Hate to interrupt your election-watching but this is particularly relevant, since one of the effects of a GOP Congress will be the inability to bail out the states like California…
Meredith Whitney is out with a new op-ed in the WSJ declaring that the state bailouts have actually already begun.
What this panel and so many other investors fail to appreciate is that state bailouts have already begun. Over 20% of California’s debt issuance during 2009 and over 30% of its debt issuance in 2010 to date has been subsidized by the federal government in a program known as Build America Bonds. Under the program, the U.S. Treasury covers 35% of the interest paid by the bonds. Arguably, without this program the interest cost of bonds for some states would have reached prohibitive levels.
California is not alone: Over 30% of Illinois’s debt and over 40% of Nevada’s debt issued since 2009 has also been subsidized with these bonds. These states might have already reached some type of tipping point had the federal program not been in place.