Friday, July 19, 2013

Detroit files for Bankrupcy

This doesn't seem to be getting as much press as it might have had it happened back in 2008/9, or maybe no one is very surprised, but the city of Detroit is filing for bankruptcy. All those news stories you read about city and state Governments having more obligations than they could meet, huge pensions, etc. seem to have concluded in Michigan, with Motor City wiping the slate clean.

This did not seem to make the news, and I cannot guess that the impact will be. First, I don't think that it will start any sort of domino chain as predicted by Meredith Whitney. Detroit may be the first, but it will also likely be the last (at least until the next crises).

Second, I'm curious as to which liability holders will be made whole and who will take a haircut. Detroit owes about $20B, of which half are retirement liabilities (pensions, health-care, life insurance) and the rest are to bond holders. How the pie gets split will reveal how power actually rest between the players.

Third, the state of Michigan could sweep down and take on the obligations themselves, turning this from a City level issue to a State level issue and then daring the US Govt not to Federalize it. The Federal Govt could, of course, write a check whenever they pleased so this is ultimately a political calculation. Again, interesting to see how power actually rests between the players. I do not know what the dynamics are between Detroit and Lansing, or between Lansing and DC, but I guess we will find out.

Finally, I don't think that a haircut in Detroit Munis will impact the municipal bond market more generally. There seems to be no contagion concern around this. I don't know who holds Detroit Munis, and to what degree a write down amongst those players will force them to sell the rest of their portfolio, and generate at LTCM style melt-down, but no one seems worried.

Monday, July 08, 2013

Warren Mosler makes the New York Times

They say that there is no such thing as bad publicity, so by that logic it's great to see Warren Mosler in the New York Times. While I don't think that the article is particularly fair, I think that it does illustrate how reporters use Google just like the rest of us and the blogosphere can be genuinely influential.

I discovered Mosler back in 2008, where I think I called him "mad" and "delicious". Since then I've gone "mad" too I suppose, and now, 5 years later, I'm scratching my head over why MMT hasn't gone mainstream. It's just correct, but that seems to carry little weight, which has been a big learning for me.

The NYTimes article continues the trend of relegating Mosler & MMT to the lunatic fringe, but by not ignoring him they have inadvertently moved to step 2 of the Gandhi 4 step plan to revolution. We'll see if he continues to get publicly attacked.

MMT does not fit into traditional left/right narratives, and you can see this confusion in the first paragraph:
But his prescriptions for economic policy make him sound like a warrior for the 99 percent. When the recession hit, Mr. Mosler said, the government should have spent and spent until unemployment came down to a comfortable level. Forget saving the banks through the Troubled Asset Relief Program. Washington should have eliminated the payroll tax, given every state $500 per resident and offered a basic job to anyone who wanted one. 
So first he is set up as a left winger ("99%", "government should have spent and spent") and then the first policy prescription is a tax cut. In general, the article is focused on personal details and designed to make Mosler look bad. But the NYTimes usually makes me feel like I'm watching the Olympics on NBC.