Sunday, August 14, 2011

Quantitative Absurdism... or If Godot Traded Fixed Income Securities

This article from Friday just is killing me. The title is "Pittsburgh Water and Sewer Authority counts on $1 million in savings“

OK.. the ‘savings’ is at best relative to the huge costs the bond in question has cost the PWSA over the years. So they are moving a small bit back toward normalcy from what was a major major problem… and still is in many ways.  So maybe it will cost less in the future, but 'savings' in this case has to be a euphemism too far no matter how much a half-full glass kind of person you are.  Gotta be a good water pun in that somewhere.

Those types of bonds were such problems that a lot of other (I emphasize other since I have heard of no attempt to recoup costs here by similar means) public entities who were advised into similar loans have been suing the banks that foisted the deals on them. Of late the SEC, along with some Federal and state attorneys, have been coming in and suing a lot of financial folks who sold public entitites like the PWSA on screwey bonds they should not have been involved with; or for some shady shenanigans on some deals remarkably similar to ours.

I personally would love to have someone go in and audit this PWSA bond (the same bond which was caused everyone such fits) to see what part of it actually finally made it to expenditures on actual infrastructure and to quantify just how much went to unanticipated financial costs, fees and and legal work that all ballooned.  It won't be a small number. Worth it for posterity’s sake for when you know someone tries some similar scheme in the future. Won’t look the same of course, but someone will think they have a great idea for something that really is not any better a deal than that bond seemed at the time.

But I am not done with Friday's article yet.  I really love this quote near the end..  I almost feel the Trib editors left it in there just for me. 
....the board would consider fixed-rate bonds when interest rates drop. "It's just the cost of credit, and our costs of maintaining this credit was less this year than it was last year. There's an element of risk involved no matter what you do."
I mean…. "when interest rates drop"??   From where they are now??  This may supercede what I thought was the greatest example of doublespeak from the PWSA from earlier in the year if you remember that.  Just makes me wonder again who is in charge down there and why is it taking so long to fill the top spot at the PWSA?  It is getting to be almost as long as the time it is taking to find a permanent BBI head for the city as well.

But waiting for lower intrest rates? I am waiting for my variable rate mortgage to send me a check for the interest part at the rate things are going.   Open the business page or any news anywhere. Financial markets are pricing in the end of the world almost and virtually all interest rates in all markets are at or near all time lows. On top of that, municipal bonds have seen a lot of recent gains (meaning that interest rates in new issues are going down) as investors seek out something... anything... that appears relatively safe. Bottom line: it might be true that interest rates will go lower, but if that is something you yourself are actually planning on then you are likely also someone who is building a cave and stocking it with provisions and ammunition.

OK.. I admit none of that is as much fun to talk about as some of the PWSA's travails with the Iron City Brewery (now itself officially a diasporan... if Jim R. counts corporate entities among the list of diasporans that is)... but I try to make the esoteric readable.

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