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Saturday, January 22, 2011

Stop the State-Bankruptcy Meme !

urges Felix Salmon in his SEEKING ALPHA article, 'The Metastasizing State-Bankruptcy Meme'.

No ! No ! Anything but the MEME !

First,  you ask,  what the blazes is a 'meme' ?

According to, a meme is " unit of cultural information, such as a cultural practice or idea, that is transmitted verbally or by repeated action from one mind to another. "

According to Wikipedia, " a meme acts as a unit for carrying cultural ideas symbols or practices, which can be transmitted from one mind to another through writing, speech, gestures, rituals or other imitable phenomena. "

Okay.  Now you ask, what's Salmon foaming on about, anyway ?
Just this...

" Talk of introducing legislation allowing states to declare bankruptcy began in earnest in November. A speech by Newt Gingrich was followed up by a big Weekly Standard piece on the subject by David Skeel, and soon the meme filtered into the blogosphere. Unlike most political chatter, this kind of talk isn’t cheap at all: it’s very expensive. As the subject has refused to go away - which means, as House Republicans have continued to work on drafting some kind of bill - the municipal debt market has plunged.
" Now, with a massive front-page story in the NYT, the stakes have got even higher. Mary Williams Walsh is well aware of what she’s doing: she talks explicitly about “the fear of destabilizing the municipal bond market with the words ’state bankruptcy’”; while at the same time splashing those very words across the most influential public real estate in the world. She frets that the mere introduction of a state bankruptcy bill could lead to some kind of market penalty, even if it never passed - but the fact is that her own article, in and of itself, is almost certain to drive up borrowing costs and uncertainty.
" Walsh’s piece comes on the heels of an important report from the Center on Budget and Policy Priorities, which makes a compelling case that state bankruptcy is neither necessary nor desirable:
        It would be unwise to encourage states to abrogate their responsibilities by enacting a bankruptcy statute. States have adequate tools and means to meet their obligations. The potential for bankruptcy would just increase the political difficulty of using these other tools to balance their budgets, delaying the enactment of appropriate solutions. In addition, it could push up the cost of borrowing for all states, undermining efforts to invest in infrastructure.

" The fact is that states are not going to declare bankruptcy, and they’re not even going to be allowed to declare bankruptcy. So the worst thing that can happen, for the municipal bond market, is that people continue to talk about municipal bankruptcy for the next couple of years. Let’s take the option off the table, once and for all, rather than taking it seriously and thereby only making it harder for states to borrow the money they need. "
In other words, people should stop screaming 'FIRE !' in the crowded theater.

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