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alstry (< 20)

America's Cities Going Broke?



March 01, 2008 – Comments (9)

The spreads between Municipal Bond rates and similar treasuries are the widest in US History.

The insurance companies protecting the bonds are now getting a laughable AAA rating from the ratings agencies they pay to rate them.

The City of Vallejo California could soon become the first city in the state's history to declare Chapter 9.

The rising revenues our municipalities became accustomed to spending from rising property taxes, rising impact fees, and rising sales taxes are now imploding.  California's state sales and use tax revenues were DOWN 9.7% in January.

The problem is our country's municipalities were not content with simply their rising revenues, they borrowed trillions against their new found and projected rising revenue streams.  Now with revenues contracting, they may have problems paying back the trillions that are owed on the bonds and the pensions promised to their workers.

If you think this is funny, you may want to contact the city counsil of Vallejo or the hundreds of other city boards around the country watching and waiting to see how this works out.

If you work or have contracts with any state or local in America, be prepared to have those contracts rewritten over the next year.  If it doesn't happen, at least you are prepared.

In the mean time, just watch what happens in Vallejo some perspective.

9 Comments – Post Your Own

#1) On March 01, 2008 at 12:21 PM, bellard (97.53) wrote:

Yo Al;

 I like your posting here on CAPS. You have really diversified away from bashing SPF, and suppling good info and analysis. I will be posting about the credit collapse and solutions soon, and would like your comments.

 Read this muni issue in Alabama. This is the more likely scenario to cities accross the US.....

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#2) On March 01, 2008 at 12:58 PM, ATWDLimited (< 20) wrote:

Yup, states over estimated alright, and now they are going to raise taxes in the middle of a recession, we really are in one if you factor inflation into the GDP growth and wage growth.

What states need to do is, cut their bloated government programs, lower taxes and stimulate the economy so that they can get more net revenue, other wise government becomes a stupid ineffective money drain. In order for them to survive, they really must cut the socialist style BS on pseudo Capitalism on borrowed credit. The government should not operate like a retarded bussiness, wasting resources, borrowing money, raising salaries and expanding when they are not in that position.

What we need is to first slash the government size, eliminate programs, shrink the number of employes, than, they need to clean up, and get rid of wasteful spending on special interest groups. Next stop over regulating business and slapping taxes and laws left and right that make business unappealing in that area or difficult. Fourth, cut the taxes, let the consumers and business have money to expand the economy and increase the tax base. Fifth, allow oil drilling in the US and stop bsing with the environment, so that fuel and energy prices decrease, also allow nuclear plants and coal plants. Sixth create incentives to live in that area, like good work, by promoting lots of commerce. Seventh consolidate the debt and start paying it off with the surplus. And this will allow for more tax cuts, and the keeping of a nice lean, functioning government with little or no debt.


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#3) On March 01, 2008 at 1:25 PM, floridabuilder2 (98.77) wrote:

I suspect we will get another false rally in the spring as the Fed govt has to come up with some intervention for the munis.... this cannot go on.........  I don't mind dumb money recapping ABK, MBI, C or any of the other banks or insurance companies... 1) i don't want economic collapse and 2) it dilutes those companies which helps me still on my ultrashorts...........

this is much worse than S&L and tech meltdowns.... anyone who thinks differently is misinformed.........  I just don't think it will get as bad as the late 70s

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#4) On March 01, 2008 at 6:01 PM, alstry (< 20) wrote:


You say it is much worse than previous meltdowns.  I agree completely.  If you run the numbers, previous meltdowns were not even close.

Yet you say it won't be as bad as the late 70s.

I think I want to start attending the church of FloridaBuilder.


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#5) On March 01, 2008 at 6:03 PM, alstry (< 20) wrote:


My fixation on SPF is directly correlated to the behavior by management.  There is not another management of any publicly traded HB that even comes close.

You will see soon.

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#6) On March 01, 2008 at 6:57 PM, bellard (97.53) wrote:

"You will see soon"

 What will I see? SPF is the same as all the other HB's - they did not pay off their debt when they were making bubble profits. If SPF exec's end up in jail - you will be correct - else you were incorrect.


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#7) On March 01, 2008 at 10:15 PM, alstry (< 20) wrote:


Last year at this time, management said according to their plan, they would not violate the revolver covenants.  Just a couple months later, they were in violation of their covenants.

SPF is not the same of other HBs.  It is very different.  The behavior of this management and board is very different than any other HB by content and degree.

Having conjugal relations with an attractive woman that day she turns 18 is considered an achievement by some.  Doing the same to a girl the day before turning 18 may be considered the same by the same above individual, however the law calls that a felony.

Now SPF talks about having a plan to have the necessary cash to pay off the senior debt payment due October.  However, never have they told you how much of their assets must be sold in order achieve that plan. 

Last year SPF liquidated over a billion dollars worth of assets to pay off about $250 million worth of debt.  This year, do you think SPF's lenders are going to let them sell over a billion dollars worth of assets to simply make a $125 million dollar payment in October? 


On the CC they basically admitted to losing at least $400 million in 2008.  The April's fools day joke may be on SPF's shareholders.  We shall see.


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#8) On March 02, 2008 at 9:41 AM, bellard (97.53) wrote:

"On the CC they basically admitted to losing at least $400 million in 2008."

 Yo Al;

This is not their present intent. HA! I listened to the presentation, and it sounded like SPF was already looking forward to the 140M in cash in Feb 2009. SPF was trying to forecast a 2008 400M loss - but would not commit to it. I found this pathetic also - sounded like they were proud to loss another 400M!  

I think BZH, LEN, KBH, and HOV are all equally pathetic, but your views on SPF in general are solid...You have spent much  time on DD for SPF - the main difference we have is valuation. You will see on my CAPS, I closed out my Green thumb on SPF for a nice gain, and now I am adding HB red thumbs....

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#9) On March 02, 2008 at 10:50 AM, alstry (< 20) wrote:


Who gives their executives millions in bonuses when they are expecting to lose hundreds of millions and are in violation of their revolver?

Unless of course they know they are not going to be around much longer because no lender in their right mind would continue to lend under those circumstances?

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