Detail, east Portland photo, courtesy Miles Hochstein / Portland Ground.



For old times' sake
The bojack bumper sticker -- only $1.50!

To order, click here.







Excellent tunes -- free! And on your browser right now. Just click on Radio Bojack!






E-mail us here.

About

This page contains a single entry from the blog posted on November 12, 2008 10:14 PM. The previous post in this blog was Colwood Golf Course: The Empire strikes back. The next post in this blog is "I was doing a very good job at not overtly noticing her lack of arms". Many more can be found on the main index page or by looking through the archives.

Archives

Links

Law and Taxation
How Appealing
TaxProf Blog
Mauled Again
Tax Appellate Blog
A Taxing Matter
TaxVox
Tax.com
Josh Marquis
Native America, Discovered and Conquered
The Yin Blog
Ernie the Attorney
Conglomerate
Above the Law
The Volokh Conspiracy
Going Concern
Bag and Baggage
Wealth Strategies Journal
Jim Hamilton's World of Securities Regulation
myCorporateResource.com
World of Work
The Faculty Lounge
Lowering the Bar
OrCon Law

Hap'nin' Guys
Tony Pierce
Parkway Rest Stop
Utterly Boring.com
Along the Gradyent
Dwight Jaynes
Bob Borden
Dingleberry Gazette
The Red Electric
Iced Borscht
Jeremy Blachman
Dean's Rhetorical Flourish
Straight White Guy
HinesSight
Onfocus
Jalpuna
Beerdrinker.org
As Time Goes By
Dave Wagner
Jeff Selis
Alas, a Blog
Scott Hendison
Sansego
The View Through the Windshield
Appliance Blog
The Bleat

Hap'nin' Gals
My Whim is Law
Lelo in Nopo
Attorney at Large
Linda Kruschke
The Non-Consumer Advocate
10 Steps to Finding Your Happy Place
A Pig of Success
Attorney at Large
Margaret and Helen
Kimberlee Jaynes
Cornelia Seigneur
Mireio
And Sew It Goes
Mile 73
Rainy Day Thoughts
That Black Girl
Posie Gets Cozy
{AE}
Cat Eyes
Rhi in Pink
Althouse
GirlHacker
Ragwaters, Bitters, and Blue Ruin
Frytopia
Rose City Journal
Type Like the Wind

Portland and Oregon
Isaac Laquedem
StumptownBlogger
Rantings of a [Censored] Bus Driver
Jeff Mapes
Vintage Portland
The Portlander
South Waterfront
Amanda Fritz
O City Hall Reporters
Guilty Carnivore
Old Town by Larry Norton
The Alaunt
Bend Blogs
Lost Oregon
Cafe Unknown
Tin Zeroes
David's Oregon Picayune
Mark Nelsen's Weather Blog
Travel Oregon Blog
Portland Daily Photo
Portland Building Ads
Portland Food and Drink.com
Dave Knows Portland
Idaho's Portugal
Alameda Old House History
MLK in Motion
LoveSalem

Retired from Blogging
Various Observations...
The Daily E-Mail
Saving James
Portland Freelancer
Furious Nads (b!X)
Izzle Pfaff
The Grich
Kevin Allman
AboutItAll - Oregon
Lost in the Details
Worldwide Pablo
Tales from the Stump
Whitman Boys
Misterblue
Two Pennies
This Stony Planet
1221 SW 4th
Twisty
I am a Fish
Here Today
What If...?
Superinky Fixations
Pinktalk
Mellow-Drama
The Rural Bus Route
Another Blogger
Mikeyman's Computer Treehouse
Rosenblog
Portland Housing Blog

Wonderfully Wacky
Dave Barry
Borowitz Report
Blort
Stuff White People Like
Worst of the Web

Valuable Time-Wasters
My Gallery of Jacks
Litterbox, On the Prowl
Litterbox, Bag of Bones
Litterbox, Scratch
Maukie
Ride That Donkey
Singin' Horses
Rally Monkey
Simon Swears
Strong Bad's E-mail

Oregon News
KGW-TV
The Oregonian
Portland Tribune
KOIN
Willamette Week
KATU
The Sentinel
Southeast Examiner
Northwest Examiner
Sellwood Bee
Mid-County Memo
Vancouver Voice
Eugene Register-Guard
OPB
Topix.net - Portland
Salem Statesman-Journal
Oregon Capitol News
Portland Business Journal
Daily Journal of Commerce
Oregon Business
KPTV
Portland Info Net
McMinnville News Register
Lake Oswego Review
The Daily Astorian
Bend Bulletin
Corvallis Gazette-Times
Roseburg News-Review
Medford Mail-Tribune
Ashland Daily Tidings
Newport News-Times
Albany Democrat-Herald
The Eugene Weekly
Portland IndyMedia
The Columbian

Music-Related
The Beatles
Bruce Springsteen
Seal
Sting
Joni Mitchell
Ella Fitzgerald
Steve Earle
Joe Ely
Stevie Wonder
Lou Rawls

E-mail, Feeds, 'n' Stuff

Wednesday, November 12, 2008

Aaa, FWIW

The City of Portland's new bonds -- borrowing around $15 million to pay for fire station upgrades -- will bear the highest rating, Aaa, according to Moody's. So reports the city's debt manager, Eric Johansen. The bonds are scheduled to be sold next week.

Unlike most of the nearly $3 billion in bonds that the city has outstanding, these will be "general obligation" bonds, which means that the city is promising to raise whatever taxes may be necessary to pay them off. That gives Moody's comfort.

Of course, if Moody's bond ratings really were reliable, the nation's financial markets wouldn't be in the tank. A lot of paper that was rated "Aaa" a year ago has gone bad, wickely bad. As one large institutional investment manager recently put it, bond ratings are basically "comparing b.s. to more b.s." Nonetheless, a top rating is better than a lower rating, everything else being equal.

Speaking of which, a whole slew of outstanding Portland bonds were downgraded last week, because the bond insurance companies from whom the city bought default insurance have themselves taken serious turns for the worse. Now a bunch of Portland debt that was once rated Aaa has been pushed a few notches or more down from the top of the ratings -- mostly in the Aa range, but one A3 and another Baa1. The insurance companies' ratings (Baa1) are now mostly lower than those the city would have gotten without the insurance, and so the hefty premiums that were paid for those insurance policies have now become a waste of money (at least from the bondholders' standpoint).

The downgraded bond issues include:

Sewer System Revenue Bonds (underlying rating Aa3)
Water System Revenue Bonds (Aa2)
Limited Tax Revenue Bonds (General) (Aa1)
Limited Tax Revenue Bonds (Visitor Develop. Initiative) (Aa1)
Limited Tax Pension Obligation Revenue Bonds (Aa1)
Limited Tax Improvement Bond (Aa1)
Airport Way Urban Renewal and Redevelopment Bonds (Aa3)
Oregon Convention Center Urban Renewal and Redevelopment Bonds (Aa3)
South Park Blocks Urban Renewal and Redevelopment Bonds (Aa3)
Downtown Waterfront Urban Renewal and Redevelopment Bonds (Aa3)
River District Urban Renewal and Redevelopment Bonds (A3)
Limited Tax Housing Revenue Bonds (Aa1)
Hydroelectric Power Revenue Refunding Bonds (Baa1)

The official bad news from the city can be found here.

Borrowing money is becoming really, really expensive for Portland. Maybe we don't need new streetcars and a new minor league stadium right now.

Comments (13)

There was a piece on NPR about this issue late last week. Overall, its troubling that Portland (or any borrower) will have to pay higher rates because of the failures of the third-party who sole purpose is to provide backup.

Its especially troubling because, according to the NPR piece, municipalities don't default on bonds. Maybe I'm crazy but it seems out of whack that a borrower-class who has no defaults and gets insurance suddenly has to pay more because of the failures of the insurer.

I'd be pissed if my credit rating tanked because of my insurer and through no fault of my own.

if my credit rating tanked

I believe that in this case the city got nothing but a benefit from the bond insurers (MBIA and Ambac) -- just not as much of a benefit as it had hoped.

By buying insurance, the city got Aaa ratings (and lower interest rates) for bonds that would otherwise have been rated much lower. Now that MBIA and Ambac have cratered, if I understand it correctly, those bonds get rated at the higher of the MBIA/Ambac rating or what they would have gotten with no insurance.

In the end, I think, the ratings are no worse than they would have been without insurance. But if they're no better, the bond insurance premiums were a waste of money.

I'd think the ratings are worse than if there had been no insurance.

With faux-insurance, the bond is committed to premium payments towards insurance that provides no benefit. Greater payment on bond means more risk to lender. A bond without insurance has a lower payment because 100% goes to paying the lender. (Of course, this assumes that ability to repay is a consideration in the rating).

To be honest, I barely understand the financial issues underlying and structuring municipal lending. To be honest, the recent economic issues have convinced me that few folks know what is going on exactly.

You are right, Chris. Insured bonds are bad deals when the insurance doesn't actually boost the ratings. Boosting the ratings (and lowering the interest that must be paid to the bondholders) is the whole point of the insurance, for which a hefty premium is charged up front.

I've tried to revise this post to make things a bit clearer.

Of COURSE we need new streetcars and a new stadium. The people have spoken and they voted in Sam-the-Tram and if you think a change in bond ratings or interest rate will slow the man down, then you haven't looked at his history or heard his plans for the city. The folks wanted this man (and his plans), now they get to pay for it.

"Maybe we don't need new streetcars and a new minor league stadium right now."

You know who Sam learned from and she knows you sneak this garbage in immediately, because it just can't wait.

"Portland (or any borrower) will have to pay higher rates because of the failures of the third-party"

This implies someone is paying lower rates, which isn't true. Real-world types are seeing that a year down the road, tax revenues are going to get real tight and that servicing these bonds comes after stuff like servicing PERS/PFDR stuff. So while they wouldn't default, they might have to do something to reschedule payments.

Its just right now, there are better lookign investments, even considering the tax breaks of municipals and the ability of insurance to cover. Plus these things are NOT general obligation bonds, which makes them less attractive since they can only be paid with revenue from the project I think.

We need streetcars and minor league stadiums and convention center hotels because the people who finance Sam and the commissioners need to build them to keep their businesses highly profitable. So we're going to get 'em. And we're going to pay for 'em. What the taxpayers want or don't want just doesn't matter.

As Frederic Bastiat said, "Government is the great fiction by which everyone tries to live at the expense of everyone else."

"The folks wanted this man (and his plans), now they get to pay for it."

As a renter of a charming close-in SE home who has not see a rent increase for 9 years I think its absolutely hilarious that PDX loanowners will be footing this steep bill.

The city's debt manager, Eric Johansen, writes:

Your statement that the payment of bond insurance premiums by the City "were a waste of money" is simply wrong. The interest rates and debt service costs paid on fixed-rate, insured bonds do not change due to a subsequent downgrade in the rating of the bond insurer. Once the bonds are issued, the debt service is fixed. Therefore, the City’s taxpayers and ratepayers continue to receive full benefit from the premiums that the City paid for, what was at that time of issuance, Aaa-rated bond insurance.

It is true that holders of the City’s bonds are likely to experience a
decline in the secondary market value of their bonds when the bond insurer’s ratings are downgraded. However, declines in the value of the bonds in the secondary market have no effect on the debt service costs borne by City taxpayers and ratepayers. In short, the risk of a post-issuance rating downgrade on fixed rate bonds is borne entirely by the investor, not the taxpayer.

He's misquoting us there. We didn't say the premiums were a waste of money. We said they became a waste of money, a statement that we stand by.

The clear understanding at the time the city paid the large premiums on all these bond issues was that the insurance would guarantee a top rating throughout the life of the bonds. And that understanding was, as he puts it, simply wrong. "Only the bondholders got screwed, not the taxpayers." Great.

UPDATE, 5:17 p.m.: Just to be fair, I've added language to the post noting that the "waste of money" would be as viewed from the bondholders' standpoint.

By the way, noone has mentioned that there is a very limited market for Muni Bonds right now. Individual investors have largely vanished from the Muni market. And the usual institutional investors are getting a lot pickier these days.

My wife is a bookkeeper, so far at least 5 of her clients are shutting down their businesses. These are (for the most part) not small businesses, nor are they particularly hurting by the economy. However, with the economy looking like it is combined with Obama's proclaimed tax policies, they are shutting down to protect the money that they have. These are people who provided bridge loans (for construction), angels (to help startup companies) and people with money to invest. They will NOT be buying muni bonds (some of them once did), they ARE moving out of Oregon as well as their money. It's not looking real good out there folks.

Here's another angle on This Whole Business, i.e., the global economy, dropped and broken from the fumble-fingered hands of incompetent apprentice know-nothings ... 'still wet behind the ears,' as dusty ranch hands say. (Referring to the last place a newborn slimy-wet calf dries out.)

The End, by Michael Lewis, Nov 11 2008

To this day, the willingness of a Wall Street investment bank to pay me hundreds of thousands of dollars to dispense investment advice to grownups remains a mystery to me. I was 24 years old, with no experience of, or particular interest in, guessing which stocks and bonds would rise and which would fall. The essential function of Wall Street is to allocate capital—to decide who should get it and who should not. Believe me when I tell you that I hadn’t the first clue.

I’d never taken an accounting course, never run a business, never even had savings of my own to manage. I stumbled into a job at Salomon Brothers in 1985 and stumbled out much richer three years later, and even though I wrote a book about the experience, the whole thing still strikes me as preposterous — which is one of the reasons the money was so easy to walk away from. I figured the situation was unsustainable. Sooner rather than later, someone was going to identify me, along with a lot of people more or less like me, as a fraud. Sooner rather than later, there would come a Great Reckoning when Wall Street would wake up and hundreds if not thousands of young people like me, who had no business making huge bets with other people’s money, would be expelled from finance.

When I sat down to write my account of the experience in 1989 — Liar’s Poker, it was called — it was in the spirit of a young man who thought he was getting out while the getting was good. I was merely scribbling down a message on my way out and stuffing it into a bottle for those who would pass through these parts in the far distant future.

Unless some insider got all of this down on paper, I figured, no future human would believe that it happened.

I thought I was writing a period piece about the 1980s in America. Not for a moment did I suspect that the financial 1980s would last two full decades longer or that the difference in degree between Wall Street and ordinary life would swell into a difference in kind. I expected readers of the future to be outraged ...

In the two decades since then, I had been waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. ...

Tensky-best post you've ever made. Thanks.


Sponsors


As a lawyer/blogger, I get
to be a member of:

In Vino Veritas

Balboa, Rose of Grenache 2015
Ontañón, Rioja Reserva 2015
Three Horse Ranch, Pinot Gris 2014
Archery Summit, Vireton Pinot Gris 2014
Nelms Road, Merlot 2013
Chateau Ste. Michelle, Pinot Gris 2014
Conn Creek, Cabernet, Napa 2012
Conn Creek, Cabernet, Napa 2013
Villa Maria, Sauvignon Blanc 2015
G3, Cabernet 2013
Chateau Smith, Cabernet, Washington State 2014
Abacela, Vintner's Blend #16
Willamette Valley, Rose of Pinot Noir, Whole Clusters 2015
Albero, Bobal Rose 2015
Ca' del Baio Barbaresco Valgrande 2012
Goodfellow, Reserve Pinot Gris, Clover 2014
Lugana, San Benedetto 2014
Wente, Cabernet, Charles Wetmore 2011
La Espera, Cabernet 2011
King Estate, Pinot Gris 2015
Adelsheim, Pinot Gris 2015
Trader Joe's, Pinot Gris, Willamette Valley 2015
La Vite Lucente, Toscana Red 2013
St. Francis, Cabernet, Sonoma 2013
Kendall-Jackson, Pinot Noir, California 2013
Beaulieu, Cabernet, Napa Valley 2013
Erath, Pinot Noir, Estate Selection 2012
Abbot's Table, Columbia Valley 2014
Intrinsic, Cabernet 2014
Oyster Bay, Pinot Noir 2010
Occhipinti, SP68 Bianco 2014
Layer Cake, Shiraz 2013
Desert Wind, Ruah 2011
WillaKenzie, Pinot Gris 2014
Abacela, Fiesta Tempranillo 2013
Des Amis, Rose 2014
Dunham, Trautina 2012
RoxyAnn, Claret 2012
Del Ri, Claret 2012
Stoppa, Emilia, Red 2004
Primarius, Pinot Noir 2013
Domaines Bunan, Bandol Rose 2015
Albero, Bobal Rose 2015
Deer Creek, Pinot Gris 2015
Beaulieu, Rutherford Cabernet 2013
Archery Summit, Vireton Pinot Gris 2014
King Estate, Pinot Gris, Backbone 2014
Oberon, Napa Cabernet 2013
Apaltagua, Envero Carmenere Gran Reserva 2013
Chateau des Arnauds, Cuvee des Capucins 2012
Nine Hats, Red 2013
Benziger, Cabernet, Sonoma 2012
Roxy Ann, Claret 2012
Januik, Merlot 2012
Conundrum, White 2013
St. Francis, Sonoma Cabernet 2012
Villa Antinori, Toscana 2012
Decoy, Cabernet, Sonoma 2013
Marqués de Murrieta, Reserva Rioja 2010
Kendall-Jackson, Grand Reserve Cabernet 2009
Seven Hills, Merlot 2013
Los Vascos, Grande Reserve Cabernet 2011
Abbot's Table, Columbia Valley 2014
Forlorn Hope, St. Laurent, Ost-Intrigen 2013
Upper Five, Tempranillo 2010 and 2012
The Four Graces, Pinot Gris 2015
Topsail, Syrah 2013
Jim Barry, The Lodge Hill Shiraz 2013
Robert Mondavi, Cabernet, Napa Valley 2012
Adelsheim, Pinot Gris 2014
Boomtown, Cabernet 2013
Boulay, Sauvignon Blanc 2014
Domaine de Durban Muscat 2011
Patricia Green, Estate Pinot Noir 2012
Crios, Cabernet, Mendoza 2011
WillaKenzie, Pinot Gris 2014
Dehesa la Granja, Tempranillo 2008
Abacela, Vintner's Blend #15
Selvapiana, Chianti Ruffina 2012
Joseph Carr, Cabernet 2012
Prendo, Pinot Grigio, Vigneti Delle Dolomiti 2014
Joel Gott, Oregon Pinot Gris 2014
Otazu, Red 2010
Chehalem, Pinot Gris, Three Vineyards 2013
Wente, Merlot, Sandstone 2011
Abacela, Fiesta Tempranillo 2012
Monmousseau, Vouvray 2014
Duriguttti, Malbec 2013
Ruby, Pinot Noir 2012
Castellare, Chianti 2013
Lugana, San Benedetto 2013
Canoe Ridge, Cabernet, Horse Heaven Hills 2011
Arcangelo, Negroamaro Rosato
Vale do Bomfim, Douro 2012
Portuga, Branco 2013
Taylor Fladgate, Late Bottled Vintage Porto 2009
Pete's Mountain, Pinot Noir, Kristina's Reserve 2010
Rodney Strong, Cabernet, Sonoma 2012
Bookwalter, Subplot No. 28, 2012
Coppola, Sofia, Rose 2014
Kirkland, Napa Cabernet 2012
Trader Joe's Grand Reserve, Napa Meritage 2011
Kramer, Chardonnay Estate 2012
Forlorn Hope, Que Saudade 2013
Ramos, Premium Tinto, Alentejano 2012
Trader Joe's Grand Reserve, Rutherford Cabernet 2012
Bottego Vinaia, Pinot Grigio Trentino 2013
Villa Antinori, Toscana 2011
Pete's Mountain, Elijah's Reserve Cabernet, 2007
Beaulieu, George Latour Cabernet 1998

The Occasional Book

Ryan Holiday - The Obstacle is the Way
Ruth Sepetys - Between Shades of Gray
Richard Adams - Watership Down
Claire Vaye Watkins - Gold Fame Citrus
Markus Zusak - I am the Messenger
Anthony Doerr - All the Light We Cannot See
James Joyce - Dubliners
Cheryl Strayed - Torch
William Golding - Lord of the Flies
Saul Bellow - Mister Sammler's Planet
Phil Stanford - White House Call Girl
John Kaplan & Jon R. Waltz - The Trial of Jack Ruby
Kent Haruf - Eventide
David Halberstam - Summer of '49
Norman Mailer - The Naked and the Dead
Maria Dermoȗt - The Ten Thousand Things
William Faulkner - As I Lay Dying
Markus Zusak - The Book Thief
Christopher Buckley - Thank You for Smoking
William Shakespeare - Othello
Joseph Conrad - Heart of Darkness
Bill Bryson - A Short History of Nearly Everything
Cheryl Strayed - Tiny Beautiful Things
Sara Varon - Bake Sale
Stephen King - 11/22/63
Paul Goldstein - Errors and Omissions
Mark Twain - A Connecticut Yankee in King Arthur's Court
Steve Martin - Born Standing Up: A Comic's Life
Beverly Cleary - A Girl from Yamhill, a Memoir
Kent Haruf - Plainsong
Hope Larson - A Wrinkle in Time, the Graphic Novel
Rudyard Kipling - Kim
Peter Ames Carlin - Bruce
Fran Cannon Slayton - When the Whistle Blows
Neil Young - Waging Heavy Peace
Mark Bego - Aretha Franklin, the Queen of Soul (2012 ed.)
Jenny Lawson - Let's Pretend This Never Happened
J.D. Salinger - Franny and Zooey
Charles Dickens - A Christmas Carol
Timothy Egan - The Big Burn
Deborah Eisenberg - Transactions in a Foreign Currency
Kurt Vonnegut Jr. - Slaughterhouse Five
Kathryn Lance - Pandora's Genes
Cheryl Strayed - Wild
Fyodor Dostoyevsky - The Brothers Karamazov
Jack London - The House of Pride, and Other Tales of Hawaii
Jack Walker - The Extraordinary Rendition of Vincent Dellamaria
Colum McCann - Let the Great World Spin
Niccolò Machiavelli - The Prince
Harper Lee - To Kill a Mockingbird
Emma McLaughlin & Nicola Kraus - The Nanny Diaries
Brian Selznick - The Invention of Hugo Cabret
Sharon Creech - Walk Two Moons
Keith Richards - Life
F. Sionil Jose - Dusk
Natalie Babbitt - Tuck Everlasting
Justin Halpern - S#*t My Dad Says
Mark Herrmann - The Curmudgeon's Guide to Practicing Law
Barry Glassner - The Gospel of Food
Phil Stanford - The Peyton-Allan Files
Jesse Katz - The Opposite Field
Evelyn Waugh - Brideshead Revisited
J.K. Rowling - Harry Potter and the Sorcerer's Stone
David Sedaris - Holidays on Ice
Donald Miller - A Million Miles in a Thousand Years
Mitch Albom - Have a Little Faith
C.S. Lewis - The Magician's Nephew
F. Scott Fitzgerald - The Great Gatsby
William Shakespeare - A Midsummer Night's Dream
Ivan Doig - Bucking the Sun
Penda Diakité - I Lost My Tooth in Africa
Grace Lin - The Year of the Rat
Oscar Hijuelos - Mr. Ives' Christmas
Madeline L'Engle - A Wrinkle in Time
Steven Hart - The Last Three Miles
David Sedaris - Me Talk Pretty One Day
Karen Armstrong - The Spiral Staircase
Charles Larson - The Portland Murders
Adrian Wojnarowski - The Miracle of St. Anthony
William H. Colby - Long Goodbye
Steven D. Stark - Meet the Beatles
Phil Stanford - Portland Confidential
Rick Moody - Garden State
Jonathan Schwartz - All in Good Time
David Sedaris - Dress Your Family in Corduroy and Denim
Anthony Holden - Big Deal
Robert J. Spitzer - The Spirit of Leadership
James McManus - Positively Fifth Street
Jeff Noon - Vurt

Road Work

Miles run year to date: 155
At this date last year: 241
Total run in 2015: 271
In 2014: 401
In 2013: 257
In 2012: 129
In 2011: 113
In 2010: 125
In 2009: 67
In 2008: 28
In 2007: 113
In 2006: 100
In 2005: 149
In 2004: 204
In 2003: 269


Clicky Web Analytics