The Build American Bonds, (BABs for short) is the next major funding crisis that is about to hit American fiances. The BABs program is currently helping to prop up the funding of the record level deficits of California, Illinois & New York states through program transfer costs. This program provides a discount to funding costs beyond the normal level of tax exempt status the States and Counties and Cities normally have.
This has driven these organizations to issue “taxable” bonds instead of tax exempt bonds. Since Spring 2009, there have been over 2000 BAB’s issued for a face value of $165 Billion through November 2010 data, per the US Treasury. It represented 22% of all Muni issues since the inception of the program. This funding source was rolled out with a short term window of planed existence, which expires in December 2010.
If it is not renewed, there is going to be a crisis in the Muni bond market. The liquidity is not available in the Muni tax exempt markets anymore to handle the level of funding needs that BABs has provided to these government agency’s. When you conceptualize that a larger number of quasi government organizations or projects have been using BABs for projects, it becomes clear this has been one of the only mechanisms that has hired people since the recession started. However, it used supersized pork projects to do it.
The muni market is currently around $3 Trillion in issued debt. It works and while its not the largest bond market in the world, its not the smallest either.
“Increasing state and local funding for capital projects doesn’t just help rebuild our aging infrastructure. It gets American’s back to work. Build America Bonds is an innovative approach to augment the ailing tax-exempt bond market and shows the Administration’s commitment to economic recovery for Main Street.” – Treasury Secretary Tim Geithner, 4/3/2009
The BABs program was providing the *REAL* funding mechanism for the Big Three Democrat States to fill their growing deficits. California is looking at a $20 billion deficit in 2011 alone. That does not include the underfunded counties and cities of California that need to borrow also. That also doesn’t include the multitude of NGO that were using BABs as a funding source.
If the Republicans kill the BABs program, and there is a lot of chatter going on that it is dead. These states will be the poster children for economic upheaval in 2011 and 2012, as we enter the next presidential election.
If the States are cut off from funding, and they can not file Bankrupts due to sovereign issues, we will have a crisis come to a head just before the next election. It appears the Republicans are going to play chicken with the status of the Sovereignty of the individual States in the Union. The idea is that States cant file BK. So if things get to the point they have to file BK, the Republicans can use this issue to slash the status of the employee Unions which provide funding to Democratic candidates.
So, in a nutshell, it appears that that one half of the US Federal Government is trying to crack the Sovereign status of States, so they can attack the financial funding of “Employee Unions “and their impact in elections for the other half of our Government. Build American Bonds, are going to become Bombs used to destroy the very fabric of our society.
If you can bankrupt the biggest three Democratic States in 2011, you will own the 2012 election and with it the control of the US government and its future.