The law “does not appear to us to provide a viable way of responding to that challenge,” Geithner told a House Appropriations subcommittee in Washington today. Among the hurdles: Money from the Troubled Asset Relief Program is reserved for financial companies, he said.
The Treasury chief said he will work with Congress to help states such as California that have been battered by the credit crunch and are struggling to arrange backing for municipal bonds and short-term debt.
The municipal bond markets are “starting to find some new balance and equilibrium,” Geithner said.
Three observations: i) when did "the law" ever stop T^3 before; ii) If by new equilibrium Geithner means 0 then he is right, iii) isn't Barney Frank all over the task of providing US guarantees to munis for ever and ever, after extensive discussions with T3 and Dick Bove have revealed that there really is no other way to prevent the complete collapse of the world's fifth largest economy (which if the miles of empty containers at Long Beach harbor is any indication, then the world must be is in some serious trouble).
Wisconsin Democrat David Obey sums it best "We don’t want Uncle Sam to be Uncle Sucker." Of course, there is nothing that T3 and Barney would like more. Unfortunately for California, it may be too late. While its CDS has tightened recently, nothing fundamentally has changed from the time when its CDS hit well over 450 in late 2008. It is merely a matter of time before the state's risk goes back to those levels again from its current 200bps tighter price.
disclosure: no California CDS exposure.Sphere: Related Content Print this post