sâmbătă, 24 decembrie 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

"Full Faith and Credit" of General Obligation Bonds Comes to Critical Test in Alabama Bankruptcy

Posted: 24 Dec 2011 06:37 PM PST

General obligation bonds are thought to be perfectly safe because they are backed by the ability to tax, no matter what it takes to pay off the obligation. I have been waiting for a test of this theory and that time is at hand.

Jefferson County Alabama filed the biggest bankruptcy in the history of the US and has stopped paying interest on its general obligation bonds. For background details, please see Jefferson County Alabama Hires Bankruptcy Firm; Record Municipal Bankruptcy Coming; Death Spiral Swaps and JPMorgan Fraud Revisited.

The key issue now is what happens to the "Full Faith and Credit" theory now that the county has defaulted following a bankruptcy declaration.

Please consider Bankruptcy Filing Raises Doubts About a Bond Repayment Pledge.
People who own what is considered the safest type of municipal bond may be in for a surprise.

This safe debt, called a general-obligation bond, is said to be the next strongest thing to Treasuries because it is backed by a "full faith and credit" pledge. That means the government that issued it will pay it on time, no matter what.

But now Jefferson County, Ala., has stopped paying such debt, breaking with convention and setting up a fundamental test of what full faith and credit truly means.

The few places that have gone bankrupt with general obligations outstanding have sent reassuring signals, making payments even though they were not required to in bankruptcy. Orange County, Calif., the previous Chapter 9 record-holder, took a few extra months to pay some maturing debt, but it compensated investors for the delay by giving them almost a full percentage point more interest than it otherwise owed them.

The small city of Central Falls, R.I., has been duly paying its general-obligation debtholders in Chapter 9 this year, bolstered by a new state law giving those investors priority over everybody else.

Jefferson County, by contrast, is taking advantage of the automatic stay granted in bankruptcy, which bars creditors from demanding payments or grabbing collateral. Officials say they stopped sending cash to the county's paying agent in November and will not send any money this month, either.

Bankruptcy experts have long known that in theory a municipality could use the stay to revoke its full faith and credit pledge, but they have not watched a big distressed city or county go through with it. "You've got a case here where the rubber has hit the road," said Kenneth N. Klee, a bankruptcy lawyer representing Jefferson County, whose debt grew out of poorly conceived efforts to finance a court-ordered rebuilding of its sewer system.

The county's nonpayment is not its only surprise. Like many places, it used newfangled instruments to circumvent constitutional limits on how much debt it could legally issue. In Alabama, counties are required to hold a referendum before issuing any general-obligation bonds. So Jefferson County has not issued such bonds since the 1950s. Instead, it issues warrants, which look nearly identical but do not require the referendum.

Official disclosures promote the county's warrants as "general obligations," toward which "its full faith and credit have been irrevocably pledged." Sounds good, but what does it really mean? Conventional wisdom has it that if a government defaults on a general obligation, its creditors can take it to court, where the judge will order it to raise taxes — as much as it takes, no matter how painful.

But that now appears to be a hollow threat in Jefferson County. Counties in Alabama do not have the legal authority to raise taxes. Only the state can do that.

Mr. Klee, the county's bankruptcy lawyer, said about 40 percent of America's counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes, as the term implies.

"Jefferson County made a very different decision than Rhode Island did," Mr. Klee said. "Rhode Island put bondholders ahead of its citizens, and Jefferson County is not going to do that."

He called the notion that a full faith and credit pledge was inviolate, and that a debtor must honor it even in bankruptcy, "a myth and a scare tactic."

"The issue of full faith and credit," Mr. Klee said, "is whose full faith and credit?"
Rhode Island legislature screwed taxpayers by bailing out bondholders. Alabama tried hard to do the same, but fortunately Jefferson County filed anyway.

A major twist is Jefferson County had no legal authority to issue general obligation bonds without first holding a voter referendum. Jefferson County did not have a voter referendum and instead issued warrants. Does it matter the warrants were promoted as "Full Faith and Credit" obligations?

I have had it with the notion that bondholders can never take a loss. The best court ruling would be those are  indeed general obligations bonds, but bankruptcy changes the game.  My guess is the courts will duck the issue based on the fact Jefferson County never issued a referendum.

Still, it would be a huge victory for taxpayers in a major court case, assuming the county's attorney is correct in that "40 percent of America's counties appear to be in the same boat, issuing full faith and credit debt even though they have no legal authority to raise taxes"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

College Football Nothing But a Free Farm-System for the NFL; Who are the Winners and Losers in the Current System?

Posted: 24 Dec 2011 11:03 AM PST

While watching the myriad of college bowl games this holiday season, many of them between teams that have no business being in bowl games at all, please step back and ponder who the winners and losers of this system are.

My high-school friend David Wise takes a critical look at college football in a Real Clear Sports article proclaims it's Time for Colleges to Rein In Football
Since 1985 college tuition has increased nationally by 498 percent compared with 115 percent for prices overall – an unsustainable bubble. Higher education commentators Andrew Hacker and Claudia Dreifus have commented that a large portion of this additional college tuition revenue is being funneled into athletics and not towards education. Over the same time the average compensation of public college football coaches has increased 750 percent compared with 32 percent for professors. The two colleges that will play for the BCS championship this season spend $1,320 per every member of the student body ($204,919 per player) to support the football programs.

In the words of Dr. James J. Duderstadt, the former president of the University of Michigan, athletics "has drifted so far from the educational purpose of the university. They exploit young people and prevent them from getting a legitimate college education. … We are supposed to be developing human potential, not making money on their backs."

And the failure of colleges is not just in things such as the whopping 51 percent disparity between the graduation rates of African-American and white players on last year's BCS champion Auburn Tigers or the combined 34 percent graduation rate for all players on the 2005 champion the Texas Longhorns. Colleges and the education system in general are failing young men who at age 22 graduate at the rate of 100 males for every 187 females.

In a time of crushing state government deficits and student loan debt, it makes absolutely no sense for American universities to operate as free farm systems for the NFL and NBA. At a time when the American competitive position in the world is under more stress than ever, we cannot allow our universities – an area in which American still holds undisputed world leadership – to erode. Rather than have the NFL subsidize college sports, a cure that would be worse than the disease, there are other options.

The low point this year is to be found in the "Kraft Fight Hunger Bowl," which features two teams whose seasons were so disastrous that they both just fired their head coaches and one team, UCLA, which enters the bowl game with a losing record.

This year it is possible that almost a third of the games (10 out of 35) could end up with a so-called "bowl team" with a losing season. And some collection of attorneys general out there should examine whether the Supreme Court's prohibition against "horizontal restraint" in the 1984 landmark case NCAA v. The Board of Regents of the University of Oklahoma is being observed.
Who are the Winners and Losers?

Wise points out that of the 30,000 kids in college football, only abut 310 are ever seriously considered for the NFL.

The rest may get passing grades, but how many of them actually get an education? We all hear that bowl games are "big money makers" but for who?

In the "Kraft Fight Hunger Bowl", Illinois 6-6 just fired its coach. UCLA 6-7 just fired its coach. Both states are financial basket cases.

Both schools will probably sustain large losses participating in these useless bowls that should not even be held. Taxpayers of Illinois and California will make up the difference.

I propose a name change from the "Kraft Fight Hunger Bowl" to the "Tidy Toilet Bowl" because both teams belong in the toilet, not in bowl games. No matter who wins, one team is sure to end up with a losing season and taxpayers of both states will foot the bill for this monstrosity.

Please consider the winners and losers in the current setup.

Who Loses?
The students
The Players
Taxpayers
Teachers who are quasi-forced to give passing grades to kids so they can stay eligible

Who Wins?
The NFL who avoids having a farm system
Advertisers
College coaches and their staff who make preposterous salaries

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
Publicat de 1 la 23:40 0 comentarii

Damn Cool Pics

Damn Cool Pics

Star Wars: The Old Republic Flash Mob in Time Square

Posted: 23 Dec 2011 10:22 PM PST



A crowd of people with lightsabers joined forces with the Jedi and Sith to freeze battle in a flash mob at Time Square in New York City. It was done to help promote Star Wars: The Old Republic, which was released on the same day.

Darth Vader Sculpture Made Out of Old Cutlery

Posted: 23 Dec 2011 10:04 PM PST

French artist Alain Bellino sculpted this Darth Vader bust out of old pieces of metal, including silver spoons for the eyes and cabinet hinges on the mask.

Odd Things to Be on a Leash

Posted: 23 Dec 2011 09:05 PM PST

BuzzFeed collected this silly little gallery full of hilarious images of odd things on leashes. Some of them are questionable in terms of strangeness (people leash their kids all the time, right?) while others are truly weird, and really make you wonder what we humans will be leashing up next?
Publicat de 1 la 19:30 0 comentarii

Happy Holidays from the Obama Family

The White House Saturday, Dec. 24, 2011
 

Happy Holidays from the Obama Family

President Obama and First Lady Michelle Obama recorded a special video to wish the American people a Merry Christmas and Happy Holidays.

Check it out:

The holidays are the perfect time to give thanks to our men and women in uniform and the families who support them. You can join the President and First Lady in thanking our troops, military families and veterans for their service and sacrifice by visiting JoiningForces.gov.

Happy Holidays!

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Publicat de 1 la 12:23 0 comentarii

Being Nice Isn't a Marketing Tactic. Or Is It?

Being Nice Isn't a Marketing Tactic. Or Is It?

Being Nice Isn't a Marketing Tactic. Or Is It?

Posted: 23 Dec 2011 04:03 AM PST

Posted by wrttnwrd

Being nice doesn't have to mean you have an ulterior motive. But if it does, that's OK.

Ever since the Great Diet Coke Delivery that Charles made to my office, folks have been buzzing. I've watched the comments on Charles' YouMoz post regarding the whole adventure, and there are three schools of thought:

  1. I rewarded Charles with a link and mention because he did a really nice thing.
  2. Charles did a nice thing knowing it might result in a link and a mention.
  3. This is a savvy, cynical marketing 'stunt' that's worth repeating, and now SEOs the world over will be sending each other soft drinks.

I had no plans to comment on the whole discussion. I took the gesture at face value: A #1 with a strong dose of #2. It totally made my day, week and month.

But then I read a comment by Sha Menz that I found particularly telling:

Now I suppose anyone in the SEO world that receives a silly surprise in the mail from me is going to assume there is some sort of ulterior motive behind the gesture. :( Of course, that's just tough for me (and the people I will think twice about surprising in the future).

Is 'good' still 'good' when you do it expecting to be rewarded? I dunno. That's getting pretty deep for a bunch of marketing nerds. But here's why I wish everyone did more stuff like Charles, even if there is an ulterior motive:

Nice is nice

A genuinely 'nice', helpful act, performed with an ulterior motive, is just fine in the marketing world. That's called 'customer service' or 'networking' or 'being a mensch.' Zappos does it. Tiffany's does it. So does Virgin Airlines. It gets people talking. It also makes people happy.

If I can build my business and make people happy... wow. Just wow. That's a perfect marketing utopia. Read Guy Kawasaki's Enchantment if you want to learn just how perfect it can be.

Nice is currency

I'm not saying this cynically: Nice is a currency. It has value. That value declines if you overdo it. For example: The telephone customer service rep who keeps saying "I'm really sorry, I understand your frustration" after two hours' of frustrating troubleshooting. Yeah, I'm frustrated. You want to make me happy? Fix my cable!

Overuse reduces value.

Irrelevant niceness is spam

Send me a free pair of boxing gloves. You know what they are for me? Crap. So I remember you for sending me crap. AKA spam.

Those gloves might be the best on the market: State of the art boxing gloves that the best fighters would beg for. Doesn't matter. My only punches are verbal.

Send me a free pair of cycling gloves, when I already have three pairs? More crap.

These kinds of gifts fail, because I don't need them. If I don't need them, right then, then the chances I want them are pretty slim. And the odds that I'll appreciate the gift are slim, too.

Note that all of this assumes these gifts are sent to me from strangers. I'm not a completely ungrateful wretch. If a friend sent me boxing gloves, I might look at them strangely, but I'd still say 'thanks'.

Nice proves you listen

Most important, a truly 'nice' act proves you listen to me. The generic "I'm really sorry. I understand your frustration." fails because it's overused, and because the person saying it sounds like they're reading from a script. Which they are. They're not listening to me, at all. That reduces the niceness quotient to about zilch.

Charles showed up with Diet Coke. Just a short time after my panicked tweet. Clearly, he listened. He went out of his way, just a bit, to respond. Totally fantastic.

Nice is intrinsically rewarding

If you do a favor with an ulterior motive, don't whine if you get nothing in return. That's tacky. If the warm feeling you get from the favor itself (the intrinsic reward) isn't enough, then you shouldn't be taking action at all.

The extrinsic reward - the link, or the tip, or the new customer - is gravy. If you can't grasp that, stop.

Rules for genuine niceness

Go ahead and commit acts of kindness for strangers. Even if you do so expecting something in return. Just follow these rules:

  1. Be nice when appropriate. Don't slather it everywhere like cheap syrup on lousy pancakes.
  2. Do relevant nice things. Don't send crap to random people, or do favors no one wants.
  3. Listen first. The closer the match between the favor and the context, the more the recipient appreciates it. No match at all may mean you're a stalker.
  4. Do it for the intrinsic reward. Sure, expect something extrinsic. But ask yourself if the intrinsic reward (the warm glow you get) is enough. If it's not, you're making a mistake.

I'm a pretty cynical guy. But I do think marketing communications can make the world a far better place. One of the ways it can do that is by rewarding acts of kindness, good behavior, etc. informing the community. So be nice!


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Publicat de 1 la 09:49 0 comentarii
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