March 4, 2011
March 4, 2011
March 4, 2011
March 4, 2011
Everybody’s suddenly petrified about municipal debt. But the fate of bondholders ought to be the least of our worries.
Vallejo, a city about 25 miles north of San Francisco, offers a sneak preview of what could be the latest version of economic disaster. When the foreclosure wave hit, local tax revenue evaporated. The city managers couldn’t make their budget and eliminated financing for the local museum, the symphony and the senior center. The city begged the public-employee unions for pay cuts — all to no avail. In May 2008, Vallejo filed for bankruptcy. The filing drew little national attention; most people were too busy watching banks fail to worry about cities. But while the banks have largely recovered, Vallejo is still in bankruptcy. The police force has shrunk from 153 officers to 92. Calls for any but the most serious crimes go unanswered. Residents who complain about prostitutes or vandals are told to fill out a form. Three of the city’s firehouses were closed. Last summer, a fire ravaged a house in one of the city’s better neighborhoods; one of the firetrucks came from another town, 15 miles away. Is this America’s future?
Cities across America are facing dire financial distress. Meredith Whitney, a banking analyst turned independent adviser who correctly predicted the banking meltdown, has issued an Armageddon-like prediction of mass municipal defaults. Others — notably Newt Gingrich — have suggested that state governments as well as cities should be allowed to file for bankruptcy. Congress held a hearing to examine the idea.
These forecasts of apocalypse have touched a nerve. Americans, still reeling from the devastating impact of the mortgage debacle, are fearful that the next economic disaster is only a matter of time. To anyone reading the headlines of budget deficits and staggering pension liabilities, it takes little imagination to conclude that the next big one will be government itself. The problems of cities are everywhere. The city council of Harrisburg, the capital of Pennsylvania, has enlisted a big New York law firm to explore bankruptcy as a means of restructuring a crushing debt. Central Falls, R.I., is in receivership. Hamtramck, Mich., a small city within Detroit’s borders, says it could run out of money next month. Hamtramck has only 90 employees, yet it is saddled with the pensions and health care obligations of 252 retirees. Detroit itself is at risk. Large deficits will mean closing about half of the city’s schools and will push high-school class sizes to 60 students.
These and other struggling locales do not begin to approach Whitney’s forecast of hundreds of billions in municipal defaults this year. (It would take defaults by 40cities with as much debt as Detroit to reach even $100 billion.) Some industry experts accuse Whitney of exaggerating the crisis and of worsening the cities’ problems by frightening away investors. Whitney’s theory is that states, whose finances are also in desperate shape, will cut off local aid to preserve their own budgets; cities that have been subsisting on government transfers would become fiscal orphans and, in a financial sense, unworkable. She has not elaborated on her thesis beyond a few well-chosen television appearances. (She declined to talk to me.) But in the two months following Whitney’s warning, investors unloaded about $25 billion in shares of mutual funds that invest in municipal bonds. The selling spree sent the prices of these munis, typically among the most reliable investments, into a free fall.
If muni bonds were to default (causing investors permanent harm, as distinct from the temporary discomfort of price fluctuations), ordinary Americans would lose big. Munis are bonds issued by state and local governments, as well as agencies like hospitals, with the interest going to bondholders tax-free. Their relative safety, plus the tax break, has made them a favorite among individual investors, who own about two-thirds of the total, either directly or via mutual funds.
But what if the burden of municipal woes falls elsewhere than on bondholders? Yes, cities and states have creditors. They also have citizens who rely on their services and who pay the taxes, and they have public employees who are dependent on stable public-sector jobs and often-ample benefits. Whitney isn’t wrong about a crisis in local government; the crisis is here. The question is, will it be articulated in terms of bond defaults or larger kindergarten classes — or no kindergarten classes at all? The efforts in Wisconsin and elsewhere to squash organized labor suggest that politicians are no longer so willing to protect public employees. Teachers and nurses are likely to suffer well in advance of investors.
The United States has nearly $3 trillion in municipal bonds outstanding. Though some are backed by specific projects like airports and toll roads, most are general-obligation bonds; local taxes are used to pay the interest on those bonds before other expenses. Unlike a corporation, whose revenue can disappear, cities do not go away — or at least, most of them don’t. Detroit is in trouble because of its shrinking population, as are any number of towns in the former steel region of Western Pennsylvania. Many former industrial cities are burdened with governments that are out of proportion to their shrunken tax bases. Local budgets were stretched even before the recession; now, diminished tax receipts have threatened their ability to balance budgets. Bondholders in those municipalities have reason to sweat.
For areas with a stable economy, however, solvency is largely a matter of political will. Historically, far fewer than 1 percent of municipal bonds fail, and most that do tend to be issued for quasi public projects rather than cities. Typical is a monorail that links Las Vegas casinos — and that defaulted for lack of riders. In 2008, a record 166 issues defaulted, but the great majority were Florida land developments; essentially, builders used the tax code to finance sewers and water lines and then walked away when the mortgage bubble burst. The issues were small; defaults in 2008 totaled $8.5 billion. Last year, defaults fell to $2.8 billion.
Chastened by their failure to foresee the mortgage bust, the credit agencies have downgraded munis as the cities’ troubles have accelerated. But the agencies that evaluate muni bonds are paid to worry about bondholders, not about kindergartners or local fire departments; consequently, they are not alarmed. Moody’s says it expects defaults to rise in 2011. But the agencies do not predict a default epidemic. “Munis are not like subprime bonds,” Eric Friedland, a managing director at Fitch Ratings, said…
March 4, 2011
When 19-year-old Nahal protested in Tahrir Square several weeks ago, she wasn’t there to fight for her rights as a woman, but to fight for her rights as an Egyptian. “There are no differences between men and women here,” she said. “We are all one hand.”
Thousands of women echoed Nahal’s sentiments as they raised brazen signs, led lively chants, and stood next to men in what some have deemed an unprecedented display of equality between the sexes in modern Egyptian history.
Although the movement that ended a dictator’s 30-year reign in just 18 breathtaking days had little to do with feminist concerns, in the weeks following the country’s uprising, women are saying the empowerment they felt during the demonstrations should be used to effect change for women themselves.
“In the square, I felt for the first time that women are equal to men,” said activist and feminist Nawal El Saadawi. Now more than ever before, she says, there is a promising opportunity to act. “It’s like I carried a burden on my back, and now I feel free.”
Saadawi, a a spry octogenarian, has led the fight for women’s rights in Egypt for decades. She was arrested and censored for her work under Anwar Sadat’s and Hosni Mubarak’s regimes. “Suzanne Mubarak silenced women, killed the feminist movement, and did nothing for us,” she said, dismissing the former first lady’s “National Council of Women” as little more than a PR campaign for the regime.
Women have long faced challenges in Egypt, from sexual harassment on the streets to prejudice at work to paternity laws upheld in the courtroom, Egyptians say.
As the country grapples with a transition to democracy, some worry that these problems could get worse with an Islamic revival. Many, however, do not see this as a real threat. “The younger generations of the Muslim Brotherhood believe in a secular constitution, believe in equality between men and women, equality between Muslim and Christians,” Saadawi said. “So we are not afraid of the Muslim Brotherhood…”
March 4, 2011
The little monkey had a happy life in Africa—eating bananas, swinging on vines. When he was captured, by a man in a yellow hat, his distress was written on his face. He gaped at his body, clearly shocked to find it trapped in a brown sack, winched at the neck. But the little monkey quickly recovered his equanimity. By the time he boarded the rowboat, he was sad to be leaving Africa, but a little curious, too.
Thus began the adventures of Curious George, one of the most popular and enduring children’s characters of all time. During the course of seven original stories by H.A. and Margret Rey, he moved to America, joined the circus, and became an astronaut. Those are big adventures for a little monkey. But none was quite as dramatic as what had happened to his creators in real life. “Curious George Saves the Day”, an exhibition at the Contemporary Jewish Museum in San Francisco through March 13th, makes that much clear.
Hans Augusto Reyersbach and Margarete Waldstein were German Jews from Hamburg. Hans, born in 1898, lived near the zoo and taught himself to draw there (also, how to bark like a seal). After the first world war he tried to scrape together a living drawing posters for the circus, but soon packed up and moved to Rio de Janeiro. He was there, selling bathtubs, when Margarete arrived. She was working as a photographer, and knew Hans as a family friend.
Hans and Margarete married in 1935, and shortened their name to make it easier in Portuguese. The next year, they packed up their pet marmosets for a honeymoon in Paris. Louise Borden, in her short biography of the couple, mentions that the marmosets died during the cold and rainy crossing, even though Margarete knitted them a pair of sweaters.They planned to stay for two weeks. That turned into four years. The Reys, working together, were becoming established as the authors of children’s books. He drew the pictures, and she wrote the text (and occasionally modelled the animal poses). The monkey who would become world-famous made his first appearance as Fifi, in stories about a giraffe called Raffy who made friends with nine little monkeys. There was a brave one, a strong one, a good one; all were without tails, the Reys explained, because the illustrations were already cluttered with the monkeys and the gangly giraffe. Fifi was the curious and clever one. The Reys decided he should have his own book.As the decade drew to a close, no Jews in Europe felt safe. The Reys were working, but in letters to his publisher H.A. made it clear that progress had slowed. In September 1939 the couple left Paris for the Chateau Feuga, tucked away in the Dordogne region. “It feels ridiculous to be thinking about children’s books,” wrote H.A. Rey. At one point French police turned up at the castle—they were suspicious about what the strangers were up to—but finding the illustrations scattered around, left them in peace.The Reys returned to Paris several months later to find that the situation had grown more ominous. Refugees were streaming into Paris, and streaming out for safer destinations farther south. Ms Borden describes the preparations the Reys made for their escape: they tried to buy bicycles, but the only one they could find was a broken tandem. Hans bought spare parts, and spent an anxious few days fixing up a couple of single bikes. On June 12th 1940, the couple left Paris. The Nazis arrived less than two days later.The Reys made their way to the south of France, and spent several weeks in a makeshift refugee camp in a high-school gymnasium before proceeding to Lisbon. From there they arranged passage to Brazil, and months later to New York. They carried with them the first drawings for the Curious George books, and showed them to police as proof of their occupation. The first book, “Curious George”, was published in 1941. The little monkey arrives in New York and strolls off of the ship with a smile, holding his papers in one hand and a little red valise in the other. A policeman salutes in welcome.Curious George has his share of troubles in America. For example, he had to go to the hospital after swallowing a puzzle piece. The emotional clarity of Hans’ illustrations is brilliant in these scenes of setback. Sitting alone in his hospital bed, with a single fat tear rolling down his cheek, the little monkey is the picture of distress. And he is occasionally naughty. The exhibition displays a hand-written list, from Hans, of Curious George’s infractions: obstructing traffic by sitting on a light, escaping from jail, monkeying with the police…