Monday, December 06, 2010

Coming Bankruptcies

For those following the mounting debt woes of government entities at all levels, here's another story summarizing the facts. But while the factual reporting is alright, it irks me to no end that the NY Times doesn't apply the same standards to government as it does to private enterprise. (Of course that view is also held by those in government itself and indirectly by the electorate who votes them into office.)

When private companies have problems with their accounting, however trivial, journalists are all over them, alleging the most nefarious of motives and intent. But when those same journalists report on what has to be considered close to massive fraud by government entities, there's no hint of chastisement, much less of outright condemnation. (I know, altruism explains why those acting out of self-interest must always be suspected and reined in, while those acting for the "public good" are immune from evaluation.)

Other than that, the article also highlights how government appointed and approved ratings agencies work (don't ever confuse them with those which would exist in a free market):
The credit ratings of a number of local governments have improved this year, not because their finances have strengthened somewhat, but because the ratings agencies have changed the way they analyze governments.

The new higher ratings, which lower the cost of borrowing, emphasize the fact that municipal defaults have been much rarer than corporate defaults.

This October, Moody’s issued a report explaining why it now rates all 50 states, even Illinois, as better credit risks than a vast majority of American non-financial companies.

One reason: the belief that the federal government is more likely to bail out a teetering state than a bankrupt company.

“The federal government has broadly channeled cash to all state governments during recent recessions and provided support to individual states following natural disasters,” Moody’s explained, adding that there was no way of being sure how Washington would respond to a bond default by a state, since it had not happened since the 1930s.
Finally, although this is typical, it's worth noting that no solutions to the situation are proposed, nor are any principles by which one might come up with solutions discussed.

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