1 00:00:10,520 --> 00:00:14,400 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:14,440 --> 00:00:18,759 Speaker 1: I'm Joe Wisenthal and I'm Tracy Allowin. Tracy, do you 3 00:00:18,800 --> 00:00:22,799 Speaker 1: remember you said on a recent episode something akin to 4 00:00:23,920 --> 00:00:27,720 Speaker 1: we finally covered all of the different aspects of this crisis. 5 00:00:28,360 --> 00:00:32,280 Speaker 1: I knew you were jotting that down in your memory 6 00:00:32,320 --> 00:00:33,960 Speaker 1: and it was going to come back to haunt me. 7 00:00:34,240 --> 00:00:36,720 Speaker 1: I stand by it. I think we've hit the really 8 00:00:36,800 --> 00:00:39,960 Speaker 1: big ones, but I know you're going to pull another 9 00:00:40,000 --> 00:00:42,400 Speaker 1: one out of your pocket right now. I think of 10 00:00:42,560 --> 00:00:48,440 Speaker 1: like twenty more to come. I said the major strains 11 00:00:48,840 --> 00:00:52,120 Speaker 1: in the financial system. I caveated it. You can't say 12 00:00:52,159 --> 00:00:56,639 Speaker 1: that there are forty major financial strains, but you're going 13 00:00:56,680 --> 00:00:58,880 Speaker 1: to I think I think they're white. I think that 14 00:00:59,040 --> 00:01:02,720 Speaker 1: might literally be already more major ones. But nonetheless, we 15 00:01:02,800 --> 00:01:05,800 Speaker 1: definitely have not hit all the major ones, and so 16 00:01:05,840 --> 00:01:08,760 Speaker 1: I think that today's episode will be one that I 17 00:01:08,800 --> 00:01:14,600 Speaker 1: think sort of unquestionably counts as major even if you 18 00:01:14,640 --> 00:01:18,240 Speaker 1: know the number of remaining ones are still TPD alright, 19 00:01:18,319 --> 00:01:21,080 Speaker 1: fair enough, and I think I know which one it is. 20 00:01:21,280 --> 00:01:24,080 Speaker 1: It has to be the UNI market, right, Yeah, so 21 00:01:24,160 --> 00:01:28,880 Speaker 1: absolutely so. Due to the nature of the crisis that 22 00:01:28,920 --> 00:01:32,120 Speaker 1: we're seeing we have a situation in which a lot 23 00:01:32,240 --> 00:01:35,200 Speaker 1: of the costs, particularly on the public health side, are 24 00:01:35,280 --> 00:01:39,240 Speaker 1: falling on state and local authorities. At the same time, 25 00:01:39,319 --> 00:01:42,680 Speaker 1: their tax revenue is rapidly drying up because there's so 26 00:01:42,800 --> 00:01:46,520 Speaker 1: little economic activity going on within these state and local 27 00:01:46,560 --> 00:01:50,040 Speaker 1: taxing authorities. And so what is a major employer of 28 00:01:50,080 --> 00:01:53,040 Speaker 1: many people all in a major source of economic stability. 29 00:01:53,160 --> 00:01:58,040 Speaker 1: They're all simultaneously running into rapid budget problems. And we've 30 00:01:58,040 --> 00:02:02,840 Speaker 1: already seen just in the early days, major wave of cuts, layoffs, 31 00:02:02,840 --> 00:02:08,640 Speaker 1: and so forth from cities, towns, and states around the country. Yeah, 32 00:02:08,639 --> 00:02:11,280 Speaker 1: and I think from a market's perspective, I remember seeing 33 00:02:11,280 --> 00:02:14,520 Speaker 1: a couple of headlines that basically said we didn't have 34 00:02:14,600 --> 00:02:19,120 Speaker 1: any new issuance new muni bond issuance in March, and 35 00:02:19,120 --> 00:02:21,120 Speaker 1: we had a bunch of outflows, I think, the most 36 00:02:21,120 --> 00:02:24,320 Speaker 1: outflows on record from muni bond funds. So really we 37 00:02:24,400 --> 00:02:28,040 Speaker 1: have this big investor exodus. And as you point out, 38 00:02:28,080 --> 00:02:31,000 Speaker 1: if tax receipts are expected to fall and at the 39 00:02:31,040 --> 00:02:34,800 Speaker 1: same time states can't issue as easily as they once 40 00:02:34,840 --> 00:02:37,600 Speaker 1: could in the muni bond market, then that all adds 41 00:02:37,680 --> 00:02:41,600 Speaker 1: up to a pretty big financing crunch at exactly the 42 00:02:41,639 --> 00:02:45,040 Speaker 1: time where you wouldn't want to get that right is 43 00:02:45,040 --> 00:02:48,840 Speaker 1: a financing crunch, and then that leads to an economic crunch, 44 00:02:48,960 --> 00:02:51,560 Speaker 1: because you know, we saw during two thousand and eight 45 00:02:51,600 --> 00:02:57,440 Speaker 1: two thousand nine financing constrained municipal authorities. They had to 46 00:02:57,440 --> 00:02:59,600 Speaker 1: cut a lot of spending for the same reasons as now, 47 00:02:59,680 --> 00:03:04,040 Speaker 1: and it's them years and years to recover that law 48 00:03:04,040 --> 00:03:06,400 Speaker 1: of spending. And so you know, when we think about 49 00:03:06,440 --> 00:03:09,480 Speaker 1: the sort of longer term ramifications of this and the 50 00:03:09,560 --> 00:03:12,160 Speaker 1: damage that these last several weeks will do to the 51 00:03:12,200 --> 00:03:16,760 Speaker 1: economy potentially for years to come, state and local finances 52 00:03:17,000 --> 00:03:20,320 Speaker 1: is a huge problem that we're facing. Yeah, and I 53 00:03:20,360 --> 00:03:23,240 Speaker 1: have to say, the only thing I really remember from 54 00:03:23,280 --> 00:03:26,519 Speaker 1: the muni market is Meredith Whitney making that big call 55 00:03:27,040 --> 00:03:29,000 Speaker 1: many many years ago. Do you remember that where she 56 00:03:29,480 --> 00:03:32,359 Speaker 1: predicted a bunch of defaults, I think hundreds of defaults 57 00:03:32,360 --> 00:03:35,240 Speaker 1: across the muni space, And of course that didn't come 58 00:03:35,240 --> 00:03:39,440 Speaker 1: to pass. So I'm really interested in in returning to 59 00:03:39,520 --> 00:03:43,400 Speaker 1: this topic. It's been a while. Yeah, the default didn't happen, 60 00:03:43,640 --> 00:03:46,600 Speaker 1: It was more just played out on the real economic 61 00:03:46,720 --> 00:03:49,400 Speaker 1: side and a slow return to hiring. So anyway, on 62 00:03:49,440 --> 00:03:53,200 Speaker 1: today's episode, we're going to dive into the state, the 63 00:03:53,280 --> 00:03:57,360 Speaker 1: state of state and local municipal finance, how much strain 64 00:03:57,440 --> 00:04:01,520 Speaker 1: there on, what are the ramifications of a strain, and 65 00:04:01,600 --> 00:04:05,760 Speaker 1: what can possibly be done to alleviate that pressure. And 66 00:04:05,880 --> 00:04:09,600 Speaker 1: today we have three guests. This is a first time 67 00:04:09,600 --> 00:04:11,520 Speaker 1: we've ever had this on the podcast where we've had 68 00:04:11,520 --> 00:04:14,320 Speaker 1: three guests at once, so it could get a little crazy, 69 00:04:14,400 --> 00:04:16,160 Speaker 1: but all three of them have been doing a lot 70 00:04:16,160 --> 00:04:18,920 Speaker 1: of writing about this crisis and how it can be 71 00:04:18,960 --> 00:04:22,719 Speaker 1: addressed from the sort of federal reserve side of what 72 00:04:22,720 --> 00:04:24,640 Speaker 1: the Fed can do to help ease the problem, and 73 00:04:24,720 --> 00:04:28,159 Speaker 1: what the Treasury can do. So I'm going to introduce 74 00:04:28,200 --> 00:04:31,719 Speaker 1: our three guests today are Skanda Amarnav, director of Research 75 00:04:31,760 --> 00:04:35,880 Speaker 1: and Analysis and employee America, Alex Williams, he's a grad 76 00:04:35,960 --> 00:04:39,880 Speaker 1: student at the Levy Institute, and Yakov Fagan, he's an 77 00:04:39,920 --> 00:04:43,120 Speaker 1: associate director of the Future of Capitalism Program at the 78 00:04:43,160 --> 00:04:46,760 Speaker 1: Burgrowing Institute. I want to thank them all so, Sconda, 79 00:04:47,360 --> 00:04:51,800 Speaker 1: thank you for joining us, Thanks sharing me on, Alex, 80 00:04:51,920 --> 00:04:57,320 Speaker 1: appreciate you coming here, thanks for having me, and uh Yakov, 81 00:04:57,640 --> 00:05:01,200 Speaker 1: thank you, thank you too. I want to introduce all 82 00:05:01,240 --> 00:05:03,839 Speaker 1: three of you so that people could recognize your voices 83 00:05:04,920 --> 00:05:09,560 Speaker 1: in advance. So, uh, to get started, Asconda, I'll start 84 00:05:09,600 --> 00:05:12,760 Speaker 1: with you. Just talk to us a little bit about 85 00:05:13,320 --> 00:05:18,360 Speaker 1: what we've seen so far from your perspective. Your talk 86 00:05:18,400 --> 00:05:20,360 Speaker 1: to us about what you do with Employee America and 87 00:05:20,400 --> 00:05:23,919 Speaker 1: how the initial wave of financing stress that we've already 88 00:05:23,920 --> 00:05:26,560 Speaker 1: seen at the state and local level is sort of 89 00:05:26,680 --> 00:05:32,080 Speaker 1: playing out in the economy. Sure, so employ America organization 90 00:05:32,279 --> 00:05:36,840 Speaker 1: is focused on a combination of tighter labor markets sustainably, 91 00:05:37,200 --> 00:05:41,360 Speaker 1: and to get there, obviously it requires fighting recessions aggressively 92 00:05:41,400 --> 00:05:44,800 Speaker 1: and mitigating their costs. The costs of recessions aren't even 93 00:05:44,839 --> 00:05:48,120 Speaker 1: just seen in recessions or the official and be our 94 00:05:48,440 --> 00:05:51,880 Speaker 1: dates UM, especially when you think about like the weakness 95 00:05:51,960 --> 00:05:55,279 Speaker 1: of the proprior business expansion, you think about the growth 96 00:05:55,400 --> 00:05:58,919 Speaker 1: and the weakness in UM getting unemployment down. So we 97 00:05:59,000 --> 00:06:02,200 Speaker 1: had high on the ployment for about three years and 98 00:06:02,240 --> 00:06:04,320 Speaker 1: that was in large higher nine three years. I was 99 00:06:04,680 --> 00:06:07,679 Speaker 1: longer than that, but we had state and local austerity 100 00:06:08,120 --> 00:06:12,760 Speaker 1: UM that was helped sort of keep growth low and 101 00:06:12,839 --> 00:06:16,479 Speaker 1: to keep unemployment high for a lot longer. And what 102 00:06:16,560 --> 00:06:19,719 Speaker 1: we're seeing now is state and legal government's already starting 103 00:06:19,720 --> 00:06:23,359 Speaker 1: to announce a lot of job cuts similar to what 104 00:06:23,440 --> 00:06:27,240 Speaker 1: we saw around two thousand nine, and part of that 105 00:06:28,200 --> 00:06:31,120 Speaker 1: right now, it's these are not fully in motion just 106 00:06:31,279 --> 00:06:35,120 Speaker 1: yet because states built up um rainy day funds over 107 00:06:35,160 --> 00:06:38,680 Speaker 1: the past expansion and they're now running them down. But 108 00:06:39,160 --> 00:06:41,800 Speaker 1: it's not gonna last that much longer just because of 109 00:06:41,800 --> 00:06:45,000 Speaker 1: the scale of the shock. So you have states that 110 00:06:45,080 --> 00:06:48,280 Speaker 1: are saved a lot, saved up a lot, didn't really 111 00:06:48,320 --> 00:06:51,720 Speaker 1: spend much during the past expansion, but are still in 112 00:06:51,720 --> 00:06:54,520 Speaker 1: a pretty fragile position in terms of being able to 113 00:06:54,560 --> 00:06:58,799 Speaker 1: manage this shock because they are budget constrained, as you mentioned, 114 00:06:58,839 --> 00:07:02,279 Speaker 1: and I think and it's just that they're not able 115 00:07:02,320 --> 00:07:04,200 Speaker 1: to sort of finance their way through it the way 116 00:07:04,240 --> 00:07:07,280 Speaker 1: the U. S. Treasury and the federal government can. So 117 00:07:07,640 --> 00:07:10,280 Speaker 1: I have a dumb question, and this is partly because 118 00:07:10,720 --> 00:07:13,120 Speaker 1: I'm outside of the US at the moment and I 119 00:07:13,160 --> 00:07:16,440 Speaker 1: haven't been following a lot of these dynamics as closely 120 00:07:16,480 --> 00:07:18,280 Speaker 1: as you all have. But there seems to be an 121 00:07:18,280 --> 00:07:22,400 Speaker 1: assumption here that state governments are on the front line 122 00:07:22,520 --> 00:07:25,840 Speaker 1: of the coronavirus pandemic as well as the economic fallout. 123 00:07:26,320 --> 00:07:30,280 Speaker 1: Why is that the case? Should states actually be the 124 00:07:30,280 --> 00:07:33,520 Speaker 1: first line of defense and what's the role of the 125 00:07:33,520 --> 00:07:36,160 Speaker 1: federal government here? So so part of this is a 126 00:07:36,240 --> 00:07:39,640 Speaker 1: sort of the vestiges of a more federalist system in 127 00:07:39,680 --> 00:07:42,480 Speaker 1: the past. So a lot of administration still ends up 128 00:07:42,600 --> 00:07:45,440 Speaker 1: occurring at the state local level, even though the financial 129 00:07:45,520 --> 00:07:49,640 Speaker 1: levers are still controlled in d C. So there's some 130 00:07:49,840 --> 00:07:51,920 Speaker 1: there's a bit of a mismatch there that that's going on. 131 00:07:52,080 --> 00:07:54,600 Speaker 1: But UM, should more of that be done at that 132 00:07:55,120 --> 00:07:57,320 Speaker 1: be centralized, I think for a lot of these types 133 00:07:57,360 --> 00:08:00,040 Speaker 1: of coordination and collective action problems as we see it, 134 00:08:00,080 --> 00:08:05,000 Speaker 1: sort of procuring the necessary equipment and those are all 135 00:08:05,040 --> 00:08:08,880 Speaker 1: things that should clearly be centralized in some way. But 136 00:08:09,560 --> 00:08:11,440 Speaker 1: the reality of this is just that there's a lot 137 00:08:11,520 --> 00:08:16,000 Speaker 1: of safety net programs public services UM that are typically 138 00:08:16,000 --> 00:08:19,360 Speaker 1: in higher demand during a crisis like this in terms 139 00:08:19,360 --> 00:08:22,880 Speaker 1: of the public health crisis and the economic crisis, and 140 00:08:23,200 --> 00:08:26,120 Speaker 1: those are still connected at the state, state government level, 141 00:08:26,200 --> 00:08:28,960 Speaker 1: the local government level, and yet they don't really have 142 00:08:29,040 --> 00:08:33,559 Speaker 1: the flexibility precisely when you need it UM. So that's 143 00:08:33,600 --> 00:08:35,520 Speaker 1: kind of what and so it ends up being collateral 144 00:08:35,559 --> 00:08:38,440 Speaker 1: damage in the process is there's a lot of UM 145 00:08:38,559 --> 00:08:42,600 Speaker 1: cuts to UM Andrew Cuomo had mentioned, had announced very 146 00:08:42,600 --> 00:08:47,000 Speaker 1: recently the Governor of New York cuts to medicaid, um 147 00:08:47,080 --> 00:08:51,520 Speaker 1: hiring freezes, plans for big expensure cutbacks in the coming year. 148 00:08:51,840 --> 00:08:53,600 Speaker 1: So you've already started to see a lot of these 149 00:08:53,600 --> 00:08:57,320 Speaker 1: announcements come out um that they're going to have to 150 00:08:57,080 --> 00:09:00,040 Speaker 1: take an act to other types of economic activity a 151 00:09:00,280 --> 00:09:05,200 Speaker 1: public sector performs. Yeah, I just want to add in that. 152 00:09:05,800 --> 00:09:08,480 Speaker 1: You know, yes, it might be better that certain things 153 00:09:08,480 --> 00:09:11,000 Speaker 1: are centralized, but this is the system we live in 154 00:09:11,160 --> 00:09:14,000 Speaker 1: with the United States, and there are some advantages to 155 00:09:14,080 --> 00:09:20,640 Speaker 1: governmental redundancy, especially in a world in which regional cycles 156 00:09:20,679 --> 00:09:25,240 Speaker 1: are very disconnected in the United States between various regions 157 00:09:25,320 --> 00:09:29,880 Speaker 1: and are driven by global shocks more generally. But a 158 00:09:29,960 --> 00:09:32,800 Speaker 1: particularly perverse sort of aspect of the way that it's 159 00:09:32,760 --> 00:09:35,720 Speaker 1: set up now is is Scanta mentioned, you know, cuts 160 00:09:35,720 --> 00:09:38,680 Speaker 1: to Medicare and custom Medicaid right now, These programs at 161 00:09:38,679 --> 00:09:41,160 Speaker 1: the federal level are actually set up to be mechanically 162 00:09:41,200 --> 00:09:45,200 Speaker 1: pro cyclical at this point, where if a state government 163 00:09:45,240 --> 00:09:48,559 Speaker 1: cuts its Medicare funding or its Medicaid funding, those are 164 00:09:48,559 --> 00:09:51,560 Speaker 1: funded at the federal level through matching grants. So every 165 00:09:51,600 --> 00:09:54,240 Speaker 1: dollar that they cut due to lost tax revenue or 166 00:09:54,280 --> 00:09:57,800 Speaker 1: excess take up in other spending programs loses them an 167 00:09:57,840 --> 00:10:02,520 Speaker 1: additional dollar of federal spending on those programs, which is like, 168 00:10:02,559 --> 00:10:04,640 Speaker 1: there are lots of these sorts of little things, you 169 00:10:04,640 --> 00:10:08,440 Speaker 1: know in this system of distributing, you know, federal abilities 170 00:10:08,440 --> 00:10:11,320 Speaker 1: to state levels that you know have these sorts of 171 00:10:11,320 --> 00:10:15,640 Speaker 1: perverse outcomes. So yeah, I want to go back to 172 00:10:15,760 --> 00:10:19,360 Speaker 1: what you were just saying about the sort of governmental 173 00:10:19,520 --> 00:10:22,160 Speaker 1: redundancy and the appeal of that. Like, we have this 174 00:10:22,440 --> 00:10:26,079 Speaker 1: federal system of states have a lot of autonomy, cities 175 00:10:26,120 --> 00:10:29,040 Speaker 1: have various authorities. We have it's a very it's not 176 00:10:29,160 --> 00:10:31,920 Speaker 1: like other countries where maybe it's sort of all run 177 00:10:32,000 --> 00:10:35,280 Speaker 1: down by one sort of centralized chain of command. That's 178 00:10:35,320 --> 00:10:38,480 Speaker 1: our political system. What in a crisis like this, what 179 00:10:38,520 --> 00:10:42,760 Speaker 1: do you see as the sort of advantages versus disadvantages? Well, 180 00:10:43,400 --> 00:10:45,720 Speaker 1: I think we all know about the disadvantage, and I 181 00:10:45,760 --> 00:10:47,920 Speaker 1: do think kind of from my point of view, it's 182 00:10:47,920 --> 00:10:52,040 Speaker 1: still more disadvantage than advantage. But on the other hand, 183 00:10:52,120 --> 00:10:55,520 Speaker 1: we when we've seen that the federal government, for whatever 184 00:10:55,559 --> 00:10:59,480 Speaker 1: reason you attribute to it, hasn't been very swift in 185 00:10:59,520 --> 00:11:03,440 Speaker 1: respond to this. But you've also seen that some of 186 00:11:03,440 --> 00:11:07,720 Speaker 1: the states, particularly you know, especially up in Washington here 187 00:11:07,760 --> 00:11:11,760 Speaker 1: in California, have been much faster at responding to this 188 00:11:12,440 --> 00:11:15,200 Speaker 1: than the federal government. And you know, God, you know, 189 00:11:15,280 --> 00:11:17,200 Speaker 1: God help us. If they hadn't been right, it could 190 00:11:17,200 --> 00:11:20,719 Speaker 1: have been much much worse. So there is always some 191 00:11:20,800 --> 00:11:24,480 Speaker 1: advantages to redundancy. But one one of the problems that 192 00:11:24,520 --> 00:11:26,480 Speaker 1: I point out in the in the working paper that 193 00:11:26,480 --> 00:11:28,079 Speaker 1: I put out though, is that the last sort a 194 00:11:28,120 --> 00:11:31,160 Speaker 1: couple of months, you know, because of that governmental redundancy, 195 00:11:31,200 --> 00:11:33,840 Speaker 1: the problem is is that there's redundancy in you know, 196 00:11:33,960 --> 00:11:38,880 Speaker 1: ability to execute policy, but not inability to provide financing. 197 00:11:39,360 --> 00:11:42,080 Speaker 1: So you have the situation where you know, these states 198 00:11:42,080 --> 00:11:44,480 Speaker 1: know that if they enact these broad lockdowns like that's 199 00:11:44,520 --> 00:11:48,400 Speaker 1: going to you know, essentially wreck their finances and so 200 00:11:48,880 --> 00:11:51,280 Speaker 1: all of you know, one way of looking at basically 201 00:11:51,280 --> 00:11:54,520 Speaker 1: what happened through January, February and March is that you 202 00:11:54,640 --> 00:11:56,960 Speaker 1: basically had a whole bunch of these different state governments 203 00:11:56,960 --> 00:12:00,319 Speaker 1: effectively playing chicken, where the you know, sooner they locked 204 00:12:00,360 --> 00:12:02,960 Speaker 1: things down, the sooner they'd lose revenue and the less 205 00:12:02,960 --> 00:12:06,040 Speaker 1: money they'd have to treat the aftermath. But the later 206 00:12:06,120 --> 00:12:08,360 Speaker 1: they waited, they had more revenue, they'd have, but the 207 00:12:08,400 --> 00:12:10,400 Speaker 1: worse of an outbreak they'd have. So it's this kind 208 00:12:10,440 --> 00:12:14,120 Speaker 1: of you know, sort of distributed game of chicken. Because 209 00:12:14,160 --> 00:12:17,880 Speaker 1: of this non integration of you know, budgetary and political abilities, 210 00:12:19,640 --> 00:12:23,840 Speaker 1: it's a perverse incentive system for dealing with something like 211 00:12:23,880 --> 00:12:27,880 Speaker 1: a pandemic. But since you mentioned that working paper, maybe 212 00:12:27,880 --> 00:12:30,240 Speaker 1: we should talk a little bit about what you think 213 00:12:30,400 --> 00:12:34,600 Speaker 1: would actually start to solve the problem of UM this 214 00:12:34,679 --> 00:12:37,640 Speaker 1: sort of financing crunch in the muni market or in 215 00:12:37,760 --> 00:12:43,600 Speaker 1: the state financial system. So I'm gonna let Yakov and 216 00:12:43,640 --> 00:12:46,520 Speaker 1: Scanada talk about the community market because they, you know, 217 00:12:46,559 --> 00:12:49,880 Speaker 1: are done more of the work there. But the proposal 218 00:12:49,920 --> 00:12:52,600 Speaker 1: that I put forward basically looks at the fact that 219 00:12:53,120 --> 00:12:57,960 Speaker 1: UM states have a you know, states tax revenue elasticity 220 00:12:58,040 --> 00:13:01,800 Speaker 1: with respect to GDP. So basically, how much the state 221 00:13:01,800 --> 00:13:05,240 Speaker 1: tax revenues grow as GDP grows is just around one 222 00:13:05,480 --> 00:13:07,960 Speaker 1: or just a little bit below one in the long term, 223 00:13:08,000 --> 00:13:10,600 Speaker 1: so states face a shrinking tax base, you know, long 224 00:13:10,679 --> 00:13:13,200 Speaker 1: term without raising tax rates. But at the same time, 225 00:13:13,800 --> 00:13:16,680 Speaker 1: in the short run, they have a very high elasticity 226 00:13:16,720 --> 00:13:20,040 Speaker 1: with respect to unemployment. So if you know, unemployment falls 227 00:13:20,080 --> 00:13:22,120 Speaker 1: by one point, you know, tax revenues will fall by 228 00:13:22,200 --> 00:13:24,800 Speaker 1: one point five points or one point eight points. And 229 00:13:24,880 --> 00:13:28,240 Speaker 1: so what I sort of did with this thesis was 230 00:13:28,280 --> 00:13:29,800 Speaker 1: to come up with a sort of you know, you 231 00:13:29,840 --> 00:13:32,080 Speaker 1: guys have had Claudia Sama on talking about the Som 232 00:13:32,200 --> 00:13:36,040 Speaker 1: rule for recessions and for getting money out uh, and essentially, 233 00:13:36,400 --> 00:13:39,080 Speaker 1: you know, state governments are subject to these same constraints 234 00:13:39,120 --> 00:13:42,120 Speaker 1: because their balanced budget constrained entities. So the idea was 235 00:13:42,200 --> 00:13:44,760 Speaker 1: essentially to take that and then move it over to 236 00:13:44,920 --> 00:13:49,280 Speaker 1: the space of tax revenue replacement per unit unemployment. And 237 00:13:49,360 --> 00:13:51,280 Speaker 1: so the idea was that it would create sort of 238 00:13:51,280 --> 00:13:55,520 Speaker 1: an autonomous financing facility that didn't require you know, specific 239 00:13:55,640 --> 00:14:01,040 Speaker 1: legislative discursements, that would support state revenues during a downturn 240 00:14:01,160 --> 00:14:04,079 Speaker 1: that generally is you know, not caused by anything that 241 00:14:04,160 --> 00:14:06,360 Speaker 1: happened in the states. The states, you know, are subject 242 00:14:06,360 --> 00:14:09,840 Speaker 1: to regional and national and global trends much of the movement, 243 00:14:09,840 --> 00:14:12,400 Speaker 1: and state level unemployment is not caused by state level 244 00:14:12,440 --> 00:14:15,679 Speaker 1: policy per se. And so the idea behind this proposal 245 00:14:15,720 --> 00:14:18,080 Speaker 1: would be that you know, for every you know, when 246 00:14:18,080 --> 00:14:20,440 Speaker 1: you have something like the SOMB rules, so if unemployment 247 00:14:20,440 --> 00:14:22,960 Speaker 1: goes up half a percentage point, over its three month 248 00:14:23,000 --> 00:14:26,200 Speaker 1: moving average. Anytime that is triggered, it looks at that 249 00:14:26,880 --> 00:14:28,640 Speaker 1: like it looks at the past a year or so 250 00:14:28,800 --> 00:14:31,440 Speaker 1: of unemployment and takes that as a baseline, and for 251 00:14:31,560 --> 00:14:36,120 Speaker 1: every percentage point that unemployment goes above uh that baseline rate, 252 00:14:36,520 --> 00:14:39,640 Speaker 1: this facility would essentially transfer eight percent of the previous 253 00:14:39,760 --> 00:14:43,840 Speaker 1: year's tax receipts like for that period to that state 254 00:14:44,200 --> 00:14:47,280 Speaker 1: as a block grant um for the states to basically 255 00:14:47,360 --> 00:14:51,320 Speaker 1: use for general revenue. Part of this is because states historically, 256 00:14:51,480 --> 00:14:54,000 Speaker 1: when they are trying to close budget gaps, have you know, 257 00:14:54,160 --> 00:14:58,600 Speaker 1: undertaken sort of more aggressive financing maneuvers, things like securitization 258 00:14:58,640 --> 00:15:02,040 Speaker 1: of future revenues or things like privatization of existing services. 259 00:15:02,360 --> 00:15:04,280 Speaker 1: But when you're in a financial crisis, or when you're 260 00:15:04,320 --> 00:15:07,120 Speaker 1: in a crisis that has financial dimensions, even that sort 261 00:15:07,320 --> 00:15:11,000 Speaker 1: of really aggressive dealmaking basically becomes impossible and you just 262 00:15:11,040 --> 00:15:14,320 Speaker 1: need something in order to stop the bleeding basically. And 263 00:15:14,360 --> 00:15:17,080 Speaker 1: so a big blanket policy like this that gives states 264 00:15:17,080 --> 00:15:19,360 Speaker 1: wide latitude to deal with the causes of the crisis, 265 00:15:20,000 --> 00:15:21,840 Speaker 1: I think would go a long way towards remedying the 266 00:15:21,920 --> 00:15:38,120 Speaker 1: sort of perverse incentive system. Well, why don't we talk 267 00:15:38,200 --> 00:15:42,280 Speaker 1: about from more of the market side. I mentioned that 268 00:15:42,320 --> 00:15:46,000 Speaker 1: we've seen record outflows from a bunch of muni bond funds. 269 00:15:46,400 --> 00:15:49,200 Speaker 1: We've seen strings in the market. I think almost no 270 00:15:49,400 --> 00:15:53,040 Speaker 1: new issuance in the month of March. What would help there, Well, 271 00:15:53,800 --> 00:15:57,160 Speaker 1: Scanda and I argue that what would really help there 272 00:15:57,160 --> 00:16:00,360 Speaker 1: would be of the Federal Reserve intervene much it does 273 00:16:00,400 --> 00:16:03,800 Speaker 1: in other markets and backstop the market and purchase some 274 00:16:03,920 --> 00:16:08,640 Speaker 1: municipal bonds. I just just attack on there. At Yakoff's point, UM, 275 00:16:08,880 --> 00:16:11,800 Speaker 1: we've seen already that they've been willing to engage in 276 00:16:11,840 --> 00:16:17,320 Speaker 1: direct purchases for UM investment grade corporate funds, including buying 277 00:16:17,760 --> 00:16:21,600 Speaker 1: the l q D E t f UM. So I 278 00:16:21,640 --> 00:16:25,040 Speaker 1: think in this situation, given the sort of public interest 279 00:16:25,120 --> 00:16:30,880 Speaker 1: need alongside UM, the AH the same sort of budget 280 00:16:30,880 --> 00:16:33,800 Speaker 1: constraint financial constraint problem that sort of emerges in these 281 00:16:33,840 --> 00:16:38,880 Speaker 1: types of crises, UH direct purchases of investment grade UM 282 00:16:38,960 --> 00:16:41,240 Speaker 1: state and local government debt. It's a little harder because 283 00:16:41,240 --> 00:16:43,200 Speaker 1: the market is more fragmented, but it's something that we 284 00:16:43,800 --> 00:16:46,920 Speaker 1: I think at least at an additional degree of freedom 285 00:16:46,920 --> 00:16:51,920 Speaker 1: to the more comprehensive fiscal solution that Alex is proposing 286 00:16:51,920 --> 00:16:55,960 Speaker 1: in his working paper. So let's let me ask you 287 00:16:56,080 --> 00:16:59,520 Speaker 1: further about that scondin then others can take it, because intuitively, 288 00:17:00,400 --> 00:17:04,720 Speaker 1: it's okay, the FED, in theory, could buy municipal debt 289 00:17:04,760 --> 00:17:08,679 Speaker 1: directly or the secondary market from the states or the 290 00:17:08,720 --> 00:17:13,080 Speaker 1: towns to backstop their finances, and technically from a um 291 00:17:13,520 --> 00:17:16,320 Speaker 1: from a mechanical standpoint, it's clear how the FED could 292 00:17:16,359 --> 00:17:18,440 Speaker 1: do that because it creates money. On the other hand, 293 00:17:18,960 --> 00:17:22,919 Speaker 1: there are obvious concerns about sort of democratic accountability that 294 00:17:23,040 --> 00:17:25,760 Speaker 1: sort of reminds me of in Europe when they're like, well, 295 00:17:25,800 --> 00:17:28,600 Speaker 1: if we just started back stopping all the debt from 296 00:17:28,600 --> 00:17:32,920 Speaker 1: the different countries, then what is to limit their spending 297 00:17:33,080 --> 00:17:35,840 Speaker 1: going forward? And things like that, and so the you know, 298 00:17:35,960 --> 00:17:39,960 Speaker 1: Draggy and the Eurozone crisis proposed proposed that thing. We're like, okay, 299 00:17:40,000 --> 00:17:42,919 Speaker 1: you can get back stopping from the ECB, but you 300 00:17:42,960 --> 00:17:46,960 Speaker 1: have to submit to certain conditions regarding your spending. How 301 00:17:46,960 --> 00:17:51,159 Speaker 1: should the FED navigate that issue now such that it 302 00:17:51,280 --> 00:17:58,040 Speaker 1: can backstop state and local authorities without necessarily UM writing 303 00:17:58,080 --> 00:18:00,360 Speaker 1: them a blank check? I think so one of the 304 00:18:00,400 --> 00:18:03,439 Speaker 1: parameters to the proposal Yakov and I had put together 305 00:18:03,560 --> 00:18:07,040 Speaker 1: a few weeks ago, was to make it sort of 306 00:18:07,040 --> 00:18:10,840 Speaker 1: time dependent. I think there were aspects of the as 307 00:18:10,880 --> 00:18:15,719 Speaker 1: of the drug EASA UM yes M proposal in one 308 00:18:15,760 --> 00:18:18,240 Speaker 1: sense that helped make sure there was access to financing, 309 00:18:18,240 --> 00:18:20,760 Speaker 1: but there was also sort of the pitfall that it 310 00:18:20,800 --> 00:18:24,640 Speaker 1: also encouraged a lot of austerity that we can which 311 00:18:24,640 --> 00:18:27,760 Speaker 1: is the exact opposite of which is, yeah, the exactly 312 00:18:27,760 --> 00:18:30,440 Speaker 1: opposite if we anter something about the big picture UM 313 00:18:30,680 --> 00:18:34,560 Speaker 1: problem that we really don't want to UM to exacerbated. 314 00:18:34,560 --> 00:18:36,960 Speaker 1: Aside from sort of the pro pro cyclical aspect of 315 00:18:37,040 --> 00:18:40,320 Speaker 1: st local government spending is we want these governments to 316 00:18:40,359 --> 00:18:43,560 Speaker 1: spend what's necessary for the public health response, not to 317 00:18:43,600 --> 00:18:47,920 Speaker 1: sort of meet arbitrary budget constraint that could be loosened 318 00:18:48,320 --> 00:18:51,240 Speaker 1: with the right policies in place of the Federal Reserve 319 00:18:51,240 --> 00:18:53,920 Speaker 1: of the federal government. So in this case, I don't 320 00:18:53,920 --> 00:18:55,960 Speaker 1: think that the answer is to sort of make them 321 00:18:56,000 --> 00:18:59,800 Speaker 1: commit to some austerity policy for the receivable future. What 322 00:19:00,320 --> 00:19:03,280 Speaker 1: should be this should be constrained in our proposal is 323 00:19:03,920 --> 00:19:06,480 Speaker 1: make it sort of the timeline should be consistent with 324 00:19:06,480 --> 00:19:10,000 Speaker 1: the national crisis. Right that these is uh like the 325 00:19:10,000 --> 00:19:15,000 Speaker 1: FEDS ability to effectively lend to state governments should be 326 00:19:15,480 --> 00:19:19,080 Speaker 1: something that's available for a limited time, right, So, just 327 00:19:19,119 --> 00:19:22,000 Speaker 1: as the commercial paper funding facility and two thousands, eight 328 00:19:22,000 --> 00:19:26,760 Speaker 1: and nine was actually was open till February UM, so 329 00:19:26,800 --> 00:19:29,760 Speaker 1: the really book ended the worst parts of the financial 330 00:19:29,800 --> 00:19:33,520 Speaker 1: crisis and gave some time for corporations to roll over 331 00:19:33,600 --> 00:19:37,359 Speaker 1: short term debt until we had gotten through the coverst 332 00:19:37,400 --> 00:19:40,560 Speaker 1: period of the global financial crisis in the Great Recession. 333 00:19:40,920 --> 00:19:44,280 Speaker 1: Something similar could be calibrated here in terms of making 334 00:19:44,920 --> 00:19:50,239 Speaker 1: financing available to the state governments. For we call it 335 00:19:50,760 --> 00:19:55,080 Speaker 1: approximately twelve months from the worst point in terms of 336 00:19:55,080 --> 00:19:57,680 Speaker 1: the economic impact from this crisis. So we could take 337 00:19:57,680 --> 00:20:00,280 Speaker 1: the peak on employment rate, or we could take um 338 00:20:00,320 --> 00:20:04,200 Speaker 1: some other economic parameter or public health parameter, or even 339 00:20:04,680 --> 00:20:06,439 Speaker 1: I think one of the things that's also missed in 340 00:20:06,480 --> 00:20:09,159 Speaker 1: these in these discussions about you know, moral hazards for 341 00:20:09,200 --> 00:20:13,280 Speaker 1: providing financing facilities for subnational entities in the US is 342 00:20:13,720 --> 00:20:17,399 Speaker 1: the fact that in the Eurozone, these balanced budget requirements 343 00:20:17,440 --> 00:20:20,600 Speaker 1: are centralized and centrally enforced. They are they are the 344 00:20:20,640 --> 00:20:23,919 Speaker 1: monstric treaty saying you know, this is the space that 345 00:20:23,960 --> 00:20:26,800 Speaker 1: your budgets are allowed to be in. UH in the States, 346 00:20:26,800 --> 00:20:31,200 Speaker 1: in the us. By contrast, they are entirely enforced and 347 00:20:31,320 --> 00:20:33,719 Speaker 1: acceded to at the local level. There are aspects of 348 00:20:33,760 --> 00:20:38,199 Speaker 1: the state constitutions rather than anything in federal law. So 349 00:20:38,280 --> 00:20:41,840 Speaker 1: you wind up having this situation where, um, on the 350 00:20:41,880 --> 00:20:44,240 Speaker 1: one hand, the states are saying, yes, we are doing 351 00:20:44,240 --> 00:20:46,520 Speaker 1: this on purpose, you know, and there's been studies showing 352 00:20:46,520 --> 00:20:48,879 Speaker 1: that this affects muni bond yields in those states, you know, 353 00:20:48,920 --> 00:20:51,560 Speaker 1: in this way and that way. Um, But it's the 354 00:20:51,560 --> 00:20:54,240 Speaker 1: states saying that they're going to do it. But then 355 00:20:54,240 --> 00:20:57,960 Speaker 1: the states also putting themselves in a position basically where 356 00:20:58,359 --> 00:21:02,280 Speaker 1: it's impossible for them to sue basically like an anti 357 00:21:02,320 --> 00:21:05,359 Speaker 1: correlated capital structure, So there's no way they can set 358 00:21:05,440 --> 00:21:09,959 Speaker 1: their sort of financial house so that their financing costs 359 00:21:10,000 --> 00:21:14,399 Speaker 1: get lower when there's a crisis. Because the financing costs 360 00:21:14,480 --> 00:21:19,200 Speaker 1: are done, they're displaced entirely to basically capital accounts. Because 361 00:21:19,240 --> 00:21:22,199 Speaker 1: these states with balanced budgets that only obtains for the 362 00:21:22,240 --> 00:21:25,960 Speaker 1: general revenue account, anything that they do to sort of 363 00:21:26,000 --> 00:21:29,080 Speaker 1: like build infrastructure or do a wide variety of other things, 364 00:21:29,320 --> 00:21:31,879 Speaker 1: they can essentially move off budget in a way that 365 00:21:32,119 --> 00:21:34,520 Speaker 1: like you see, you saw that we talked about the 366 00:21:34,600 --> 00:21:36,760 Speaker 1: mundy blow ups that didn't happen. But one of the 367 00:21:36,760 --> 00:21:38,439 Speaker 1: things that did happen is there were a lot of 368 00:21:38,440 --> 00:21:42,359 Speaker 1: off budget enterprises that did blow up. The Detroit Water 369 00:21:42,400 --> 00:21:44,320 Speaker 1: Authority was a very big one that went on for 370 00:21:44,359 --> 00:21:47,760 Speaker 1: a long time because they had a complicated UH swaps portfolio. 371 00:21:48,200 --> 00:21:51,920 Speaker 1: But states, you know, progressively do that when they securitize 372 00:21:51,960 --> 00:21:54,200 Speaker 1: or when they privatize their revenues in order to make 373 00:21:54,280 --> 00:21:58,000 Speaker 1: up for shortfalls in their general revenue account in a 374 00:21:58,040 --> 00:22:01,640 Speaker 1: given period. They do it by pushing things into these 375 00:22:01,680 --> 00:22:04,199 Speaker 1: capital accounts and into these off budget enterprises that are 376 00:22:04,240 --> 00:22:07,600 Speaker 1: themselves fragile but which operate in the muni markets. So 377 00:22:07,640 --> 00:22:11,440 Speaker 1: backstopping those muni markets does provide a kind of secret 378 00:22:11,520 --> 00:22:16,160 Speaker 1: quasi backstop for you know, state's attempts to relieve themselves 379 00:22:16,160 --> 00:22:18,840 Speaker 1: of their self imposed burden, which is sort of a 380 00:22:18,880 --> 00:22:22,440 Speaker 1: different overall environment from the Eurozone of member states trying 381 00:22:22,480 --> 00:22:25,399 Speaker 1: to deviate and spend more. Yeah, it could just quickly 382 00:22:25,440 --> 00:22:28,160 Speaker 1: tack onto what Alex was saying here. Um, so there 383 00:22:28,160 --> 00:22:30,720 Speaker 1: are balanced budget laws and rules, but as he's just 384 00:22:30,760 --> 00:22:35,000 Speaker 1: pointed out, for each state, there are exemptions in various 385 00:22:35,040 --> 00:22:39,679 Speaker 1: ways in terms of how to adhere or not adhere 386 00:22:39,720 --> 00:22:42,639 Speaker 1: as much to them. Um And I think that sometimes 387 00:22:42,680 --> 00:22:44,840 Speaker 1: it gets lost in this discussion because there's an assumption 388 00:22:44,880 --> 00:22:47,320 Speaker 1: that there is a law and it is airtight, and 389 00:22:47,359 --> 00:22:49,879 Speaker 1: that these states have to just start slashing spending as 390 00:22:49,920 --> 00:22:53,080 Speaker 1: soon as tax revenue falls, and there are ways to 391 00:22:53,480 --> 00:22:57,920 Speaker 1: um manage and maneuver around it that we're probably less 392 00:22:58,600 --> 00:23:01,439 Speaker 1: there was probably less political willingness to explore them in 393 00:23:01,960 --> 00:23:05,320 Speaker 1: the early tens in a way that I think now 394 00:23:05,600 --> 00:23:09,120 Speaker 1: just because of the nature of this, should be explored 395 00:23:09,160 --> 00:23:13,480 Speaker 1: more aggressively. There's also exemptions for certain types of natural disasters, 396 00:23:13,480 --> 00:23:17,960 Speaker 1: exemptions through different types of what they are called the 397 00:23:18,280 --> 00:23:22,560 Speaker 1: special districts that allow for certain types of certain parts 398 00:23:22,560 --> 00:23:26,199 Speaker 1: of the state government to issue debt and not be 399 00:23:26,359 --> 00:23:30,679 Speaker 1: constrained by these sort of arbitrary balanced budget laws and rules. 400 00:23:31,640 --> 00:23:35,240 Speaker 1: M I'm curious, but why did the FED not buy 401 00:23:35,400 --> 00:23:38,960 Speaker 1: muni debt back in the financial crisis of two thousand eight. 402 00:23:39,040 --> 00:23:42,000 Speaker 1: Was it the sort of moral hazard issues that you're 403 00:23:42,040 --> 00:23:45,320 Speaker 1: all alluding to, or was it something more technical, or 404 00:23:45,440 --> 00:23:49,240 Speaker 1: was it just that the crisis didn't really warrant the 405 00:23:49,320 --> 00:23:53,359 Speaker 1: kind of state response that we need now during a pandemic. 406 00:23:54,040 --> 00:23:56,679 Speaker 1: I think I can take that. Um. I think there 407 00:23:56,680 --> 00:24:00,760 Speaker 1: are a variety of reasons. Uh. In Ben Bernacki's memoirs, 408 00:24:01,080 --> 00:24:04,800 Speaker 1: it's noted that two of the vice chairs, and I 409 00:24:04,840 --> 00:24:07,040 Speaker 1: will tell you who they are in a second, because 410 00:24:07,040 --> 00:24:10,199 Speaker 1: I have them written down. UM, I think it was 411 00:24:11,560 --> 00:24:14,359 Speaker 1: it was David Cohen and Kevin Walsh who were most 412 00:24:14,359 --> 00:24:18,239 Speaker 1: skeptical of the proposals. And my understanding and instinct is 413 00:24:18,640 --> 00:24:21,280 Speaker 1: there were several things involved. First of all, the FED 414 00:24:21,760 --> 00:24:24,680 Speaker 1: isn't really familiar with the municipal bond market, and the 415 00:24:24,760 --> 00:24:28,760 Speaker 1: municipal bomb market itself isn't a very deep market. Um. 416 00:24:28,800 --> 00:24:31,280 Speaker 1: They're all kind of which is very unfortunate and one 417 00:24:31,320 --> 00:24:33,280 Speaker 1: of the reasons I do think the FED should be 418 00:24:33,280 --> 00:24:36,359 Speaker 1: boxed stopping this market and working with it, because because 419 00:24:36,359 --> 00:24:39,680 Speaker 1: it just needs to be fixed. Overall, I think there 420 00:24:39,760 --> 00:24:42,239 Speaker 1: was another reason in which it did seem like it 421 00:24:42,280 --> 00:24:45,159 Speaker 1: would be the FED doing fiscal policy, which at the 422 00:24:45,200 --> 00:24:47,399 Speaker 1: time I think there was still a lot of nervousness 423 00:24:47,480 --> 00:24:51,280 Speaker 1: about where building that divide. And the third reason is, 424 00:24:51,280 --> 00:24:53,720 Speaker 1: and I think this is still a reason hasn't happened today, 425 00:24:53,800 --> 00:24:58,080 Speaker 1: is quite frankly, neither the state treasurers nor the Federal 426 00:24:58,160 --> 00:25:02,480 Speaker 1: Reserve board really under stand what each is doing. It's 427 00:25:02,600 --> 00:25:04,800 Speaker 1: very likely that one of the reasons we don't see 428 00:25:04,840 --> 00:25:08,480 Speaker 1: this is if it does assume states can't borrow because 429 00:25:08,480 --> 00:25:11,600 Speaker 1: of balance budget laws. Because and because of those laws, 430 00:25:12,080 --> 00:25:16,679 Speaker 1: what you see is the collateral base of the municipal 431 00:25:16,720 --> 00:25:20,240 Speaker 1: bond market is extremely hard to understand, even for people 432 00:25:20,240 --> 00:25:25,359 Speaker 1: who are very, very seasoned investors in that market. In California, 433 00:25:25,440 --> 00:25:28,240 Speaker 1: we're actual I'm actually doing an exercise that with the 434 00:25:28,280 --> 00:25:31,440 Speaker 1: Californias some people in the California state government looking at 435 00:25:31,560 --> 00:25:35,040 Speaker 1: what could be receivable, and it turns out there might 436 00:25:35,080 --> 00:25:38,280 Speaker 1: be a hundred billion of at least of things that 437 00:25:38,359 --> 00:25:43,640 Speaker 1: we could re uh, we could refinance through that FED 438 00:25:44,200 --> 00:25:46,480 Speaker 1: potential FED window. But it just doesn't look like it's 439 00:25:46,480 --> 00:25:50,639 Speaker 1: attached to California because it's all done through these you know, 440 00:25:50,840 --> 00:25:53,720 Speaker 1: these special districts to get around the prop their team 441 00:25:53,720 --> 00:25:56,720 Speaker 1: barrier and the barrier of the balanced budget country. But 442 00:25:57,119 --> 00:25:58,919 Speaker 1: it doesn't mean it's not out there. It just you 443 00:25:58,960 --> 00:26:02,159 Speaker 1: need to know where you look. Let's just talk a 444 00:26:02,160 --> 00:26:05,320 Speaker 1: little bit more about you know, we're talking about these 445 00:26:05,320 --> 00:26:08,520 Speaker 1: sort of like constraints in the law that states have. 446 00:26:08,760 --> 00:26:12,680 Speaker 1: They have different ways of getting around them. Or even 447 00:26:12,760 --> 00:26:15,840 Speaker 1: theoretically a state or a city could call a special 448 00:26:15,960 --> 00:26:19,040 Speaker 1: session of the legislature and change the laws if they 449 00:26:19,040 --> 00:26:20,800 Speaker 1: have If they have them in the law, that's up 450 00:26:20,800 --> 00:26:25,120 Speaker 1: to them. What would be in the in your view, 451 00:26:25,240 --> 00:26:29,480 Speaker 1: and maybe um ascanda could start with you, but others 452 00:26:29,600 --> 00:26:32,560 Speaker 1: join in, what would be sort of the ideal instrument 453 00:26:32,640 --> 00:26:35,199 Speaker 1: here for the FED, because you know, as you all 454 00:26:35,240 --> 00:26:37,800 Speaker 1: of you pointed out, there's numerous different ones. There's water 455 00:26:37,840 --> 00:26:43,040 Speaker 1: authorities and transit authorities, and so it's extremely complicated mosaic 456 00:26:43,080 --> 00:26:45,880 Speaker 1: of different issuing authorities and states in times, what would 457 00:26:45,920 --> 00:26:50,000 Speaker 1: be the ideal instrument for the FED to announce that 458 00:26:50,680 --> 00:26:54,360 Speaker 1: it would be willing to buy either primarily or secondarily, 459 00:26:54,640 --> 00:26:57,000 Speaker 1: which then the it could be left up to the 460 00:26:57,000 --> 00:27:00,720 Speaker 1: states or cities themselves too for about how they can 461 00:27:00,760 --> 00:27:05,680 Speaker 1: issue under their existing law. Yeah, so in the ideal state, 462 00:27:06,000 --> 00:27:09,080 Speaker 1: the US state local government debt market looks a little 463 00:27:09,080 --> 00:27:11,120 Speaker 1: bit more like Canada's, I would say, in the sense 464 00:27:11,160 --> 00:27:16,000 Speaker 1: that Canada issues what are effectively um Canadian provinces issue 465 00:27:16,600 --> 00:27:19,240 Speaker 1: effectively general obligation debt, right, so it's backed by the 466 00:27:19,240 --> 00:27:23,680 Speaker 1: taxation authority and it's all pretty um uniform and standardized 467 00:27:23,720 --> 00:27:26,280 Speaker 1: and actually the Canadian provincial debt market, well, I don't 468 00:27:26,320 --> 00:27:29,359 Speaker 1: know how much is actually I've had a trouble finding 469 00:27:29,359 --> 00:27:31,360 Speaker 1: a lot of written product on this, but actually it's 470 00:27:31,359 --> 00:27:34,159 Speaker 1: a very deep market and it's actually pretty sophisticated market 471 00:27:34,880 --> 00:27:38,080 Speaker 1: relative to call it the US um UNI debt market, 472 00:27:38,119 --> 00:27:40,919 Speaker 1: which is very fragmented, and there's a big difference between 473 00:27:41,160 --> 00:27:46,200 Speaker 1: the revenue back bonds and uh general obligation debt. So 474 00:27:46,480 --> 00:27:48,359 Speaker 1: it would be ideal if there was a deep market. 475 00:27:48,560 --> 00:27:51,560 Speaker 1: The absence of that probably means that what would be 476 00:27:51,640 --> 00:27:54,200 Speaker 1: this sort of second best solution, I think, is sort 477 00:27:54,240 --> 00:27:57,919 Speaker 1: of direct loans that the FED makes to UM probably 478 00:27:57,960 --> 00:28:01,639 Speaker 1: states in large cities that are of investment grade UM, 479 00:28:01,680 --> 00:28:06,080 Speaker 1: so you obviously do there's the FED has certain quality 480 00:28:06,440 --> 00:28:10,359 Speaker 1: justifiable qualms about engaging too much credit risk, so at 481 00:28:10,400 --> 00:28:12,119 Speaker 1: least keeping it to sort of the same parameters that 482 00:28:12,240 --> 00:28:14,760 Speaker 1: kept for corporates. And then to some extent, if you 483 00:28:14,920 --> 00:28:18,000 Speaker 1: if you just at every single state and local government 484 00:28:18,119 --> 00:28:20,680 Speaker 1: entity that existed, it would obviously be a little bit 485 00:28:20,760 --> 00:28:23,440 Speaker 1: hard to manage administratively. So I think it's just a 486 00:28:23,520 --> 00:28:27,639 Speaker 1: starting point. Um, if state governments were willing to accept 487 00:28:27,920 --> 00:28:30,920 Speaker 1: loans from the federal from the federal reserve. I think 488 00:28:30,960 --> 00:28:33,560 Speaker 1: that's the kind of thing that should be encouraged in 489 00:28:33,560 --> 00:28:35,600 Speaker 1: some ways and actually can This could be a chance 490 00:28:35,640 --> 00:28:40,640 Speaker 1: to really catalyze some standardization and some ability for state 491 00:28:40,760 --> 00:28:43,760 Speaker 1: governments to think a little bit more expansively about how 492 00:28:44,240 --> 00:28:47,480 Speaker 1: to get the necessary financial flexibility in a crisis, which 493 00:28:47,560 --> 00:28:51,920 Speaker 1: right now, um, they sorely lack. One of the problems 494 00:28:52,080 --> 00:28:54,360 Speaker 1: with this idea that that a few people have pointed 495 00:28:54,400 --> 00:28:58,240 Speaker 1: out is the notion of the FED actually coordinating this 496 00:28:58,320 --> 00:29:02,640 Speaker 1: action with fifty state governments. How would you suggest they 497 00:29:02,640 --> 00:29:07,360 Speaker 1: go about doing in that? So it is a regionalized 498 00:29:07,560 --> 00:29:10,800 Speaker 1: federal reserve system to right there, twelve federal reserve banks, 499 00:29:10,880 --> 00:29:15,720 Speaker 1: and they all have pretty close relationships across um their regions. 500 00:29:15,760 --> 00:29:17,200 Speaker 1: I mean they they take a lot of pride in 501 00:29:17,240 --> 00:29:19,480 Speaker 1: it um. So I don't actually think that I think 502 00:29:19,480 --> 00:29:22,120 Speaker 1: fifty states is um compared to sort of like the 503 00:29:22,160 --> 00:29:25,400 Speaker 1: scale of what they're they've been doing in other markets. 504 00:29:25,440 --> 00:29:28,720 Speaker 1: It's not actually like insurmountable. You think about twelve federal 505 00:29:28,800 --> 00:29:33,840 Speaker 1: reserve presidents, You've got um, twelve regional FED presidents that 506 00:29:33,880 --> 00:29:36,240 Speaker 1: can help lead those efforts. They have a lot on 507 00:29:36,280 --> 00:29:38,560 Speaker 1: their plate, obviously, but it's not the kind of thing 508 00:29:38,560 --> 00:29:41,680 Speaker 1: that I think that's probably more manageable than trying to 509 00:29:41,720 --> 00:29:44,600 Speaker 1: go about this through I mean, I think I think 510 00:29:44,600 --> 00:29:46,320 Speaker 1: it's just a starting point that they obviously cann do 511 00:29:46,320 --> 00:29:49,760 Speaker 1: secondary market purchases of municipal debt, and I hope they 512 00:29:49,880 --> 00:29:51,760 Speaker 1: at least start with that. But I think as far 513 00:29:51,800 --> 00:29:55,240 Speaker 1: as actually kind of giving state governments the appropriated fintange 514 00:29:55,280 --> 00:30:00,440 Speaker 1: flexibility and working with state treasures, fifty state treasurers, twelve 515 00:30:00,800 --> 00:30:03,200 Speaker 1: regional fed banks is not something I think that's actually 516 00:30:03,240 --> 00:30:06,000 Speaker 1: a logistically challenging as opposed to trying to do it 517 00:30:06,040 --> 00:30:09,120 Speaker 1: with every single city and county and township. That's probably 518 00:30:09,440 --> 00:30:13,560 Speaker 1: too much. It's also it's also worth noting that a 519 00:30:13,840 --> 00:30:17,600 Speaker 1: like large proportion of local government revenues are actually inter 520 00:30:17,680 --> 00:30:20,600 Speaker 1: governmental transfers from the state level, and this is one 521 00:30:20,640 --> 00:30:22,680 Speaker 1: of the first things that goes in a crisis. When 522 00:30:22,720 --> 00:30:25,760 Speaker 1: states start to face a budget crunches, they cut their 523 00:30:26,320 --> 00:30:29,120 Speaker 1: you know, offerings to local governments. And part of the 524 00:30:29,160 --> 00:30:32,080 Speaker 1: reason for this is that local governments have a large 525 00:30:32,160 --> 00:30:35,240 Speaker 1: part of their like own source revenue drawn from property tax, 526 00:30:35,280 --> 00:30:39,720 Speaker 1: which is actually comparatively inflexible to the overall you know, 527 00:30:39,760 --> 00:30:42,520 Speaker 1: sort of employment picture at a given time, because property 528 00:30:42,560 --> 00:30:45,400 Speaker 1: tax assessments, you know, come every know, a couple of 529 00:30:45,480 --> 00:30:47,959 Speaker 1: years or whatever, and so your problem is not that, 530 00:30:48,040 --> 00:30:50,640 Speaker 1: you know, income goes down and receipts immediately go down. 531 00:30:50,680 --> 00:30:53,400 Speaker 1: It's that income goes down and delinquency goes up a 532 00:30:53,480 --> 00:30:57,080 Speaker 1: little bit in those situations. So there's a kind of 533 00:30:57,160 --> 00:31:00,000 Speaker 1: you know, every man for themselves to these inter governmental 534 00:31:00,040 --> 00:31:04,560 Speaker 1: transfers in a crisis um. And so if we backstop 535 00:31:04,600 --> 00:31:08,200 Speaker 1: these fifty states, there's sort of an existing administrative framework 536 00:31:08,240 --> 00:31:11,800 Speaker 1: for those fifty states to then in turn back stop 537 00:31:11,880 --> 00:31:16,800 Speaker 1: their own sort of local governments. And even within the states, 538 00:31:17,680 --> 00:31:21,200 Speaker 1: there's all the there's this perception that there's this jigsaw 539 00:31:21,320 --> 00:31:23,840 Speaker 1: puzzle of special districts. But in a lot of states, 540 00:31:23,840 --> 00:31:26,920 Speaker 1: as we've surveyed and looked at a lot of them, 541 00:31:27,040 --> 00:31:29,560 Speaker 1: actually there is the fiction that all of these things 542 00:31:29,600 --> 00:31:33,760 Speaker 1: are being coordinated through the Treasury Department, through the Treasuries 543 00:31:33,880 --> 00:31:37,000 Speaker 1: or some kind of special body that coordinates the district 544 00:31:37,040 --> 00:31:40,080 Speaker 1: and has all the districts and has all the information 545 00:31:40,160 --> 00:31:44,560 Speaker 1: on them. So we've been talking a lot about moral 546 00:31:44,640 --> 00:31:48,120 Speaker 1: hazard and perceptions of how this will work. And I 547 00:31:48,120 --> 00:31:50,120 Speaker 1: guess one of the things I was wondering about is 548 00:31:50,400 --> 00:31:53,720 Speaker 1: the muni market. Themuni bond market is kind of a 549 00:31:53,840 --> 00:31:57,360 Speaker 1: special one. It comes with all these tax benefits, and 550 00:31:58,360 --> 00:32:00,280 Speaker 1: I'm thinking of how to phrase this question, but I 551 00:32:00,320 --> 00:32:03,480 Speaker 1: guess I guess I'm wondering about the moral hazard when 552 00:32:03,520 --> 00:32:07,840 Speaker 1: it comes to bailing out investors or effectively bailing out 553 00:32:07,840 --> 00:32:11,880 Speaker 1: investors in muni debt. Like these are people who probably 554 00:32:11,920 --> 00:32:14,800 Speaker 1: do have a lot of assets who are probably investing 555 00:32:14,800 --> 00:32:18,240 Speaker 1: in muni bonds because they're worried about taxes. Does that 556 00:32:18,280 --> 00:32:22,800 Speaker 1: make this move more politically sensitive than it would be otherwise? 557 00:32:24,000 --> 00:32:27,880 Speaker 1: I think the sort of the sort of h qualms 558 00:32:27,920 --> 00:32:31,080 Speaker 1: about asset purchases and who they benefit. I think that 559 00:32:31,080 --> 00:32:32,720 Speaker 1: means if it's a valid point to bring up in 560 00:32:32,720 --> 00:32:35,240 Speaker 1: the sense that the people who own these assets and 561 00:32:35,280 --> 00:32:39,640 Speaker 1: who will probably benefit from uh loosening financial conditions and 562 00:32:39,720 --> 00:32:41,560 Speaker 1: more broadly tend to be on the wealthy end of 563 00:32:41,560 --> 00:32:45,000 Speaker 1: the spectrum, I'm not sure it's necessarily disproportionate for um 564 00:32:45,200 --> 00:32:48,960 Speaker 1: muni market. Obviously, there's a tax exemption within. If you're 565 00:32:48,960 --> 00:32:51,760 Speaker 1: a California investor in California debt, I mean you have 566 00:32:51,840 --> 00:32:55,280 Speaker 1: the tax exemption, full tax exemption there um as opposed 567 00:32:55,280 --> 00:32:57,680 Speaker 1: to you can't. Actually is a very weird thing because 568 00:32:57,680 --> 00:33:00,880 Speaker 1: it actually narrows the investor based in some ways, because 569 00:33:01,000 --> 00:33:04,200 Speaker 1: if you're in New York investor in California debt, you 570 00:33:04,200 --> 00:33:07,400 Speaker 1: don't really get any real benefit there. It's a tax exception. 571 00:33:07,560 --> 00:33:09,680 Speaker 1: So UM it tends to lead to be certain narrow 572 00:33:09,720 --> 00:33:12,720 Speaker 1: investor bases, and it's UM, I I appreciate the point, 573 00:33:12,760 --> 00:33:14,479 Speaker 1: but also it's it's also one of these things that 574 00:33:14,760 --> 00:33:17,280 Speaker 1: we're doing this in corporate bonds, We've done this in 575 00:33:17,560 --> 00:33:19,920 Speaker 1: other asset classes. I'm not sure if you think about 576 00:33:19,960 --> 00:33:23,760 Speaker 1: like who owns munies versus who owns most financial assets, 577 00:33:23,800 --> 00:33:26,040 Speaker 1: I think that that skew tends to be the same. 578 00:33:26,120 --> 00:33:29,560 Speaker 1: If anything, it's probably more likely to be skewed for 579 00:33:29,720 --> 00:33:33,440 Speaker 1: asset classes that are U have a truly global investor 580 00:33:33,560 --> 00:33:37,360 Speaker 1: investor base, as opposed to if you're buying Idaho bonds 581 00:33:37,520 --> 00:33:40,200 Speaker 1: and you're an Idaho investor. There's at least some sort 582 00:33:40,240 --> 00:33:44,120 Speaker 1: of these are pretty narrow investor bases itself. But yes, 583 00:33:44,160 --> 00:33:49,120 Speaker 1: there is some distortion there to UM acknowledge, and the 584 00:33:49,240 --> 00:33:53,360 Speaker 1: distortion goes both ways, right, Because one of the reasons 585 00:33:53,400 --> 00:33:56,360 Speaker 1: it's not a great market is because most of the 586 00:33:56,400 --> 00:33:59,800 Speaker 1: reason you buy municipal bonds is tax exemption. So you 587 00:33:59,840 --> 00:34:03,240 Speaker 1: have very very liquid markets, you have very shallow markets, 588 00:34:03,240 --> 00:34:06,280 Speaker 1: and these are the markets that since n have funded 589 00:34:07,640 --> 00:34:11,600 Speaker 1: all infrastructure investment in this country. So it's I think 590 00:34:11,600 --> 00:34:14,840 Speaker 1: it's less of a moral hazard problem than the underlying 591 00:34:14,880 --> 00:34:17,480 Speaker 1: market structure not being very stable, and I do, and 592 00:34:17,520 --> 00:34:20,680 Speaker 1: I think the advantage of moving this program along is 593 00:34:20,719 --> 00:34:23,680 Speaker 1: to get some standardization and to get some thinking and 594 00:34:23,960 --> 00:34:27,399 Speaker 1: information on how to fix these markets in the long run, 595 00:34:28,280 --> 00:34:30,840 Speaker 1: if I could turn around the moral hazard point um 596 00:34:30,880 --> 00:34:34,319 Speaker 1: as well, the fact that the overwhelming majority of this 597 00:34:34,360 --> 00:34:38,600 Speaker 1: infrastructure is funded in these municipal bond markets is itself 598 00:34:38,640 --> 00:34:41,400 Speaker 1: a kind of moral hazard question of the federal government 599 00:34:42,000 --> 00:34:47,840 Speaker 1: displacing its responsibility to fund state level infrastructure projects onto 600 00:34:48,160 --> 00:34:51,000 Speaker 1: these municipal bond markets by forcing states to create these 601 00:34:51,000 --> 00:34:54,759 Speaker 1: off budget enterprises in order to do necessary investment. There 602 00:34:54,840 --> 00:34:57,520 Speaker 1: is a good graph going around showing that basically net 603 00:34:57,560 --> 00:35:02,080 Speaker 1: investment at the state level, sort of in fixed capital formation, 604 00:35:03,080 --> 00:35:05,880 Speaker 1: has been you know, net net plus or minus, you know, 605 00:35:06,280 --> 00:35:11,839 Speaker 1: zero point one five percent of zero. Since it's like 606 00:35:12,080 --> 00:35:14,680 Speaker 1: really been kind of abandoned in that way. And so 607 00:35:14,800 --> 00:35:17,640 Speaker 1: these moral hazard questions of oh, what if these local 608 00:35:17,680 --> 00:35:20,239 Speaker 1: places spend too much money and then distribute that the 609 00:35:20,320 --> 00:35:24,440 Speaker 1: cost to everybody else. In practice is actually inverted, where 610 00:35:24,560 --> 00:35:28,239 Speaker 1: the the refusal to fund state infrastructure projects at the 611 00:35:28,280 --> 00:35:32,560 Speaker 1: federal level, and also the progressive increase in unfunded mandates 612 00:35:32,560 --> 00:35:35,560 Speaker 1: put by the federal level on the state level essentially 613 00:35:35,880 --> 00:35:38,560 Speaker 1: create a moral hazard problem of the federal level, which 614 00:35:38,600 --> 00:35:40,880 Speaker 1: does not need taxes in order to fund it spending 615 00:35:41,880 --> 00:35:45,560 Speaker 1: essentially absorbing the tax basis of these state level governments. 616 00:35:47,080 --> 00:35:50,839 Speaker 1: Before we wrap up, just real quickly and anyone can 617 00:35:50,880 --> 00:35:55,399 Speaker 1: take this, what are the consequences economically if we were 618 00:35:55,440 --> 00:35:59,479 Speaker 1: to see a sort of wave of austerity from state 619 00:35:59,520 --> 00:36:04,279 Speaker 1: and local authorities on top of this that largely went unchecked. 620 00:36:04,280 --> 00:36:07,080 Speaker 1: So we have something in the Carre's Act, there's some 621 00:36:07,120 --> 00:36:09,320 Speaker 1: money going to stay locals, but maybe they'll do a 622 00:36:09,360 --> 00:36:13,000 Speaker 1: little bit more. How bad could it compound the problem 623 00:36:13,120 --> 00:36:17,400 Speaker 1: of recovering if there's not something sort of done imminently 624 00:36:17,600 --> 00:36:21,160 Speaker 1: to to address this crisis. In terms of how long 625 00:36:21,200 --> 00:36:23,279 Speaker 1: it takes us to get back to pre crisis level, 626 00:36:24,200 --> 00:36:27,200 Speaker 1: we saw after two thousand eight that it took until 627 00:36:28,320 --> 00:36:30,680 Speaker 1: for a fair number it states to recover trend growth 628 00:36:30,760 --> 00:36:33,799 Speaker 1: and tax revenues. Uh, and if we've seen from other 629 00:36:33,920 --> 00:36:36,680 Speaker 1: data that the immediate demand drop off has been so 630 00:36:36,760 --> 00:36:39,279 Speaker 1: much steeper than it was in two thousand eight, and 631 00:36:39,360 --> 00:36:43,280 Speaker 1: so much more tied to basically things that takes place 632 00:36:43,400 --> 00:36:45,759 Speaker 1: in you know, physical space, you know, use of use 633 00:36:45,760 --> 00:36:48,719 Speaker 1: of public services, use of retail, brick and mortar, use 634 00:36:48,719 --> 00:36:51,160 Speaker 1: of all of these things that generate tax revenues. So 635 00:36:51,239 --> 00:36:54,120 Speaker 1: I mean, just going from that baseline, I mean, it's 636 00:36:54,160 --> 00:36:58,000 Speaker 1: it seems like a disaster if further relief is not forthcoming. 637 00:36:58,600 --> 00:37:01,520 Speaker 1: All right, Well, uh, thanks to all three of you 638 00:37:01,880 --> 00:37:05,600 Speaker 1: for joining us. Really appreciate all your perspective. Not something 639 00:37:05,640 --> 00:37:10,440 Speaker 1: that we've discussed much on the podcast before. So Skanda, 640 00:37:10,560 --> 00:37:14,200 Speaker 1: Alex and Yakov, thanks for joining outline. Thanks so much, 641 00:37:14,640 --> 00:37:33,640 Speaker 1: thanks for having us. Yeah, thanks, thanks Tracy. I really 642 00:37:33,920 --> 00:37:38,279 Speaker 1: liked that conversation. I really liked you know, all the 643 00:37:38,440 --> 00:37:42,600 Speaker 1: allusions to the Eurozone crisis are like coming back to 644 00:37:42,760 --> 00:37:46,040 Speaker 1: this crisis, except in reverse, because of course, that was 645 00:37:46,160 --> 00:37:50,880 Speaker 1: essentially the problem in the Eurozone posts the Great Financial Crisis, 646 00:37:50,880 --> 00:37:53,600 Speaker 1: which is that you had all these authorities, they didn't 647 00:37:53,600 --> 00:37:55,239 Speaker 1: print their own money because none of them have their 648 00:37:55,239 --> 00:37:58,040 Speaker 1: own central bank. They were all credit constrained, they're all 649 00:37:58,080 --> 00:38:01,120 Speaker 1: forced into austerity, and it's like that's like, it's this 650 00:38:01,280 --> 00:38:06,640 Speaker 1: weird US parallel we're facing, where this time the question 651 00:38:06,840 --> 00:38:11,400 Speaker 1: is how much domestic US austerity will we see because 652 00:38:11,480 --> 00:38:15,680 Speaker 1: none of these entities currently have access to a sort 653 00:38:15,680 --> 00:38:18,400 Speaker 1: of either blame check funding from the central Bank or 654 00:38:18,440 --> 00:38:22,520 Speaker 1: the ability to conduct their own countercyclical fiscal policy. Yeah. 655 00:38:22,600 --> 00:38:27,279 Speaker 1: I'm also getting terrible target to flashbacks where everyone was 656 00:38:27,320 --> 00:38:30,800 Speaker 1: sort of arguing about whether or not that liquidity support 657 00:38:30,840 --> 00:38:33,960 Speaker 1: from the e c B amounted to a stealth bailout 658 00:38:34,280 --> 00:38:38,799 Speaker 1: of certain Eurozone members. Uh. Those were fun times. But 659 00:38:38,920 --> 00:38:44,360 Speaker 1: I do think this this idea of mixing fiscal policy 660 00:38:44,840 --> 00:38:50,000 Speaker 1: um with monetary policy, or having a monetary policy authority 661 00:38:50,200 --> 00:38:55,360 Speaker 1: step in to allow fiscal stimulus to happen through the states, 662 00:38:55,440 --> 00:38:57,640 Speaker 1: I think that's really interesting and it's one that we've 663 00:38:57,680 --> 00:39:01,680 Speaker 1: touched on before. I guess the stion is, you know, 664 00:39:02,320 --> 00:39:06,480 Speaker 1: the Federal Reserve is this sort of unelected um body 665 00:39:06,520 --> 00:39:10,719 Speaker 1: that has a very specific mandate. But it feels like 666 00:39:10,880 --> 00:39:14,279 Speaker 1: in a situation like this, they're encroaching on a bunch 667 00:39:14,280 --> 00:39:18,319 Speaker 1: of different areas, but people aren't necessarily worried about it 668 00:39:18,360 --> 00:39:22,480 Speaker 1: in this particular circumstance, because what they're doing seems very 669 00:39:22,600 --> 00:39:26,360 Speaker 1: very needed. It. I just wonder how far it's going 670 00:39:26,400 --> 00:39:29,920 Speaker 1: to go and what the pushback is going to be, 671 00:39:30,000 --> 00:39:32,879 Speaker 1: if there is any eventually. I also think it says 672 00:39:32,960 --> 00:39:37,680 Speaker 1: something about sort of the US culture in US politics 673 00:39:37,760 --> 00:39:41,280 Speaker 1: in general, that like, if if the Federal Reserve buys 674 00:39:41,680 --> 00:39:45,320 Speaker 1: so called investment grade debt or backstops that market, like okay, 675 00:39:45,360 --> 00:39:48,839 Speaker 1: we need to do that credit dislocations, etcetera. But if 676 00:39:48,840 --> 00:39:51,919 Speaker 1: the Federal Reserve were they say like backstop or by 677 00:39:52,000 --> 00:39:55,080 Speaker 1: the debt of New York State or California, something like, oh, 678 00:39:55,160 --> 00:39:58,040 Speaker 1: you're bailing out the states, and we we we have 679 00:39:58,160 --> 00:40:02,040 Speaker 1: this like weird thing where in our system we're actually uh. 680 00:40:02,120 --> 00:40:06,000 Speaker 1: The sort of central view of many people who sort 681 00:40:06,000 --> 00:40:08,000 Speaker 1: of talk about that stuff is that it's somehow more 682 00:40:08,080 --> 00:40:11,880 Speaker 1: legitimate to back up, backstop banks and companies than it 683 00:40:11,920 --> 00:40:15,080 Speaker 1: would be to backstop New York City or New York State, 684 00:40:15,080 --> 00:40:20,480 Speaker 1: which is actually directly fighting this health h this health emergency. Yeah, 685 00:40:20,560 --> 00:40:24,680 Speaker 1: as much as people complain about corporate bailouts, you can 686 00:40:24,719 --> 00:40:28,080 Speaker 1: imagine it would be even worse for state bailouts. And 687 00:40:28,120 --> 00:40:31,719 Speaker 1: again that's It's kind of weird because ultimately all the 688 00:40:31,800 --> 00:40:34,359 Speaker 1: states are part of the United States of America, and 689 00:40:34,480 --> 00:40:37,120 Speaker 1: yet we have these weird divisions. I guess that's the 690 00:40:37,560 --> 00:40:40,520 Speaker 1: nature of the US political system. But it is definitely 691 00:40:40,680 --> 00:40:44,160 Speaker 1: worth discussing and worth reminding people of in the context 692 00:40:44,280 --> 00:40:46,799 Speaker 1: of what's going on in finance and markets and the 693 00:40:46,840 --> 00:40:50,799 Speaker 1: economy right now. And I think people forget just how 694 00:40:50,880 --> 00:40:55,280 Speaker 1: much much friction there is between these individual state level 695 00:40:55,360 --> 00:41:00,280 Speaker 1: governments and the federal government at the moment. Yeah, because 696 00:41:00,600 --> 00:41:02,800 Speaker 1: the way the US is set up, there's all kinds 697 00:41:02,840 --> 00:41:04,839 Speaker 1: of sort of gaps there, and I do think that's 698 00:41:04,880 --> 00:41:08,240 Speaker 1: really important. Like, look, we've had like this incredible crisis 699 00:41:08,280 --> 00:41:12,520 Speaker 1: that pushed us from a very strong economy into sort 700 00:41:12,560 --> 00:41:16,640 Speaker 1: of depression level economic activity for a while or in 701 00:41:17,200 --> 00:41:21,080 Speaker 1: really just a matter of weeks, and even if we 702 00:41:21,080 --> 00:41:25,040 Speaker 1: were to find a cure or a health solution in 703 00:41:25,080 --> 00:41:26,960 Speaker 1: the next month or something, and of course no one 704 00:41:27,000 --> 00:41:31,600 Speaker 1: really expects that. The asymmetry is such that as um, 705 00:41:31,640 --> 00:41:33,520 Speaker 1: I forget who mentioned it, I think it was Alex 706 00:41:33,560 --> 00:41:36,600 Speaker 1: pointed out it took until fourteen during the last crisis 707 00:41:36,840 --> 00:41:40,600 Speaker 1: to return to sort of a trend state tax collection, 708 00:41:41,320 --> 00:41:44,080 Speaker 1: so it could just be. It could be years of 709 00:41:44,239 --> 00:41:50,480 Speaker 1: unnecessary austerity budget cuts, further economic pain simply as a 710 00:41:50,520 --> 00:41:53,279 Speaker 1: result of what could you know, and hopefully will be 711 00:41:53,320 --> 00:41:56,759 Speaker 1: a very like short real shock to the system, which 712 00:41:57,160 --> 00:41:59,279 Speaker 1: makes it all the more urgent to come up with 713 00:41:59,320 --> 00:42:03,600 Speaker 1: some mechanism to prevent that. Absolutely. Uh, time is of 714 00:42:03,640 --> 00:42:06,799 Speaker 1: the essence here alright, speaking of time, shall we leave 715 00:42:06,840 --> 00:42:10,560 Speaker 1: it there? Let's leave it there alright. This has been 716 00:42:10,640 --> 00:42:13,960 Speaker 1: another episode of the All Thoughts podcast on Tracy Alloway. 717 00:42:14,040 --> 00:42:17,160 Speaker 1: You can follow me on Twitter at Tracy Alloway and 718 00:42:17,200 --> 00:42:19,440 Speaker 1: I'm Joe wi Isn't All. You can follow me on 719 00:42:19,480 --> 00:42:23,120 Speaker 1: Twitter at the Stalwart, and you should follow our guests 720 00:42:23,360 --> 00:42:28,399 Speaker 1: on Twitter. They are Sconda Amarnath of Employee America. He's 721 00:42:28,520 --> 00:42:32,920 Speaker 1: at Irving Swisher on Twitter, Yaca Fagan of the Burgrowing 722 00:42:32,960 --> 00:42:37,840 Speaker 1: Institute He's at Buddy Yakob and Alex Williams of the 723 00:42:37,920 --> 00:42:43,440 Speaker 1: Levy Institute. He's at Tragic Bios on Twitter. And be 724 00:42:43,520 --> 00:42:46,680 Speaker 1: sure to follow our producer on Twitter, Laura Carlson. She's 725 00:42:46,719 --> 00:42:50,480 Speaker 1: at Laura M. Carlson. Follow the Bloomberg Head of Podcasts 726 00:42:50,480 --> 00:42:54,399 Speaker 1: on Twitter, Francesca Levi at Francesca Today and check out 727 00:42:54,440 --> 00:42:59,000 Speaker 1: all of our podcasts at Bloomberg under the handle at podcasts. 728 00:42:59,239 --> 00:43:09,080 Speaker 1: Thanks for listening to