Frank: Federal Bond Insurance Could be the Ticket to State & Local Economic Recovery

|
January 19, 2009 9:19 a.m.

Yes, the term is enough to put most people to sleep. But federal bond insurance has the potential to play a key role in lifting the economy out of recession, as House Financial Services Committee Chairman Barney Frank (D-MA) explained to us today.

I wanted to flag this portion of Frank’s comments precisely because they sound inaccessible at first. When he says that municipal bonds are going to be a great buy for the government as it invests the second half of the $700 billion bailout, Frank isn’t just predicting what can make a profit for taxpayers (and Wall Street). Buying municipal bonds — which hardly ever default, as Frank points out — is also a perfect way to expedite an economic recovery.

State and local governments issue “muni bonds,” as they’re known, to pay for building and repairing schools, sewers, roads, and other elements of the infrastructure. These are exactly the same projects that Barack Obama is now hoping to kickstart in his effort to save or create 3 million jobs. But as CNN explained earlier this year, the financial risks taken on by adventuresome bond insurers have left municipalities saddled with higher risk premiums for their ol’ reliable bonds.

Not only is that unfair, it’s a possible roadblock to state and local rebuilding. Frank told us he wants to look at creating a federal bond insurance program that would guarantee states and cities a low risk premium, one that reflects the steady and worthwhile nature of their projects. Amen, congressman.

Newsletters
Your subscription could not be saved. Please try again.
Your subscription has been successful.
Latest Dc
Comments are now Members-Only

Non-members are still able to read comments, but will no longer be able to participate. To join the conversation, sign up now and get:

30% Off Annual Prime Membership

TPM strives to build as inclusive a community as financially possible. We offer FREE memberships to those experiencing financial hardship and FREE memberships for students.

View all options
Comments
Masthead Masthead
Founder & Editor-in-Chief:
Executive Editor:
Managing Editor:
Associate Editor:
Editor at Large:
General Counsel:
Publisher:
Head of Product:
Director of Technology:
Associate Publisher:
Front End Developer:
Senior Designer: