Wednesday, January 9, 2008

It ain’t just housing

I got an email from a regular reader linking me to an article regarding Highway Revenue Bonds. FYI, these are bonds issued my municipalities that are repaid through the revenue received from users of the project. A good example would be water and sewer revenue bonds (which are pretty safe in terms of default… people living in the burbs really aren’t looking for that rustic outhouse look just yet).

But Revenue Bonds for a highway project? A project that PROJECTS a 30-year payback period IF, and only IF, there is exponential growth in the use of the highway? How do you think that is going to work out in an oil-constricted future? Hell, 20 years from now I sincerely doubt much demand for toll roads.

By the way, let me toot my horn for a moment…

Last summer I wrote about a future credit crisis – Student Loans. Seen Sallie Mai’s stock price lately?

Just another of those unintended consequences. The Federal Government gets the great idea to provide loans to college students. So what do colleges do? Raise tuition, give faculty compensation that substantially exceeds the rate of wage inflation, pass the expense on to the students, because now they can “afford” it (by means of going into debt. If this sounds vaguely familiar to the housing crisis and easy credit, well, that is only because it is the same damn thing).

Making loans easily available often drives up the price of the financed commodity, to the substantial detriment of the participants. Just ask a South Florida homeowner.

Yours for a better not-so-easy-credit world

Mentatt (at) yahoo (d0t) com

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