No need to ask why
Via Bloomberg (emphasis mine):
Almost a year after the Federal Reserve began to cut its target rate for overnight loans between banks to 2 percent from 5.25 percent, borrowing costs for states, cities, hospitals and municipal authorities are going in the opposite direction.
The $2.66 trillion municipal debt market is reeling from a series of jolts springing from a decline in the creditworthiness of insurers that once backed half of all securities sold at the same time the economy teeters on the edge of a recession, eroding tax revenue.
When it’s being noted that borrowing costs are going up because of the insurers’ creditworthiness, you can be fairly certain that the fortitude of the actual borrowers is already in the tank.
- The Illinois governor proposes putting speed cameras on interstates to pay for Chicago police reinforcements;
- Detroit’s mayor is put in jail after trying to sell a tunnel to the Canadians;
- New York’s governor is begging in…Washington.
Only Arnold Schwarzenegger seems to have a clue – cut pay and lay off workers, and veto every spending bill that crosses the desk, until a realistic budget is finalized. Of course, he’ll have to get past the whining state workers’ union and ancient payroll system technology (in the heart of the information technology center of the universe no less) for his hard-nosed tactics to work.
Nevertheless, there’ll be no borrowing without usury for state and local governments. Considering that the institutions having been riding the gravy train, on the backs of bond ratings propped up by bogus “insurance”, that’s probably the way it should have been all along.