unable to find the money for essential services.
Last week the city of Vallejo,California became a casualty of the subprime mortgage crisis.As homeowners could not afford the higher interest rates after a reset,the county’s tax base collapsed and the city could no longer pay its police,firemen and other officials.It has declared bankruptcy.
Even with the mortgage crisis the city could have weathered the crisis if it had not been shelling out money for years under an insurance scam perpetrated by the ratings agencies like Fitch,S&P and Moody’s.Essentially, these agencies intentionally gave a lower credit rating to municipalities compared to corporations even though municipalities have taxing authority that brings steady revenues and their default rate is practically zero.Corporations on the other hand have much higher default rates on their bonds.
Yet the agencies have continually rated bonds from municipalities lower than corporate bonds.Not merely that, the bond insurance companies,in cahoots with the rating agencies hit the municipalities for fat fees to rate them again after they took out insurance from the Bond Insurers like Ambac,MBIA etc.That steady stealing of funds from the municipalities continues to this day.
If the municipal issues were valued and rated correctly,not only would local and state governments save money on the premiums but would not have to pay for the “services” of the ratings agencies at all.
I am surprised that other than Barney Frank, no politicians,Republican or Democrat, has raised a stink about it.
We should end this billion dollar windfall for the Insurance companies and get the moneys available for people who are paying taxes to receive services.
There is only one word for this: Daylight Robbery.
