November 23, 2010

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Steve Malanga, writing in WSJ, alerts us to the risks of states using Build America Bonds.

In a Rasmussen poll taken before the midterm election, half of the respondents said that members of Congress who supported the 2009 federal stimulus didn’t deserve to be re-elected. Many weren’t. Yet the lame-duck Congress might extend one of the key elements of that stimulus: “Build America Bonds” (BABs). States and municipalities have used these bonds to rack up some $160 billion in new debt over the last 19 months.

Build America Bonds were created to re-energize the municipal bond market, which contracted sharply in late 2008. Investors had become wary that the credit crunch would spread to municipals, as insurers who back state and local bonds got hurt in other markets and stopped insuring public debt. Facing declining tax revenue and growing deficits, some local governments suddenly couldn’t borrow.

The Obama administration responded with a new kind of taxable bond that offered a 35% federal subsidy on the interest rate. Washington designed the subsidy to appeal to investors such as pension funds and overseas buyers who don’t buy traditional municipal bonds because they can’t take advantage of their tax-free status. The federal subsidy allowed states and cities to offer these investors an attractive return. The catch: Congress authorized the program only through 2010, to allay concerns that BABs would become a permanent bailout.

States and cities jumped deeply into this new market. …


Weekly Standard has a piece calling for a protocol for states to enter bankruptcy.

Anyone who proposed even a decade ago that a state should be permitted to file for bankruptcy would have been dismissed as crazy. But times have changed. As Arnold Schwarze-negger’s plea for $7 billion of federal assistance for California earlier this year made clear, the states are the next frontier in “too big to fail.” In the topsy-turvy world we now inhabit, letting states file for bankruptcy to shed some of their obligations could save American taxpayers a great deal of money.

The financial mess that spendthrift states have gotten themselves into is well known. California—recently dubbed the “Lindsay Lohan of states” in the Wall Street Journal—has a deficit that could reach $25.4 billion next year, and Illinois’s deficit for the 2011 fiscal year may be in the neighborhood of $15 billion. There is little evidence that either state has a recipe for bringing down its runaway expenses, a large portion of which are wages and benefits owed to public employees. This means we can expect a major push for federal funds to prop up insolvent state governments in 2011, unless some miraculous alternative emerges to save the day. This is where bankruptcy comes in. …


Jonathan Tobin gives us some good news about ourselves.

… Despite the constant drumbeat of incitement from those extremists purporting to represent the interests of American Muslims, anti-Islamic hate crimes remain rare occurrences. The idea that anti-Muslim bigotry is a dominant theme in American society or that violent haters have disproportionately victimized believers in Islam is simply without foundation. And far from giving sanction to such bigotry, the hallmark of American discourse since 9/11 has been a conscious effort to disassociate Islam from the war being waged against the West by Islamist terrorists. The new statistics provide fresh proof that the claim of an anti-Muslim backlash is unfounded.


There is a new book out on the collapse of the New York Times. Daily Caller interviews the author.

William McGowan is the author of “Gray Lady Down: What the Decline and Fall of the New York Time Means For America.”

Formerly editor of the Washington Monthly, McGowan is a media fellow at Social Philosophy and Policy Center. His work has been published in the Washington Post, the New York Times Magazine, the New Republic, and the National Review, among other places. His last book, “Coloring the News: How Political Correctness Has Corrupted American Journalism,” won the National Press Club Award.

McGowan recently agreed to answer 10 questions from The Daily Caller about his new book:


When ship-owners want to get a stolen ship back who do they see? The Guardian interviews one candidate.

May 1987. The day after the Naruda had finished offloading its rice cargo in Haiti, armed guards boarded the freighter. Moments later the captain, Max Hardberger, had a grubby, badly photocopied piece of paper placed in his hands. “Pour les dettes,” the guard said.     

“What debts?” Hardberger asked.

The guard shrugged and said: “It’s a matter for the courts. In the meantime my men will remain on board.”

There were no debts, but that was beside the point. Haiti was a law unto itself; a place where court officials could be bought. And one clearly had been. The Naruda was about to be stolen from under Hardberger’s nose.

He played for time. He pumped the guards with booze and waited for dark before ordering his engineer to lock them into their cabin. It was a toss-up whether they would try to shoot their way out, but they were either too drunk or not being paid enough to bother. Hardberger started the engines, switched off all the lights and sneaked out of harbour. If they were spotted, the Naruda would be seized, and he’d be slung in jail. Only when he was in international waters could he relax. Hardberger called down to the guards. He offered to set them loose in a lifeboat or take them to Venezuela; the choice was theirs. They chose the lifeboat.

This event was the making of the man who looks a bit like a salty Hulk Hogan, whose life could be a Hollywood film and whose name is a scriptwriter’s dream. …

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