America’s strapped states and cities took another hit Wednesday, with California seeing tepid demand for its latest bond sale and other governments pulling about $700 million worth of borrowing deals this week as investors continued stepping away from the municipal bond market.
The normally staid market has grown volatile the past week, posting its sharpest selloff in nearly two years, as investors demand higher interest rates to buy paper issued by states, cities and counties to finance their operations. Localities have been hammered by a drop in tax revenue amid the downturn””and unlike the federal government, most are barred constitutionally from running deficits.
“The tax-exempt municipal bond market is a cold, cold world right now for issuers and taxpayers,” Tom Dresslar, a spokesman for the California State Treasurer, said late Wednesday. He added that the state decided to cancel another $267.3 million bond sale it planned to price next week “in light of market conditions.”
In all seriousness, what would make an investor want to buy a California municiple bond? Yield? Versus the risk? With Moonbeam as the guv?
At the risk of being seen as a contrarian, I actually find this very encouraging. This is the one way to force states and municipalities to get real with their budgets. They can’t print money. Which means they need to either tax, borrow or reduce spending in some combination. There are limits to how much they can realistically tax, and if investors are unwilling to assume the risk attendant on their nutty bookkeeping then they will be forced to make some spending cuts.
I like the logic; I fear they will flee to Washington for more handouts. As much as I want to believe Washington will turn them down, deep down I fear they won’t. So Washington may end up printing the money for them!
#3, I don’t see a Republican House inclined to bail out CA, for n other reason that there are so few Republicans out there. More importantly though, a bailout would set a terrible precedent (NY would not be far behind)…..
I agree with what all of you are saying: California should not get bailed out. On the other hand, Charley Rangle should not be in the house.
I hope you guys are right and California is given the single finger salute. However, I am not betting the ranch on that. After all, it is Washington.
We just elected a Tea Party Rep to replace a Nancy Pelosi lapdog and today in our local paper our brand new rep is quoted as saying “the time for partisan politics is over, we need to learn to work together”.
That does not give me the warm and fuzzies………