Alert December 29, 2008

California Issuers Ask Feds for Liquidity Help

Since Wall Street has now moved to Pennsylvania Avenue, on November 21, 2008, California Treasurer Bill Lockyer and 19 California municipalities sent a letter to House Speaker Nancy Pelosi (D-CA), House Financial Services Committee Chairman Barney Frank (D-MA), and Senators Dianne Feinstein (D-CA) and Barbara Boxer (D-CA) bemoaning California’s current credit crisis and requesting liquidity support for their variable rate debt. Recent ratings downgrades of the major municipal bond insurance companies and the concurrent credit freeze from banks providing bond credit enhancement and liquidity support have wreaked havoc on California’s short-term bond market. The letter does not outline a specific program, but suggests that it would help if the federal government were to purchase short-term municipal bonds or lend money to banks to make such purchases.