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April 09, 2009
Barney Frank To Moody's: Ignore Reality Or Else!
When it comes to the economy, our government is a like a clumsy oaf blundering through a China shop, smashing things left and right, and then snidely complaining about all the glass underfoot.
Every major economic crisis this country has had in the last hundred years, from the Depression, to the S&L crisis, to the mortgage crisis, has been primarily created by our own government.
But, their solution is always to demand more government control over the market despite the fact that they seem unable or unwilling to even recognize their own role in creating the problem.
Barney Frank is the poster boy for this phenomenon. When Republicans pointed out that we could have a housing crisis and tried to fix the problem, Frank snidely insisted there was nothing wrong and blocked all attempts at reform. Then, after the disaster came to pass, he took no responsibility for his actions and he haughtily pointed the finger at the very people whom he stopped from fixing the problem and the market.
Now Barney Frank is once again displaying the awesome intellect that helped create America's housing crisis to intimidate Moody's into ignoring the sorry shape of state and local government revenues across the country,
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On Tuesday, Moody's Investors Service said it had assigned a negative outlook to all U.S. local government ratings, the first time it assigned an outlook to the sector, which contains 52,000 cities, counties and school districts.
It cited "significant fiscal challenges" facing local governments because of the housing market collapse, financial market upset and recession.
The report, though dire in tone, was shrugged off by some analysts as old news.
"They were stating a very obvious fact -- that local governments which derive revenues from taxes and which are sensitive to economic cycles are suffering declines in these taxes," said Gary Pollack, head of fixed income trading and research at Deutsche Bank's private bank.
Merrill Lynch & Co.'s municipal bond index also took the news in stride. It rose Tuesday, contributing to a 4.8% gain this year.
But House Financial Services Committee Chairman Barney Frank, D-Mass., took a different tack.
Saying he was "troubled" by the Moody's action, which could make it "more expensive to borrow funds for infrastructure improvements," the influential congressman said he planned a hearing in early May on treatment for municipalities' general obligation bonds.
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The message to Moody's here is simple: ignore reality and give state and local governments a better rating than they deserve or the government is coming after you.
It's through stupidity of this sort, repeated over time in a myriad of different ways, that our government turns minor problems into Hindenburg style economic disasters.
Hat tip to Business Insider for the story.