Muni bond insurance industry – on the way back, sort of?

This short Reuters piece summarizes the status of the municipal bond insurance market, which froze up during the financial crisis and shrunk dramatically in its wake. Municipal bond insurance became much less common as a credit enhancement than it had been pre-2008, when it was often purchased by issuers in hopes of better ratings, interest rates and market acceptance for new issues than they would have garnered in their “natural” state. The ecology of the original small community of muni bond insurance firms changed as well in the pivotal period of turmoil, with several exiting and a few new ones springing up in recent years (though not all independently; MAC was established and is owned by Assured Guaranty (http://assuredguaranty.com/investor-information/by-company/mac) or more exactly by some of its parts (http://assuredguaranty.com/about-us/corporate-structure)). As the Reuters article explains, 2013 data suggest the muni insurance industry may be showing signs of a rebound, or at least, a slowed decline.

US municipal bond insurance’s contraction slowed in 2013 (Reuters)

http://www.reuters.com/article/2014/01/17/us-usa-municipals-insurance-idUSBREA0G1LJ20140117

Spring 2014 Course Information and Required Textbooks

Our first class meeting is Tuesday, January 21, 2014 at 5:30pm in Avon Williams Campus Room 213.  This course is a hybrid, which means we will not meet on ground every single week – instead we will have some weeks where we do not meet and instead have online activities (the course as a whole is therefore about 50% on ground, and 50% online).  I will let you know the full schedule of on ground meetings at our first class meeting.  Please note that sometimes rooms are changed at the last minute as enrollment “settles” – if there is a room change the day of the meeting, the folks in the main office where you come in on the 2nd floor should either have the new room posted or be able to tell you.  I will also post signs if that is the case.

BOOK 1 OF 2:  MIKESELL – For this Fall 2013 I am requiring the 8th edition of Mikesell’s Fiscal Administration as the core textbook for PADM 6230 and the 2nd edition of the Baker workbook (details below).  It is critical that you have your texts within 1 week after the start of the semester so that you do not fall behind, and preferably you will have them at the start.  I will not accept not having the textbook as a rationale for any late work or falling behind; textbooks are an essential input to graduate education and make up part of its costs.  The editions DO matter.  Do not buy a different edition, or all page numbers, some cases and many questions/problems will be incorrect, and much content will be different as well. International editions may also be different. Given the nature of public finance, the textbooks do age out and much material changes between editions.  If you want to know more, including a variety of options for accessing the primary text at a lower cost, read on.

Fiscal Administration, 8th Edition
John Mikesell – Indiana University, Bloomington
ISBN-10: 0495795828  ISBN-13: 9780495795827
736 Pages  2011

Bad news:  The publisher’s price of the book is expensive, $269 at the publisher’s website  as of today 7-25-2013.  Good news:  you have a variety of ways to obtain the eighth edition, many of which are at lower prices – especially if you plan ahead:

  • Buy a hardcopy from the bookstore (Avon Williams Campus (615) 963-7221hours)
  • Buy a hardcopy online (I recommend NOT buying the hardcopy direct from the publisher because I think you can do better than the list price); you can try any supplier such as Bigwords.com (really a price comparison engine); Half.com; Amazon.com; etc.  On 1-13-2014 I found copies of this edition for sale in the neighborhood of $80 at resellers and for rental as low as about $30.
  • Rent electronic access to the eBook for under half the list price directly from the publisher’s website ; it appears you can do this either all at once or even a chapter at a time (we will not use all the chapters in the book).  It is fine with me if you choose to try the electronic option; however please be aware that I cannot resolve technical issues with this service for students, and will not accept such issues as excuses for late work.  I use an electronic edition on my iPad and it works acceptably, though not as well as a print version.
  • Rent a hardcopy of the book directly from the publisher’s website
  • Find out if you can rent the book from our bookstore:  Our campus bookstore rents some but not all textbooks, though for details on that you will have to ask them directly (contact the AWC bookstore at (615) 963-7221 because they are the ones who carry the books for our department). I do not know how the price of a rental from the bookstore will compare to the rental price from the publisher, you will have to investigate this for yourself.

Why am I requiring purchase of this edition, and why am I using an expensive book? I used to let people buy various old editions but that has become a major hindrance to both instruction and learning because despite my early advice to check on assignments etc., people wait till the last minute and then realize their old edition is quite different.  I can’t keep up with all different versions students may purchase, and I can’t legally give you photocopies of the textbook.  So since the eBook version is available now, and even by chapters, as well as rental (offering a variety of ways to access this admittedly expensive text), I require that people gain access to the 8th version to ensure a consistent learning experience.  This text is the “industry standard” – there is no other one that even comes close, and therefore I insist upon it.  It is not unusual that texts with a lot of tables, formulas, and charts cost more than others, and that is the case with this one as well; any of you with a science background will have encountered this before.  Unfortunately or fortunately, depending on your perspective, tables, formulas, and charts turn out to be rather important for our subject matter in this course.  For any student planning a public sector career particularly in the finance/budgeting/taxation side, I highly recommend investing in your own hardcopy and keeping it as a reference for your professional work.

BOOK 2 OF 2:  BAKER WORKBOOK – The other core book is Baker’s workbook (2nd edition), Government Budgeting  (scroll down to see the book on the publisher’s page!).  It is inexpensive, about $18 plus shipping if you buy online.  Your choices for obtaining this book are to get it from the bookstore or to buy direct  from the publisher for $22 (scroll down to find it on the publisher’s page).

Governmental Budgeting Workbook – 2nd edition
By David L. Baker 
California State University, San Bernardino 
ISBN: 978-0-9724419-7-1
Published March 2011

Update on Fed budgeting “process”; stop-gap but on way to a wider agreement

Congress to Pass Three-Day Spending Bill To Avoid Shutdown – Management – GovExec.com

http://www.govexec.com/management/2014/01/congress-pass-three-day-spending-bill-avoid-shutdown/76667/

Are we arriving at the main event?

As part of a survey response used in this online article this summer, I wrote “…Disturbingly, we are beginning to look like a society that cannot predictably execute the routines of governing – and that does not engender faith in our economy. As long as ours seems to be in marginally better shape than others, we get by. Should we reach a point where that is no longer the case, the absence of commitment to do the work of government will be less of an embarrassing sideshow and more of an alarming main event. Budgeting is a foundational aspect of government, regardless of how minimal a state you prefer.”  If policymakers on both sides fail to find a way to work together, enough to raise the debt ceiling, we will indeed be at the main event.  The Wall Street Journal discusses why the debt ceiling is of greater concern to investors than the shutdown.  The Economist provides a perspective from across the pond.  So does the Financial Times with an update on the market response and how banks are preparing for the possibility of a default.

Rating agency Standard & Poors’ press release (10/2/2013) summarizes their estimate of the impact of the ongoing shutdown on the economy and points out the potential impact of the lack of federally-produced economic data on the Fed’s decision-making and their own ability to analyze the situation.  Their July 10 2013 analysis of US sovereign creditworthiness makes very useful reading – I commend it to you even though we have not gotten to the part of the class that deals with debt and ratings.  S&P report that their rating takes into account the risk that political ability to make progress on “fiscal consolidation” (i.e., reducing the structural imbalance between Federal spending and revenues, whether by expenditure policy changes, tax policy changes, or a combination) will continue to be limited due to Washington gridlock in a divided government:

The stable outlook indicates our view that some of the downside risks to our ‘AA+’ rating on the U.S. have receded to the point that the likelihood that we will lower the rating in the near term is less than one in three. We do not see material risks to our favorable view of the flexibility and efficacy of U.S. monetary policy. We believe the U.S. economic performance will match or exceed its peers’ in the coming years. We forecast that the external position of the U.S. on a flow basis will not deteriorate.

However, that is certainly not the same as saying that the government could default on its debt with impunity due to this gridlock; the next paragraph of the Outlook section continues:  

We believe that our current ‘AA+’ rating already factors in a lesser ability of U.S. elected officials to react swiftly and effectively to public finance pressures over the longer term in comparison with officials of some more highly rated sovereigns and we expect repeated divisive debates over raising the debt ceiling. We expect these debates, however, to conclude without provoking a sharp discontinuous cut in current expenditure or in debt service. [emphasis added] We see some risks that the recent improved fiscal performance, due in part to cyclical and to one-off factors, could lead to complacency. A deliberate relaxation of fiscal policy without countervailing measures to address the nation’s longer-term fiscal challenges could place renewed downward pressure on the rating.

At the end of the rating report you can see the rating history – S&P downgraded the unsolicited US sovereign debt rating in summer 2011 in response to the last episode of debt ceiling brinkmanship and ongoing inability to work productively on fiscal consolidation.

Another backgrounder on the #shutdown, the legal controls on its implementation

Here’s another interesting backgrounder on the shutdown, this time on the Antideficiency Act which governs how the shutdown takes place.

The Odd Story of the Law That Dictates How Government Shutdowns Work

A shutdown would end up costing more because of the price of restarting the government — and other strange facts about the late-1800s Antideficiency Act.

 

Last one out, turn off the lights

The federal government is approaching a shutdown, continuing a pattern of brinkmanship as every new deadline approaches – rather than disciplined and regularized budget process observance.  Even should we make it past this turn of the fiscal year without a shutdown (unlikely) the symbolic raising of the debt limit deadline is just around the corner.  We are currently operating in the “sequester” which I discussed in a previous semester.  As you observe events unfolding in these unusual budgetary times, make an effort to get past ideological shortcuts and take an analytical perspective based on your learning in the MPA program.

Observing the executive and legislative branches’ behavior and gamesmanship in recent years makes the detailed budget processes covered in the textbook appear meaningless.  Nevertheless, the players in this drama (and it is depressingly dramatic; boring routine in fiscal matters would be a refreshing relief, and would be better received by the markets) are quite aware of the institutional rules which they can manipulate to force confrontation; those rules are grounded in budgetary and fiscal legislation.

Quartz.com (an Atlantic Monthly property, also publishes Government Executive) addresses “Who will notice a US government shutdown” – the metaphor of ice freezing through the economy over time as a shutdown persists is particularly apt.  The New York Times bemoans the fact that the shutdown 17 years ago appears to have left little impression on the Congress of today – “Last shutdown a lesson lost on Capitol Hill”  The Wall Street Journal summarizes recent events leading up to the shutdown.

The intergovernmental impact of a shutdown is substantial.  Governors respectfully request that Congressional leadership not slam on the brakes, in a letter at the National Governors Association; note the emphasis on the value of predictability.   The nations’ mayors oppose a shutdown as well.  The National Conference of State Legislatures provides a location for updates on the impact of the shutdown.

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