This article is very interesting and ties very well into our unit on valuing bonds. Municipalities have been a very concerning topic in recent times. Many fear that Municipals will default, meaning they will not be able to payout their bonds. It is very important to understand that Municipal bonds are sometimes very intriguing to investors because you do not have to pay any tax on them. That is why the rates are typically low. However, lately the rates on Munies have been pretty high and that is because with more risk, investors want more return. Therefore, if a Municipal's default risk is going up, the need to issue a bond that pays more interest. This is where risk aversion comes into play. How risk averse are you?
Please read the following article and blog about it by next Thursday, class time.
http://finance.yahoo.com/real-estate/article/113588/american-cities-going-broke-247wallst
I found reading this article was very interesting. For one the title itself, it stated that there are 9 American cities and counties that are going broke. After reading that I was curious to find out which cities and counties these were. A city that stood out to me was that Detroit is still considered to be on this list. After having all of those car companies that were stationed in the city, it is still hard to imagine that this city would be in so much economic depression. Yet it still is and it is continuing to get worse. The recession in this country continues to make the cities go more broke. The article then goes on to talk about projects that the cities tried to implement in order to help bring more money in. For example, in Salem, NJ they built a new office building in the downtown area in hopes of bringing in more jobs. This project did not work and the city continues to fall deeper and deeper. In the end it was clear one thing that this article brought forward was that these cities and counties are in economic trouble and only continue to get worse.
ReplyDeleteThis article grabbed my attention right away because I was immediately curious to see what cities or counties made the list. It was interesting to see how what seem to us “small things” that cities do have such a large effect on the economy of that said city. For example, Harrison, New Jersey invested in a $200 million dollar sports complex. To us, this seems cool and modern, but ended up being detrimental to the economy of Harrison. On the other hand, Strafford County was using two-fifths of their budget on a single nursing home. This goes to show how different places have such different priorities and how these simple decisions have such a negative effect on the economy and the people living in these places.
ReplyDeleteThis article was really interesting because it shows how the risks hat investors take can have an effect on the economy. The 24/7 Wall St. has looked at the nine municipal cities with the worst credit ratings assigned by Moody's, which is rated Ba2 and lower. To get a sense of how bad this is, we must understand the risks that the investors take. The level of credit rating implies a substantial risk of default for investors who bought these bonds with the expectation of being repaid. A great factor in not repaying the bond is the economic situations. The recession and high unemployment are possible reasons why these municipalities are facing shrinking tax bases. For example Detroit has been affected by the recession and has had the population decrease dramatically because of their economy.
ReplyDelete-Amanda Pallikunnel
This article was very interesting and gave me a better understanding of the valuing of bonds. It was very interesting to see the amount of risk that has been taken from the different cities. Many of these cities are bankrupt now because of the excessive liabilities of these municipalities. Also the recession plays a key part in why these cities are going in the tank.
ReplyDeleteHello everyone,
ReplyDeleteAlthough this article was informative, it was not a pleasure for me to read. The list of nine cities and counties mentioned are just the tip of the iceberg, or the most destitute. To make sense of this, these municipalities are headed to default, because of miscalculated risks due to, pension funds, corporate bankruptcies, poor investments, high unemployment, healthcare, and every other factor caused by the financial crisis. Since much of this is funded by junk-bonds, the investor will receive a higher yield, but also takes on the a higher risk of default.
This leads me into my ideas to mitigate the difficulties munnies have with their budget.
1. In the case of Rhode Island and all other states and counties with crazy pensions. Since, these are unaffordable, munnies and their workers need to find middle-ground. Why? It's unaffordable, but people still need their pension when they are retired. Conclusion - Workers need to pay into it more and the city/county needs to re-structure employees benefits.
2. For Detroit and Pontiac - struggle, Yes, but they are not the only ones. Think of all the other rust belt cities, where manufacturing has left. They are hurting bad too. But the Wolverine state hit hard and deep. When the great recession occurred, GM and Chrysler went bankrupt. That right there is a double whammy. First, the cities revenue spurns, because 2 of the Big Three wont be paying as much taxes. Plus all those workers they laid off, wont be paying much sales tax. Therefore its just unnerving for a municipality to suffer such problems. Hopefully, they pay off their debt.
This article was pretty sad actually. To look at these communities who tried to help their citizens by building the area up, and then they were never able to fill the stadium or office building, for example. In regard to the bonds that in many cases were used to finance these projects, it's sad to see how a city like Camden literally doesn't bring in any money. It's a hard scenario to get out of. On one hand, they need the money in order attract new business, which would theoretically bring some money to the area. On the other hand, not many companies are going to look to these cities as a place to invest because there is not much promise of return of anything never mind a positive one.
ReplyDeleteThis article left me a bit confused about things such as "junk bonds" and how municipalities are issued to cities or counties. Also I'm interested in making sense of the credit rating scale the article referred to. It is amazing how the debt these 9 cities and counties have accumulated through bad decision making (200 mil. sports arena) and the overall recession. Take Camden, NJ for instance; their median household income is 25,418 which is the lowest of the 9 recorded. To go along with such a weak household income, the article mentions that many of the areas in camden are tax-exempt. This is certainly not going to help the growth of the city. Businesses are scared of moving into the area and not being profitable.
ReplyDeleteI found the article to be interesting and a little bit confusing at times also. I was interested to see the cities and counties that are going broke. I was surprised to see how spread out they were, i was expecting that they would be surrounded around more big city areas. Not surprising that Detroit made the list. It was also interesting to see what some of the cities and counties spent money on that ultimately helped them get into the debt they are in,
ReplyDeleteThis is a very heart felt article. Every body knows about these problems and nobody is taking a stand for their country, especially our government. It is never too late to save these “bankrupt” places in the United States, nine places out of thousands of places needing attention. The government should alleviate some financial problems affected by these areas by introducing better financial mangers or public figures that can correct the mistakes that have occurred and make sure it won’t happen again. These municipal bodies obviously need some sort of attention before the greater city will be affected and the people of that city will abandon it before they becomes jobless and hopeless.
ReplyDeleteI think that in order to understand finance fully real life examples are necessary. That is why this article is so interesting. The article describes the efforts that different cities have made in order to save their economies. It is important to note the different tactics taken and how the risks have failed the communities. The county I found most interesting was Jefferson County, Alabama. They have debt due to work done on the sewer system which most, I believe, would see as necessary work. They were unlucky though due to the bond deals that did not work out as planned and the corruption of the city officials. These real examples exemplify the importance of bond dealings and general knowledge of bonds.
ReplyDelete-Maire
I found this article very interesting. There were places such as Detroit and Salem that I expected to be on there but I never would have guessed the others. This article really shows how cities are struggling in tough economic times and how there are a lot of problems right know that no one seems to have the answer for
ReplyDeleteI want to point out that 3 out of these 9 cities are located in New Jersey. I still love it though. My thoughts are that many of these cities fell on bad luck. Now this is not an excuse because I believe many of this cities could have avoid many of these issues. Camden has had 3 of the past 5 mayors have been conflicted of crime. One would have thought that they would have learned after the first one. Harrison builds a soccer stadium in their "city". This city has a population of only 13,620. Olean population is 15,347. Now granted Harrison is right nex to Newark which has a population a little over 277K which is larger then Buffalo population of 260K. Anyway No one actual likes soccer. So to build a 200 Million dollar stadium is foolish. The economy and real estate are tough to predict and easy to blame for things that already happen. Action-Reaction. Cut back on spending. Save money/ invested in things that will have a benefit to the city quickly.
ReplyDeleteI saw in this article how for anybody, from people, companies to cities and counties, either bad luck or bad investments are always something you need to be aware and have a plan B or think about how much risk you want to take. In this case this cities/counties were afected by different things but in the end got into a position from where is not easy to get out. This is because they have been graded under the "line" where the mayority of people will look when they want make secure or risk adverse investments in bonds; therefore for these places to get out this position will not be easy and it will take some time to earn trust from investors.
ReplyDeleteThis article is interesting because it explains how many cities and states are being drastically effected by investments that are not paying out as expected. In many cases, these cities are facing debt that is twice as much as their revenue. In some cases it is nearly 300% more than their revenue. Some cities have made terrible decisions, such as Harrison, NJ spending 200 million on a soccer stadium. Like Mike has stated above, it is just a foolish investment.
ReplyDeleteThis article is very interesting because it explains how location is affected by investments. Some places are facing more problems with debt than others. We are in major debt as a country, but we still tend to pay millions for investments that are inappropriate and could be used to help pay the debt back.
ReplyDeleteThis article was interesting because it explained the value of bonds along with the rank of cities and what ones made it. This cities had to go through a lot and take risks in order to get where they are now. It was ridiculous to see what some of the things the cities wasted money on to get them into the financial debt they are in.
ReplyDeleteIn this articleI notiched that companies either have good luck or bad investments and always have to be preapred for anythign that happens. It was intresting to see all the different companies bond ratings. Also the fact that some companies have double the debt then their total revnue was shocking. For example pointac had major debt in 2009 and this showed the company that they needed to make changes immediatley. Bonds on a whole show just how it affects so many people and companies.
ReplyDeleteI honestly thought this article was very confusing. However, I did understand that there are several cities/states that are experiencing severe bankruptcy. This is something that we all know about, but don't really pay attention to. I think Lauren made a great point in saying that the government "should alleviate some financial problems affected by these areas by introducing better financial mangers or public figures that can correct the mistakes that have occurred and make sure it won’t happen again". If only that could belief could be a reality!
ReplyDeleteIn reading this article, it is very interesting and definitely not surprising that there are nine US cities and counties that are nearing going absolutely broke. Detroit, once a booming city filled with economic growth and an industry capital, is an American city in the worst trouble. Coming from Buffalo, I can relate to people from Detroit in the fact that industry and jobs left the area, causing economic decrease and unemployment to rise. Cities need to think strongly about investments they make and whether or not they can make a strong profit while also having a high job security.
ReplyDeleteAs I began to read this article so many thoughts went through my head. For starters, at the moment it is nine american cities and countries but the more irresponsible decisions that people/corporations continue to make that number will quickly increase. Then I started to comprehend the reasons as to why these countries are in the position they are in. Since the recession has hit the United States hard, it was expected for some cities to do worst than others. In some of those cities the population decreased since so many people moved away, and then taxes had to increase as unemployment increased which definitely contributed to their horrible financial statuses. The other reasons for these cities to be in the state that they are in is because of horrible investment decisions and have liabilities that they cannot cope with. Overall these cities are in a tremendous need of some financial help or they definitely will go broke and have a huge decrease in population.
ReplyDeleteThis article really caught my attention. Although there is obviously debt and unemployment within the United States, it really was an eye-opener for me. Living in the Bona bubble, I feel as though I don't really know what is going on all around us throughout our own country. Freshman year, I remember talking with my roommate about our cities: she was from Detroit and I am from Buffalo. I always knew that Detroit was deteriorating through its economy but I didn't realize how big of a deal it actually was... I was not expecting it to make this list. This article really opened my eyes to the importance of finance everywhere. Every little decision we make can affect us greatly. Just like these cities have made decisions that have put them on the list, each of us make financial decisions in our lives that are just as important.
ReplyDeleteUpon reading this article i was unaware of the effect that bonds have on many small financially deprived towns throughout our country. It seams as if NJ has many small towns stuck inside a vicious cycle of poor leadership and debt. With the majority of the property being tax free, the town has been forced to use up funding because of the lack of tax collection. This cycle of bankruptcy and unemployment needs to be broken to start a stronger growth trend among our future generations.
ReplyDeleteI found this article very interesting. It amazes to see the ultimate effects that the recession has had on every city and the devastation that is has caused many smaller economies. It seems to me that many cities should spend less money on providing pension plans to city employees and more money trying to improve the city itself. The pension plan issue in Central Falls, Rhode Island is terrible. In our local newspaper there have been concerns expressed about how much the city pays out in pension plans such as this and it really concerns me that such a thing could happen here, especially when homeowners here pay such high property and city taxes.
ReplyDeleteI found this article interesting in the fact that I didn’t know too well about this situation. It was very informative about the bankruptcy situation in these cities and counties. I was surprised to see the amount of debt compared to revenue in these cities. I do understand how a city like Detroit got in this situation with industry’s and jobs flooding out of the city it is almost impossible to stay afloat with so much economic duress.
ReplyDeleteI thought the article was really neat in the fact that in many of the
ReplyDeletecities, the article pointed out the one or two bad decisions made my
investors or an internal problem (poor tax base, pension plans gone
wrong, etc.) One state I didn't see on here was New York. Why? Because
we have a high tax rate, and in some counties even a county wide income
tax (like Bradford). How else is the state supposed to get money if,
like RI, much of the land is tax exempt. That's a huge chunk of
government budget not being fulfilled, leaving things like highway and
street restoration/improvements in the background, but at least you
don't have to pay taxes? I'd be happy to pay taxes if I saw the taxpayer
money going to good causes. Great article though, really gave insight on
problem places in the US and why and what we can do to supplant those
deficits.
-James Tantalo
The article surprised me by mentioning about the cities or counties that are going broke since I would never think that these cities are in such economic depression. For example, Central Falls, RI declared bankruptcy in August due to its bloated pension plan. As we always know, many companies with these plans face a deficit between the money currently in their plans and the total amount of their pension obligations. Contributions may be made by the employee, the employer, or both. The employer bears the investment risk. In this case, Central Falls promised 80$ million in retirement benefit, which is 5 times the city's general budget fund, but it runs out of money, exhausts its pension fund, leading to bankruptcy. we can just hope that the economy will recover and thus better decisions will be made.
ReplyDeleteGiao Ngo
think everyone can agree that this article will grab your attention, 9 American Cities and Counties Going Broke. All nine cities are in different or unique situations but will have long-standing problems. Some of the nine cities are facing shrinking tax bases and high unemployment because of the recession. Others have excessive liabilities or bad investments. Central Falls, RI declared bankruptcy because of the city’s pension plan. Pontiac and Detroit have similar problems with going bankrupt during the recession. Detroit has suffered the worse out of the cities with Jefferson County in second.
ReplyDeleteMegan M
There are a few interesting points in this article. The first being that only 25% of municipalities are rated junk, yet so many are tanking. Moody accounts that for municipalities dealing with deeper and longer-lasting problems than just an investment grade.
ReplyDeleteA second point, as Mike referred to, was on the building of a soccer stadium in Harrison. Why would that city of around 13,000 people invest $200 million into a stadium (capacity over 30,000, 3x the population) that has little hope in showing returns. Where is the common sense? A team will have difficulty in drawing that number of outside fans seeing that soccer is not a major sport in the US.
A third point was on the Detroit excerpt. The median household income is in the lower third and, as many know, it has been noted as being hit the hardest from the recession. The common sense that was lacking here involves both the city and the auto company. The auto companies relied on the city to bail them out, yet the city relied on them for a tax base, so they were reeled in to paying the debt off with money that they did not have a lot of.
Iggy
The area that I thought did not have a well planned project was Salem. I feel like the sportscenter was overrall a bad planned project from what I read. However, the article provided good insight on municipalities as well as deficits. Some of the cities I did know where on the poorer end also, but didnt relly think they were in debt that much. I think that cities and areas need make sure they have enough supportive evidence that projects will generate income for sure.
ReplyDeleteDominic
The article was very interesting because it showed what cities and counties were going broke and what the main cause of it was. The two major causes that the municipalities on the list are facing have to do with the shrinking tax base and excessive liabilities. The shrinking tax base has to do with the recession and the high unemployment. This has caused some cities such as Detroit to have a population that decreased majorly. The excessive liabilities have to do with the companies making bad investments and not receiving that amount of money they expected to earn on certain projects.
ReplyDeleteTiffany
While reading this article I was immediately interested with the fact that even what we may think as a profitable city may being steadily going broke. For me, this is hard to wrap my brain around, because cities seem like they are doing so well such as Detroit yet are not doing as well as once thought. Even though I cannot wrap my brain around the circumstances, this does not come as a surprise to me. If our country as a whole is in an economic downturn, then why would I think that some of our major cities would be doing any better. Though most attempts were futile, a lot has been done in terms of economic rebuilds. Office buildings were built and other things of that nature in order to bring in more employment ultimately bringing in more revenue to the city.
ReplyDeleteBen D
This article was very interesting to read. I could have guessed that a place like Camden, New Jersey would find it's place on this list. Areas like that are spending their money in places they shouldn't be. For example, building a 200 million dollar sports facility while the economy isn't doing so well, is not a smart business decision. It hurts the people that live in that area.
ReplyDeleteAlex B
I thought that the article was very interesting, because I didn’t know that there were cities and counties filing for bankruptcy. And what made the article even more interesting to me is that last week I read an article on yahoo that listed the poorest cities in the U.S. and all of the cities were on the list of course with the same reason, faulty investments, bad budgeting, or they couldn’t generate enough revenue because of a low tax base. Again when I finished reading I couldn’t help but notice the state that appears most frequent on the list is the state that I’m from, New Jersey. This is a surprise to me because I’m from Jersey and I don’t hear about any of this, whenever I watch the news or hear about the recession it’s always about Detroit or some other city/state that has been hit real hard, I never hear Jersey being mentioned.
ReplyDeleteBobby O
I was surprised to see some of the different cities that were listed as going broke. I did not think that Detroit was one of them. However, the fact that our country is in serious debt is no surprise. With our government and cities spending millions of dollars building arena's and office building that are not being used its no wonder were in so much trouble. If we can't get on financing together by taking a step back and looking at the big picture we as a nation are only going to find ourselves in more trouble. If we stop spending and focus more on helping our economy regain strength by helping the cities that are going broke we might be able to crawl out of this crisis.
ReplyDeleteGillian K
This article was very interesting because it showed which American cities that were either broke or going broke. It seems to me that along with the decline in American cars that the detriot car companies have felt that impact also. this could explain why the city is going broke. This article really shows how bad the economy really is.-- John DiMartino
ReplyDelete