Worst Case Scenario?

If you don’t want public services to collapse and taxes to soar, you’d better hope yesterday was an unusual day, and January was an unusual month. According “Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg…New York state’s Metropolitan Transportation Authority also had failures, officials said.” Did you hear that? The MTA tried to sell bonds to finance it’s operations, and no one would buy them. All this pontificating about the MTA surplus, and the reality is the agency is going deeper and deeper into debt, but now perhaps it can’t.

The MTA budget also assumes that real estate transfer tax revenues, having soared from $400 million per year to $1.6 billion, would drop back to a still-high $1.2 billion. Well, commercial real estate sales are financed by mortgage-backed securities. And U.S. News and World Report said that NO commercial mortgage-backed securities were issued in January, for the first time since 1990 (in a commercial real estate depression). None? So how will properties get sold, inflating city, state and MTA coffers?

It gets worse. I was shocked to read that some of the MTA’s debt is floating rate. Saved a few bucks back in the day, so elected officials would have a few more nickels to dispense to those who matter. So what will happen if the interest rate on those debts soars, because everyone wants to borrow and spend (governments, people, companies) and no one has bothered to save?

And yet elected officials continue to promise goodies we will never see, while those who matter have a guaranteed first claim on whatever is available. Let’s hope it won’t be Argentina bad, but this country has put itself in one hell of a hole.