Better Credit Ratings and Bond Prices Don’t Signal Better Finances
In recent weeks, Chicago municipal bond prices have firmed up a bit. And today, wire services are reporting stories along the lines that signs of progress in pension funding have stabilized the outlook for the city’s credit ratings.
Does this mean that things are heading in the right direction? Not necessarily.
If the financial crisis of 2007-2009 taught us anything, it taught us to be careful of taking market prices at face value. Let alone credit rating agency opinions.
But let’s give the market and the rating agencies the benefit of the doubt, for a moment. What else might these recent developments imply?
What’s good for GM isn’t necessarily what’s good for America, and what is good for the Chicago Teachers Union and Chicago bondholders isn’t necessarily what is good for Chicago.
A better outlook for pension funding doesn’t appear out of nowhere. More money flowing into pensions, and supporting promises to bondholders, is coming from somewhere else.
Is this somewhere taxpayers, and people paying fees to the city of Chicago? How durable will recent developments prove to be? Will they survive the response of taxpayers sensing a greater slice of their flesh being stripped off their bones?
This post was published at Wolf Street by Bill Bergman ‘ August 31, 2016.