Crank Up the Casino! Wall Street's Newest Ploy to Gorge on America's Economic Suffering

[Donnachaidh]

http://www.alternet.org/story/149865/crank_up_the_casino!_wall_street%27s_newest_ploy_to_gorge_on_america%27s_economic_suffering/


Wednesday, Washington’s lawmakers began hearings on the massive fiscal problems the Great Recession dumped on American states and cities. The looming possibility of municipal defaults, which some say could total hundreds of billions of dollars, is causing grave concern. Hedge funds are also deeply concerned about America’s municipal debt crisis. They worry about how to best profit from it.

The Wizards of Wall Street have looked over the catastrophe of cash-strapped America and found it good for business. In their corporate laboratories, they are working furiously to whip up wondrous new financial products that will allow them to reap millions from misery. You might think that after plunging the country into said Recession with their fancy financial products, these Wizards might feel a little indelicate about gearing up for a game of shorting a community near you. Clearly you don’t know Wall Street. The Financial Times reports that once-boring muni bonds are suddenly sexy:

For decades, this $3,000bn bond market was safe, predictable and dull. The traditional buyers of the bonds issued by states, cities and other local bodies were wealthy local residents lured to them by the tax breaks on offer for individual investors. They bought the bonds, held them until they matured and then bought more. Not now. State deficits have ballooned, local authorities are grappling with huge public sector pension liabilities and triple A bond insurance that used to prop up even the riskier municipal bonds is harder to find. The mounting concern over “munis” has brought with it hedge funds and financial institutions who want to bet on the bonds’ creditworthiness, or make money on the back of volatile “spreads” — the premiums at which munis trade relative to benchmark debt.

So much suffering. So many ways to squeeze money from it. The FT quotes the head of municipals at Arbor Research and Trading, who sums up the current hedge fund frenzy building: “There is a lot of blood in the water in the municipal space. Hedge funds smell that blood and are trying to figure out the best way to make money in the marketplace.”

More at the link --

[paparush]

1. As a County Employee, I can confirm this...

Months ago, Dept heads were told to prepare prospective budgets for FY2012 reflecting a 3%, 5%, and 7% reduction in spending. Last week, the Board, realizing that even at a 7% reduction, the county would be short, adopted a 10% reduction. We immediately lost 3 positions in my department (IT). 3 souls let go. Their positions permanently eliminated.

Our governor, Bev Perdue, recently released a perky YouTube video extolling the great news that NC is only $2.7B in the red, not $3.7B as was originally thought.