AzzHat Award: Barney Frank

Washington, DC - House Financial Services Committee Chairman Barney Frank (D-MA) today issued the following statement in response to the negative outlook assigned by Moody’s Investors Service to the creditworthiness of America’s local governments:

 “I am troubled by the action of Moody’s Investors Service to issue a negative outlook across the board on America’s municipalities, which could raise the interest rates on cities and towns making it more expensive to borrow funds for infrastructure improvements. Today’s action could result in an unjustifiable burden on local governments, and this may have the unintended consequence of undercutting the simulative effect of the economic recovery package. Interest rates on full faith and credit general obligation bonds are already too high and there is not demonstrated record of default.  The House Financial Services Committee will be holding a hearing in early May to explore the unfair treatment of full faith and credit general obligation bonds.”

Unfair? 

What's unfair about this?

In a special report made public on Tuesday, the agency cited revenues that are falling almost everywhere as a result of the economic downturn. But it also discussed the problems some municipalities had created for themselves by using complex financial products that seemed to be saving money at first, only to send costs soaring during the credit crisis.

Right.

See, states like Florida and California dug their own hole during the housing fraud boom, putting forward budgets and multi-year spending plans that were absolutely unsupportable.

Around here, for example, we built a new wing on an elementary school.  That was arguably justified, given the student population.

The $35,000 "smart boards" in each classroom, along with the very expensive plasma TV in the corner, which serves the purpose of displaying a clock for nearly the entire school day, on the other hand....

No, you didn't hear that wrong.  We have elementary schools that have a literal mini-TV studio in them, and in which a very cute miniature newscast is done in the mornings.  Then the TV camera is pointed at - literally - a clock.

This isn't conjecture; my daughter was in that government school until this year, when she moved up to middle school where they still have a traditional clock on the wall and a "squawk box" for announcements (an old-fashioned speaker and PA system) instead of multi-thousand-dollar "smart boards" and Plasma TVs.

In other states which didn't have as much of a fraud-laced housing "boom" (that is now going "boom") they instead "levered up" using risky and ill-advised derivatives entered into with various banks.  Some have already threatened to (or have) defaulted, such as Jefferson County, Alabama.

These "products" were literally sold all over.  I've been tipped on a number of counties and states that have serious problems with these products either in process or pending; what is common to all of them was the jamjob salesmanship by the "big banks" that talked these municipal governments into what amounted to a lose-lose scenario for them.

In one particularly egregious example I have heard of a municipal attorney was hired with their compensation based on the amount of debt issue they reviewed and passed on, thereby creating an instantaneous conflict of interest between the employee and their employer's boss (the taxpayer)!

Then you have the state pension funds, probably the largest issue that is not being paid attention to overall.

These "obligations" are absolutely unsupportable and unsustainable, but until these municipalities cut them back and rationalize them they stand as a very real threat to coupon payments on bond issues.

I believe that Moody's is exactly correct - a surprise, given the "rubber stamp" AAAs they had been handing out over the last few years.

As for Barney Frank?  He's one of the clown-car brigade who thinks that you never have to actually make the money you spend in advance.  One need only look at the Democratic Budget - well over $1 trillion in the hole this year - for evidence of that.

Here's your award Barney: