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starbucks4ever (64.43)

Russia is safer than California?



August 09, 2009 – Comments (4)

Apparently so, according to this paper. Moral of the story? The system of state and muni bonds needs a drastic revision, namely, investors should start demanding collateral for their bonds as a way to have some protection against deadbeat governors, deadbeat mayors, and deadbeat movie actors. "The annual cost of protecting holdings in Turkey’s bonds fell by half to $200,000 per $10 million for five years, or 200 basis points, sinking below New York City swaps for two weeks starting July 22, Bloomberg data show. Indonesia debt insurance dropped below Michigan the next day. Brazil swaps just had their biggest four-month slide ever. For China, protection is near the cheapest in a year. Eleven years after Russia defaulted, investors want less to insure its debt than California’s." 

4 Comments – Post Your Own

#1) On August 09, 2009 at 7:15 PM, UltraContrarian (30.33) wrote:

Isn't Russia's comparable debt unsecured as well?  I would think the moral is that California needs a new constitution with strict spending and debt limits.

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#2) On August 09, 2009 at 7:48 PM, starbucks4ever (64.43) wrote:

True enough, and they did default twice, first in 1917, and then in 1998. The difference is that both times it was really an emergency situation (granted, much of it was self-inflicted). On the other hand, California's case is that of super-rich people who can easily pay the debt but just don't want to.

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#3) On August 10, 2009 at 12:51 AM, ChrisGraley (28.58) wrote:

zloj, California has a huge tax revenue base. Much bigger than most other states in the union. Despite the huge amount of money coming in, they still manage to spend more money than they have.

I find it hard to put the blame on the taxpayers for this mess.

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#4) On August 10, 2009 at 2:32 AM, starbucks4ever (64.43) wrote:

I don't share the view that the government of California is collecting some outrageous amount of dollar bills and burning them in a furnace. Of course it spends liberally, but on what? On the various perks for those same fat cats who still manage to complain that they are getting a rough deal. You give Governator $5, he gives you $6. Or you give Governator $10, and he gives you $11. Either way, you have nothing to complain about. But whether it's 5 and 6, or 10 and 11, just make sure to come up with that one missing buck to make the numbers match.

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