of Pittsburgh should just declare Chapter 9 bankruptcy and get out from under the gilded pensions.

And no, they won't be the only major city to do it. They'll only be the first. Expect the 2010's to be the decade of municipal bankruptcies all over the country.

Friday, November 20, 2009 10:01:00 PM  
Blogger C. Briem said...

The PWSA is no longer 'under the gun' as it were because it is no longer paying that penalty interest rate on their recent bond debt that was costing it.. I forget the exact number... $200K a week or so. The 5% rate increases would not have covered that if it were to have continued long into the future. Am surprised their deal to get out from that situation has not made some news give how serious it was.

Saturday, November 21, 2009 10:02:00 AM  
Anonymous Anonymous said...

The story had no legs in the local press because reporters cannot write/report about things they completely do not understand. Business reporters (not City hall reporters) shgould be assigned to the story. But, then again, assignment editors and city desk editors are no different than reporters: they don't tend to gravitate to things that they dio not understand.

Saturday, November 28, 2009 8:24:00 AM  

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