Case in point, we have California Treasurer Lockyer telling Warren Buffet's new bond insurance business to go pound sand.
The core of the dispute is that bond ratings agencies have low rated municipal debt as compared to commercial debt for years.
This has meant that entities like the state of California have had to buy bond insurance to get AAA rates, despite the fact that the risk of default is negligible:
"We're selling water in a desert; we should be rated to reflect that," said Cary Casey, who oversees bonds at the Southern Nevada Water Authority in Las Vegas that have a AA+ rating from Standard & Poor's. Casey said he's not interested in Buffett's insurance. "He's no savior."Emphasis mine.
The first municipal bond insurance policy was sold in 1971 by Ambac. The near bankruptcy of New York City in 1975 bolstered demand for the industry, said Richard Larkin, research director at brokerage Herbert J. Sims & Co. in Iselin, New Jersey, and a former chief municipal rating officer at S&P.
New York City creditors were paid in full. When Orange County, California, filed the largest municipal bankruptcy in 1994, only one issue defaulted and no principal or interest payments were missed, according to Moody's.
"The legalized extortion has been going on since before I became mayor of Somerville in 1990," said U.S. Representative Michael Capuano, a Massachusetts Democrat on the House Financial Services Committee. Capuano said he was forced to buy bond insurance, even though his town of 80,000 had never defaulted and the state provided backup guarantees.
Bond insurance to municipalities have been a protection racket for years, and not it turns out that the insurers, not the municipalities, are the ones with the problem.
I think that as we tease out the credit collapse, we will find many more examples of systemic corruption and extortion by Wall Street firms.
The FSM may be wrong, these guys are pirates, and global warming proceeds unabated.
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