Are Rating Agencies Now Trying to Mug Rich Municipalities?

A savvy and cynical reader sent me this story from the Boston Globe yesterday, “Rating agency downbeat on Mass. communities.” We wanted to show readers that we are not merely after Standard & Poor’s but all sorts of rating agency incompetence and socially destructive behavior. Key extracts:

Moody’s Investors Service has assigned a “negative outlook’’ to the credit ratings of a dozen affluent Massachusetts communities and two regional school districts, in an ominous sign of how the national debt crisis and economy woes threaten the financial health of cities and towns.

The communities, which ranked among the state’s wealthiest, maintained their sterling AAA credit ratings for now, but Moody’s said it would be carefully watching them for signs they should be downgraded, signs like a sharply deteriorating national economy or a downgrade in the federal debt.

The Moody’s review, which put five states and 161 AAA-rated local governments on the negative-outlook watch list, found that Massachusetts was second only to Virginia in the number of communities at risk, largely because both states’ economies are highly dependent on federal spending….

“We’re obviously very concerned about it,’’ said Brookline’s town administrator, Melvin Kleckner.

Other communities that received a negative outlook are Acton, Bedford, Belmont, Concord, Dover, Hingham, Lexington, Newton, Wayland, Wellesley, and Weston.

Now this might sound perfectly sensible until you sit back and think a second.

First, I don’t know all these communities, but I lived in Boston eight years (including first and second grade in Newton Center), and I am pretty confident that the economies of Belmont, Brookline, Newton, Wellesley and Weston are not at all dependent on federal spending, and I suspect that applies to some of the other municipalities on the list. In addition, they are the most affluent communities in the state and among the wealthiest communities in the US. They are likely to hold up well if and when the downturn resumes (after all, they were not badly whacked by the crisis).

Second, the Massachusetts economy has done better than the national average.

Third, if you are gonna put communities on downgrade watch, why are you starting with the strongest ones? You start with the weakest ones. Not only is it true in economies (and in other systems) that the most fragile ones fall over first, in bond markets, the spreads of the riskiest instruments blow out first, and the highest rated credits move later, and not as much. So if the rating agencies were following their usual pattern of validating market action rather than leading it, Moody’s again would focus on the most troubled towns. Some do have serious financial issues and do deserve heightened scrutiny.

My friend’s surmise:

I consider this to be extremely weird behavior. They don’t downgrade them, but they send up a flare. My suspicion is that the agencies are going under the radar into the states (where the national press won’t notice) and stirring up panic, with the obvious aim of bolstering support for budget cuts.

This may sound a tad paranoid, but as Thomas Pynchon says, just because you are paranoid does not mean they are not out to get you. Affluent communities have a lot of investors, including muni investors, who may lose personally if local bonds are downgraded. And in general, people in very affluent communities are much more active and influential politically than most citizens. So this threatened action hits individuals who have a disproportionately large voice in politics and the media. Nicely done.

Consistent with this alert, S&P follows through tonight with its own muni gloomster talk, again threatening local communities with downgrades if the US does not enact the strongest form of budget cuts. And we get similar scare-mongering generalizations: ” “We know the states that are reliant on the federal government, we know the locals that are reliant on the federal government.” That is true in quite a few cases, but it certainly is not true across the board, and is least true in the most affluent communities.

I’d love any reader reports on which communities in Virginia were threatened with ratings actions and whether any other wealthy communities in the US have been put on notice. And if your town has been given an alert, do you buy the link to the Federal downgrade? Does the local economy as having meaningful dependence on Federal funding?

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  1. propertius

    Why shouldn’t they try to mug mere municipalities? After all, they just succeeded in blackmailing the US Government. After a success like that, they can hardly be expected to quail before the awesome might of an outraged Newton.

  2. Foppe

    Affluent communities have a lot of investors, including muni investors, who may lose personally if local bonds are downgraded. And in general, people in very affluent communities are much more active and influential politically than most citizens. So this threatened action hits individuals who have a disproportionately large voice in politics and the media. Nicely done.

    Sorry, but I’m still confused. Why is this to their advantage/what are they hoping to do?

    1. Yves Smith Post author

      It is another route for keeping the austerian fearmongering high. It is also probable that high quality munis are held disproprtionately in those same communities. So a downgrade threat is a double whammy: it raises local funding costs when they next go to market, and it hits the portfolios of some of the locals (munis are exempt from Federal income taxes, and State in the same state, so they are held by individuals, and a lot of investors prefer holding names they know personally).

        1. Yves Smith Post author

          Jane Hamsher detailed the thesis at FireDogLake, this is to show the authorities who has the upper hand and beat back efforts to regulate. The timeline of S&P getting aggressive is awfully sus. This is her most recent post, it has links to the older ones.

          A second motivation (for S&P) is that it has strong ties to the “privatize Social Security” crowd. McGraw Hill chairman and CEO Terry MeCraw is also Chairman of the Business Roundtable, which has set privatizing Social Security as one of its goals.

  3. james m

    I did a year at S&P muni, almost 5 yrs ago now. S&P cannot extract value directly from what it does with ratings, but it Does work into fairly complex schemes where value is extracted by others. These other entities may or may not be connected to McGraw-Hill. In the current near zero regulation environment, schemes can get wicked elaborate.

    I think putting pressure on rich cities is done to set a trap for stressed cities, probably in other states. It was explained to me by an analysts how he thought it could one day work out.

    Cities are blue, states are red. It’s assumed in writing paper that cities and states have co-aligned interests. A state prospers if it’s cities prosper. A state has, in many ways, a part of a city’s bond. If a red state ledge/gov pulls back,it can expose,.. ‘attack’ the blue city. How do you loot a city? By taking control of it’s assets, that stadium, hospital, parklands. The state has a say in who is allowed to purchase/control those things.

    It’s kinda murky/muddy, but that’s the deal, drop the bond ratings, take political control of the city by several means, loot it for Parking fees, police fines, buildings, property, fee collection and administration. A whole lot of people see cities as giant insitutional piggybanks waiting to be cracked open.

    1. Max424

      Sounds like a case of the big fishies swallowing the little fishies.

      Let’s see; the states eat their hollowed out cities, the FedGov eats their broken states, the Too Big to Fails, the Corpo/Conglomerates, and the MIC gobble up the dying FedGov; then Big Red China moves in, and it swallows the remaining bloated entity whole.

    2. grandiosity

      So the ratings agencies are participating in some kind of control fraud? Again, what’s in it for them – besides jail time if someone intercepts the smoke signals?

      1. alex

        “jail time if someone intercepts the smoke signals”

        Jail time for financial crimes? What a quaint notion.

        Speaking of risks, there’s a greater chance of sodomy laws being enforced against a heterosexual couple that’s a major campaign contributor.

  4. psychohistorian


    It is nice to see you connecting these dots. What might be going on here?

    We need to laugh the global inherited rich and their Rovian cabal orchestrating this Shock Doctrine event out of control of our society……

    And into the dock at the Hague.

  5. thelonegunman

    The entire crisis was a concoction of collusion between the banksters, hedge funds, and rating agencies…. This ‘mugging’ – short sellers arrive, followed by a ‘rethink’ and eventual downgrade by the rating agencies, followed by more downward pressure on debt… It happened in Iceland, Greece, Ireland… Everywhere, in fact, where governments stepped in and bailed out these very institutions now are intent upon downgrading and profiteering from the debt ‘troubles’ (remember WHY the became saddled with all this debt) these same governments…

    ‘good’ to see that collusion remains… The trouble is: when will someone stand up, point it out, and bring a halt to it???

  6. NYT

    I know this is Moody’s but why didn’t S&P downgrade all long term U.S. AAA bonds (including munis) when they downgraded U.S. government bonds.

    U.S. government bonds have the strongest possible legal guarantees (14th Amendment) and they are all denominated in a currency controlled by the U.S. So the only risk is inflation risk. Any inflation risk borne by holders of long term U.S. government bonds is automatically also borne by any holders of similar duration – right?

    1. Yves Smith Post author

      Perhaps a multinational company or wealthy stable enclaves should still have an AAA. Or anyone with good annuity income sources.

      But the bigger issue is the one your raise re inflation. S&P is supposed to be making a credit rating, period. The efforts by defenders to say (effectively) that it is an inflation rating is bunk. Investors look at credit and inflation risk separately. Not only has S&P never been in the inflation risk business (it has NO expertise) it did not downgrade the US when we had actual high inflation in the 1970s.

      1. NYT

        Well my point (not well stated) was, if S&P want to include inflation risk as a factor then there is a certain logic to it.
        But if you follow that logic, then you must downgrade all US denominated debt, of similar duration, to (at best) the same level.
        It makes no sense for even the most conservatively financed, high income municipality to have AAA from S&P. Because the default risk is higher (municipalities dont have a dollar printing press), political risk is higher (the U.S. constitution is the highest law and specifically states that debts of the U.S. government, not municipalities) shall not be questioned.
        And as for the remaining risk, inflation (or currency risk if you want to put it like that), you are in the same position with your muni bonds. No matter what, the best you will get is your coupon and principal back. The muni will not compensate you for inflation risk.

        So I really see no logic at all in S&Ps position

  7. Woodrow

    Any wonder why Rating Agencies shouldn’t have any credibility? This piece exacerbates why.

    “Acton, Bedford, Belmont, Concord, Dover, Hingham, Lexington, Newton, Wayland, Wellesley, and Weston”

    Those cities and towns are some of the wealthiest in The Commonwealth, in Bedford’s case, it even has an ex-military base turned federal/civilian (Hanscom A.F.B.) with high tech research built in.

    Now, if the list stated something like: Fall River, Springfield, Haverhill, Brockton, Lowell and the best out of the lot, Lawrence whose operating expenses is 80% paid by citizens who don’t live there, and 100% of their school budget subsidized outside the District, then there might be some actual credibility, but there is none.

    One would also have to destroy out college and university economy, medical and tech industry to even put a dent here, no small task. However, according to David Draine of The Pew Center, who I’ve been in contact with, the public sector still hasn’t recovered, leaving public pensions 12% contribution rates (aka Ponzi) and post-employment health care underfunded in the billions. There was no mention of that in The Boston Globe article.

    From a resident perspective, city and town officials are not even debating property taxes, in some cases they’re automatically building the maximum 2.5% tax into budgets (see Haverhill, MA). The Ponzi will go on here in The Commonwealth, but it won’t be through S&P, we’re doing quite well in that area on our own.

  8. pj

    The ratings agency’s are just trying to get their piece of the pie.

    They threaten the healthiest communities with a downgrade because the healthiest communities can afford the vig to avoid a downgrade.

    Think like criminals, people. It’s the only way to survive and understand what’s happening.

  9. ptuomov

    The mentioned MA communities (Weston, Wellesley, etc.) live and die by the stock market, not by federal spending. So I would put them on a credit watch negative list, but not because of the US fed spending or the US fed downgrade. I would do that because of the euro implosion and the effect it’s having on the global stock market.


    1. Yves Smith Post author

      But S&P has never downgraded based on the stock market, and only diehard realists think the stock market is going south in a serious way. Remember, those downgrades are gonna lead to more budget discipline and help the economy and confidence, right?

  10. Jim Haygood

    Meanwhile, in what might be regarded as a mirror image to derating Boston’s leafy carriage-trade suburbs, France continues to carry a unanimous triple-A imprimatur from the agencies, despite a massive vote of no confidence in the Credit Default Swaps market.

    Even the shaky New York Times-Titanic is losing faith in the red-white-and-blue tricolor:

    The annual cost to insure $10 million in French government debt against default jumped to a record $175,000 on Wednesday, up from only $100,000 three weeks ago. The cost also hit records for Société Générale and BNP Paribas.

    French banks are among the most exposed to Greek, Spanish and Italian debt, and they also hold huge amounts of French sovereign debt.

    Société Générale, a globally interconnected bank that the French government regards as too big to fail, moved closer to the eye of the storm recently. It has significant exposure to Greece through a retail subsidiary there, and it holds vast sums of troubled debt from small and large European economies.

    CDS and yield spreads constitute two market-based (though potentially distorted) alternatives to rating agencies’ lack of objectivity.

    I would bet that a credit model which gives equal weighting to ratings, yield spreads and CDS (where available) would outperform ratings alone, particularly in timeliness.

    Presumably hedge fund rocket scientists are already doing this. But if it makes money, it’s held proprietary. So the unwashed general public is left to feed on rating agency swill. As Elvis used to sing, Don’t be gruel!

  11. Moneta

    When Canada was in trouble in the 90s, politicians were only too happy to use S&P’s views on our debt to make us accept the cuts.

    IMO, the US downgrade was proof that they were going to go backwards. And the rates being kept low for another 2 years only guarantees entitlement and pension cuts in the near future.

    The wild card is potential rioting moving to North America.

    1. LeeAnne

      but, they have that covered, too. Martial law, FEMA holding facilities, secret lists, TSA goons above the law, unhampered police with military occupation mentality … they’re ready, even eager.

      1. LeeAnne

        correction: TSA goons unhampered. Police are well trained in comparison, and although coarsened and not to be trusted, are still for the most part acting within the law.

        Confronted by a TSA agent and ordered to put your hands up for a search in any venue, you have no rights.

    2. Paul in TO

      Except, of course, the result was that Canada got its house in order, which is benefitting Canadians today. I certainly see how the situation is different — Canada retrenched when the rest of the world was growing — but I don’t see how this fact can be used to fuel the kind of conspiracy-mongering that’s taking over this site.

      As to the overall piece, for information purposes only, you don’t review your existing credit assessment only by starting with the weakest credits, especially when the trigger event is the downgrade of a AAA. The downgrade of the US to AA+ has no impact on lower-rated credits, only on those at the very high end of the spectrum. That’s not complicated. You may actually have insight into the reliance on the US credit rating community-by-community that I don’t have, but ortherwise this doesn’t seem to provide much of value.

      1. Moneta

        That’s what everyone has been led to believe but the reality is that they dumped the responsibility on provinces which themselves dumped it on municipalities… ten years ago MegaCities were created. the little towns making Metro Montreal were merged to create a huge tax grab. They did this to Toronto, Ottawa and other metro areas. These are grossly mismamanged, the cracks are startng to show fraud and corruption.

        The only thing keeping the ponzi up is real estate. When house prices start to drop, hold onto your hat!

        1. Moneta

          Conspiray theory or not, the risk in the system is mispriced across all asset classes. It does no even matter if they start with the high or low quality ratings, they’ll all go through the wringer at one point or another.

          When I have to clean up a huge mess, I usually start with the large and/or most valuable stuff. S&P’s downgrades and methods show us how large the mess really is.

          GDP is currently too low relative to market valuations adn entitlements… So either we cut valuations or boost GDP.

          If some genius has an easy solution, let’s hear it!

        2. Paul in TO

          All government is grossly mismanaged and every place where you choose to pile up money is going to quickly be corrupted. That goes for the UN, supra-nationals, all levels of government or amongst the banks. To think otherwise is to ignore reality.

          I agree that Canada could topple as easily as others, especially in the area of real estate, but to deny that Canada’s TOTAL debt picture is better today than what would have been the case is a bit baffling.

          “Ponzi scheme” is the term of the era, but all borrowing isn’t a ponzi scheme. All debt is paid back from future income and refinancing that debt through future borrowing is legitimate. That doesn’t describe a ponzi scheme, although it is always desirable to understand how cash flows are being managed in order to avoid falling prey to such a scheme.

          1. David

            Well I’m old-fashioned, but I like to think that any debt you don’t have definite and near-term plans to extinguish is too much. Like credit cards that you pay off at the end of the month. Even student loans that last a long time are iffy, unless you’re in a nice high-paid field. That’s my personal opinion.

            I’m stuck with a mortgage that isn’t in that category, but that’s my failure. And it’s all of our misfortune that we’re in a bubble economy where, due to credit, people cannot afford their normal consumption and feel that it’s normal to get in over their heads like that.

          2. Moneta

            First of all, Canada’s debt picture might look great but it has been photoshopped. Canada’s debt situation is just as bad as anyone else’s. We look somewhat better right now because our real estate has not gone down yet and our CPP is much less generous, etc.

            Secondly, if Martin had not been able to create the illusion of a well managed country, Harper would not have been able to introduce his bailouts and use deficits to stimulate the economy after the crisis… and households might not have been able to borrow as much as they have. Therefore, IMO, the debt situation would probably be identical today because national debt is a dance where no one wants to be too fast or nor too slow.

            Most of Martin’s work was done thanks to GDP growth as well as dumping onto provinces and municipalities. He put a lot of stuff on hold. Infrastructure is just one example. The helicopters and army are probably another. Instead of maintaining in due time when resources were much cheaper, we waited until our bridges started falling down and highways collapsing. IMO, most of the savings that Martin, if any were really accomplished, will end up costing us much more in the next decade. A stitch in time saves nine?

            Cdn households were in good shape for a while thanks to his strategy but they quickly caught up in the last 5 years and we now have more debt than US households had at the peak.

            I used the word ponzi because:

            1. I believe many Canadians will default when real estate finally weakens
            2. Our system is based on a population pyramid but due to the boomer bulge, we don’t have a proper shaped pyramid to sustain the growth over the next decade. Therefore we’ll be needing either write-offs or inflation.

            Anyway, I’ll stop here as only time will tell if I am right or not.

          3. Tim

            The real forgetten policy in terms of the debt picture in Canada was the introduction of the GST back in 1991. Something that would opposed by both sides in the US political context(I suspect though presently much more by Republicans) and something that is still quite controversial in much of Canada especially in BC and the west but less so in the Maritime provinces and Ontario. I believe during the first fifteen years of the GST revenues grew threefold from 11 Billion CAD to over 33 Billion CAD.

      2. Yves Smith Post author

        Also, the Canadian dollar tanked and Canada benefitted big time from exports to the US, the US economy was strong then. Nothing similar operative for the US now.

      3. Doug Terpstra

        What fuels the “conspiracy-mongering that’s taking over this site”?

        The circumstantial evidenceis rather damning, including what they have not done. First read the eye-opening FDL link. Then consider “Standard & Poor’s said Monday that its downgrade of the U.S. government’s credit rating last week won’t impact the credit of U.S. banks.” (the banks they pimped RMBS for).

        They haven’t downgrade France from AAA either, even though French public debt is higher than US as a percentage of GDP (and they can’t print money). Only only Federal Home Loan Banks, along with Fannie and Freddie, were downgraded in conjunction with the US.

        Then consider the inordinate validation these discredited credit rating agencies are given on MSM and by politicos of both parties on the Sunday talk-show circuses. Not bad for unindicted felons.

        Yup, the cat food conspiracy is so well hidden in plain sight that folks dismiss the obvious as foil hat speculation. More hysterical blindness; are you going to believe them or your own lying eyes?

        In related news, by sheer coincidence, the “liberals” that Reid appointed to the cat food super-politburo, the ones too-loudly protested by the GOP, just happen to be from safe districts and from states with large bankster/finance interests and/or defense contractors.

        Can we just capitulate now, turn over SS to Wall Street and save all the expense and energy of a drawn-out public charade? Why even turn on the theater limelights?

  12. Paul Tioxon

    This sounds suspiciously like the universal default clause of consumer credit cards. Your CC increases your interest rate, fees, goody goody rewards points are lost or revoked, if you are 30 days late for SOME OTHER CREDIT OBLIGATION, like a cell phone bill, a dental payment. Any problem is everyone’s problem, and is used as a pretext for downgrading you in their eyes, even if you have been a perfect customer for them. So, if the whole world is going to hell in a handbasket, and you are in the world, even if you are fenced off behind the walls of a gated community by affluence or actual barriers, you too will suffer the same fate that drags down the world, that you depend on for your livelihood. It’s amazing how quickly the ratings agencies adopt systems analysis when it comes to juicing up the returns for their clients who lend to the public.

    1. David

      Thinking randomly here … these wealthy communities have an alternative. They could decide not to refurbish the town library and spend less on 4th of July fireworks, and they could start paying down those bonds so they don’t have to roll them over at the new higher rates. Whereas less wealthy communities are stuck with their bonds regardless.

      So the effect of this action might be economic and monetary contraction. The wealthy pull in their horns and take their money out of the market. That’s what I would do if I were in those shoes.

  13. Dikaios Logos

    These communities tend to have higher taxes and higher spending and much more effective local services than most. I could imagine the taxes and spending irk the folks at the rating agencies, though I wounder if those folks are evil or stupid.

    I also wonder about the fact that they have picked on Virginia and Massachusetts. Both states have very unique local governments, especially Virginia with its independent cities. Again, I would not be sure the impact of these agencies judgements would be more from evil or stupidity.

    1. David

      Do these affluent communities really have higher spending? Maybe that’s true if one restricts the statment to spending supported by bonds. But remedial education, inner city education, bilingual education etc. is known to be very expensive and are not particularly big issues in the wealthiest communities; police costs are probably relatively low in these towns where not much violent crime happens, etc.

      1. Dikaios Logos

        My experience is that any well-off community really values blue chip services and is usually quite willing to pay for them. Life in one of the places is pretty good because of that. Top schools is one cost, but so are better roads, recreation and parks, snow plows(very important in MA!), libraries, and social services.

        While there might be an argument to be made that these municipalities spend a lower % of their citizens’ incomes than most (though I’d doubt that), in aggregate, I can’t believe spending isn’t higher there in most towns of equivalent size in the US. Haven’t you ever heard those from the radical right screaming “Taxachussets!”?

        Basically, this strikes me as an attack on the idea government can be helpful. But I still can’t get if this attack comes from the agencies’ being evil or stupid!

  14. Jim

    I wouldn’t be so quick to say the Boston suburbs are not dependent on federal spending. How many of the high-income residents there are MDs or other health professionals whose livelihoods will be hurt my Medicare/Medicaid cuts? How many are professors at educational institutions who derive income from federal sources ranging from NIH to NSF to Pell Grants? There is also a concentration of high tech defense contractors. Raytheon, for example.

    1. Moopheus

      This is true, but sort of oddly, Cambridge, Lincoln, and some of the other places where those funds actually flow through–and are just as dependent on them, in that those institutions provide a large chunk of the municipal budgets–are not on the list.

    2. Yves Smith Post author

      Dunno about Boston. but I have to tell you the MDs in New York barely take insurance now. Tons of them have reconfigured their practices away from that, particularly the specialists (for instance, both endocrinologists and internists focusing on anti-aging, orthopedists doing “sports medicine”, and derms pricing for the cosmetic market market rather than for people with skin diseases). And a lot of doctors have quit practicing completely, which helps them from a supply/demand perspective. No idea whether Boston is parallel or not.

    3. MarkD

      Jim… Bingo.
      I live in NH and hospitals are making massive cut backs (layoffs) due to our Medicare and Medicaid cuts already, and the real fed cuts haven’t even started.
      Also, folks seem to believe that just because these are “Wealthy” neighborhoods, that every time a resident farts a wad of money blows out of their ass.
      How many are living beyond their means?
      I know an owner of a company that does a crap load of gov funded construction work and lives in Wellesley. Guess what, he owes more on his home than what it’s worth and what will happen if the gov work slows.
      Most live beyond their means, even the wealthy.

  15. Daniel Pennell

    I noticed that Hamilton, Wenham, Marblehead, Swampscott, Essex were not mentioned.

    The technology corodor along 128 and 95 is heavily dependent on federal money. Particularly companies like Raytheon.

    This was great when Nick Mavroules was there and head of the armed services committee and when Ted Kennedy was there. Now the mass delegation has too little clout to bring in the federal dollars.

    1. Moopheus

      Yeah, those towns named are mainly Middlesex county. Why would that be? County government means nothing in Mass.

      1. Daniel Pennell

        You notice that Boxford & Topsfield were missing too?

        Gloucester has gotten pricey over the last few years and I have to think they have borrowed a bunch of money for infrastructure.

    2. CharlieH

      Safe to assume ( i haven’t looked up the ratings ) that it was essentially all of the municipalities and regional districts that actually had AAA ratings. There are not many of those.

      But if those ratings drop, then the logical followon is for everyone under them to drop a notch. That will be particularly so as federal dollars dry up and local budgets get squeezed as a consequence, but it also follows simply from the federal govt dropping a notch.

  16. John M

    You are right on – these ratings are a joke. I live in Hingham and work in Weston. Both communities are far more dependent on the financial sector than on the federal government. Each community has quite a few executives from Fidelity, State Street, etc. If one wanted to downgrade based on an impending financial sector meltdown, maybe – but the debt load in these towns is quite manageable. By the way, median house prices in Weston are hovering around $1 million, in Hingham around $600,000.

  17. Jim3981

    Some other jim has taken over my username, so I will go by jim3981 from now on.

    I think the S&P rating agency is probably just another extension of the Elites political arm, kind of like the chamber of commerce. With great support from the entrenched GOP leadership.

  18. bluntobj

    Lower ratings require a higher rate of interest.

    Muni interest is tax free.

    The top 1-5% income earners hold the majority (I think, my recollection may be bad)of muni bonds.

    Wealth is stripped out of public entities from increased interest, and fed, tax free, into plutocrat/elite pockets.

  19. Anjon

    MA towns “reliant on federal spending” ???

    I’ve lived in MA and VA. I could see the argument for Virginia and Maryland, with the obvious presence of the federal government, but don’t see how it applies to MA.
    VA in particular has a huge presence of government/DOD contractors, who are likely to get hit. But that would also affect places like Texas and many Southern states with big ties to the Military-Industrial-Complex, though I am not sure if the “cuts” promised for the DoD will ever materialize. With that said, Lockheed has announced big layoffs in their Aerospace division, but it’s not clear to me what region will get hit. Probably VA, TX and southern Cali, if I had to guess, and perhaps Alabama as well (Huntsville).

    I don’t see how Massachusetts get’s hit big here, though there is some DoD contract work that the MA tech sector relies on (Mitre, Raytheon, etc), but I don’t believe the MA tech sector is as reliant as some of the above mentioned states. The only possible area might be NIH medical research grants, of which MA is the largest single recipient of any state, but NIH’s grant funding is only a fraction of DoD contract expenditures (Americans love their weapons!), so again, I don’t see why Mass towns get hit more than others

    1. Moopheus

      Well, just here in Cambridge, I would (extremely roughly) estimate that the federal money going through MIT, Harvard, and the Volpe Transportation lab (part of DOT) would be on the order of $2 billion a year.

  20. curlydan

    Let’s not forget that all these communities probably have highly effective public school systems. I recall Brookline and Alexandria seem to have very good public schools.

    So it’s time to get some of those rich people and their kids to move to private schooling. They’ll squeeze their public school systems so hard that they’ll be forced to move into private schools.

  21. Elizabeth B

    Speaking from Southern CA in response to your last paragraph: Affluent communities can afford the best lobbyists and grant writers to seek federal grant opportunities and obtain more funding. Poorer communities tend to scrape by with what dribblings they receive in state and local taxes.



  23. backstop

    The ratings agencies are nothing more than a puffed up version of the BBB. Extortion at its finest.

  24. solo

    Excellent analysis–indeed “the present as history”! Can you say, “offensive of capital” and “capitalist institutions implementing this offensive”? –This, fellow sufferers, is what class war looks like. Unfortunately, the vast majority of Americans are so devoid of political intelligence as to follow the lead of the corporate media in blaming capitalism’s Front Desk (government) for the disasters imposed by the Home Office (corporate capitalism as a system). (You can fool all of the people some of the time, etc., and that’s quite good enough to keep the farce going . . . .)

  25. ed

    Forcing default of municipal bonds seems quite plausible. It’s not a matter of certain communities being unable to pay off debt but rather chosing not to. Consider if a certain political party takes over a local board or commission. They disavow the obligations made by their predecesors, and the communal necessity for which bonds were issued, they characterise bondholders as undeserving leaches, they lower taxes or revenues. Add to this mix the triangulation possibiity of the super-rich (Koch et al.) who could buy credit default swaps and essentially astro-turf the installation of the “right” poilitical forces. Sounds quite possible — Hope I’m not giving away a game plan to Wall Streeters who have not already thought of this.

  26. JamesW

    Is everyone forgetting that it was S&P who threatened the state and local governments with downgrading their bonds when they began invoking the anti-predatory lending laws against the banksters?

    I believe this was in conjunction with the Office of the Comptroller of the Currency, back during the Bush administration, invoking that recondite clause from the National Bank Act of 1863 to prohibit the states from interfering with the banksters nefarious schemes to impoverish everyone while criminally enriching themselves.

  27. bob

    “So this threatened action hits individuals who have a disproportionately large voice in politics and the media. Nicely done”

    Going forward, it also gets them more yield, if the ratings “cut” is priced in.

  28. Eric

    Certainly the rich don’t take handouts from the federal government. Therefore it is illogical that rich communities would take more than their shares from federal coffers. Clearly, this is a conspiracy on the part of the ratings agencies.

  29. Charlie

    The county I live in, Loudoun County, VA, (Wash DC suburbs) has received warnings.
    I believe Fairfax County has as well. These are both rock solid communities.

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