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They Did What?

Courtesy of Bruce Krasting

According to a number of news stories the Build America Bond program is dead. It is possible that some last minute deal will be made for BABs, but time is running out and there does not appear to be sufficient support. This from a Reuters story:

Congressional Republicans will block any inclusion of Build America Bonds.

“We have a very firm line on BABs — we are not going to allow them to be included,” a congressional Republican aide said.

I wrote a few articles over the past few months on BABs. My articles always trashed the program. It is just a subsidy that hides weakness. I hate things that go in that direction.

I did all that writing because I was absolutely convinced that BABs would be extended. There were dozens of lobbyists all over this. Wall Street’s white spats crowd spent big bucks to get this kicked down the road. Big states like California, New York, Texas and Illinois were pushing their legislators hard.

It wasn’t the political muscle that lead me to believe that BABs would be extended. I saw it as a critical component in municipal finance. If it was eliminated I thought we could quickly evolve into a crisis with certain states debt. I was by no means alone in that observation. This comment from the rag for the muni market, The Bond Buyer:

If the Build America Bond program expires at the end of this year, long-term tax-exempt bonds could lose their latest pillar of support.

Parts of me want to be proved right about the significance of this development. I am one of those who thinks there is too much debt creation at the governmental level. Well, it just got more difficult for munis to borrow. By itself, that will curb debt creation.

There is another part of me that is saying “gulp”. By definition, you do not see a black swan in advance. I did not see this at all. I don’t count, but the market does. If you follow markets you now have to have a screen for muni pricing. As this sorts out over the next 60 to 90 days the muni market might drive the global markets.

I’m thinking to myself, “How could they have blundered on this?” They extend the Bush cuts for everyone. They tack on another 120b of deficit spending with a cut in SS taxes. And they throw in another year of unemployment checks. They threw the sink at the economy at the sake of the deficit. But they failed to pass BABs? Knuckle heads. If there is a hiccup that takes a big state out of the market for a spell it will trump the economic benefits of all the new deficit spending. It might do it a few times over.

Links to my prior posts on BABs:
Here, here and here


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