Never let it be said that the big municipal bond ratings agencies like, say Moody’s Investor’s Services, have a heart, because they don’t.
While the 1000 year flood of Nashville by the Cumberland River has flown under the radar, it is estimated to have caused over TWO BILLION DOLLARS of damages. Yet the media has paid little attention to this horrific story thanks to the BP oil disaster and Arizona’s racially charged “illegal immigrant” law.
Yet that hasn’t stopped Moody’s from taking notice and kicking Nashville while it is down and out by threatening to downgrade the City’s municpal bond rating because of the flood damage:
A top municipal credit rating agency has put Metro government on watch for a possible rating downgrade, largely because of recent flood damage.
The decision, affecting $1.87 billion in previously issued debt, “is based upon an already narrow financial position, marked by low General Fund reserves and significant tax base damage because of recent flooding which is expected to add further stress to Metro’s finances,” Moody’s Investors Service said in a news release Wednesday.
These are the kinds of statements that make investors look for other places in which to invest their capital. Even the suggestion that Nashville’s bonds might be a bad investment right now can do great harm to a city desperately in need of raising money to rebuild.
This is the same credit ratings firm now under investigation by the SEC for misleading regulators and cooking the books and artificially inflating its ratings of the junk derivatives its good friends at the Wall Street Investment Banks were unloading on unwitting investors who thought they were buying AAA rated safe investments when really they were being defrauded by the Banksters:
NEW YORK — Moody’s Investors Service stock fell sharply Monday following news that the ratings company is being investigated for possibly misleading regulators three years ago. […]
Moody’s rated some of the investments that are at the heart of the SEC’s civil fraud investigation against Goldman Sachs Group Inc., one of the big Wall Street banks that packaged the mortgage-related securities and other complex investments.
Ratings agencies are also facing lawsuits from investors who used the top ratings when they decided to invest in the risky securities.
But hey, business is business, right? Helping out your good friends at Goldman Sachs (who coincidentally give you a lot of business) is quite a bit different from helping out the poor citizens of Nashville who did nothing wrong. And if the City of Nashville has a more difficult time raising money in the bond markets to repair all the damage the flood caused, well them’s the breaks. Shouldn’t have put their City so close to a river that’s never flooded this severely before in recorded history.
Not that this has never happened before. Oh I don’t mean the flood, I mean Moody’s and other credit rating firms screwing over a major city which suffered a devastating catastrophe and making it nearly impossible to raise funds for that city’s recovery efforts. Just ask the good people of New Orleans because the same thing happened to them in 2006:
But there is no set timeline for when the city bond rating will bounce back to investment grade, a step vital to the recovery.
More than 15 months after Hurricane Katrina, Wall Street has yet to restore the city’s rating, which tells investors New Orleans is credit-worthy. […]
With the city bond rating now at junk bond status, cash-strapped New Orleans is unable to sell $260 million in voter-approved bonds.
You know, it strikes me that this is something that BIG Government could do to help cities faced with these disasters. Not provide them the money directly, but insure that their municipal bond ratings won;t plummet because soulless credit analysts working in some cushy Wall Street office decide that the people of a great American cities like New Orleans and Nashville don’t deserve the benefit of the doubt when it comes to rebuilding their ravaged buildings, lives and economies.
A simple bill providing a government guarantee of those bonds would ensure that Nashville could still raise the money it needs to fund its recovery efforts in the marketplace. After bailing out Wall Street by literally handing over the keys to the Federal reserve and US Treasury’s vaults, I think a mere federal guarantee of the credit worthiness of these damaged but resilient American communities is the least we could do.
After all, it won’t cost a penny to give guarantee, and the ability to finance its rebuilding efforts with the bonds paying the lowest interest rates available would go a long way to assisting the citizens of Nashville and other future communities who suffer from natural disasters. It will help provide jobs, make it easier to revive communities in distress after natural disasters and still allow Wall Street to make money.
I bet even Tennessee Republicans might be inclined to support a proposal like this one. Because sometimes the market can makes things worse, not better. Imagine how much further along New Orleans’s recovery would be if the credit ratings services hadn’t made it impossible for them to raise money in the muny bond markets. Let’s not allow that to happen ever again.
