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While everybody wonders whether the federal government will have to bail out insolvent states, the process has already begun. Writing in the Wall Street Journal Nov. 3, Meredith Whitney, the top bank analyst on Wall Street, pointed out that "state bailouts have already begun. Over 20% of California's debt issuance during 2009 and 30% of its debt issuance in 2010 to date has been subsidized by the federal government in a program known as Build America Bonds." Under this program, the U.S. Treasury covers 35% of the interest paid by the bonds. Without this program, bond interest costs for some states could have already reached prohibitive levels, according to Whitney. "California is not alone," she pointed out. More than 30% of Illinois's debt and more than 40% of Nevada's debt issued since 2009 have been subsidized through this program.
While everybody wonders whether the federal government will have to bail out insolvent states, the process has already begun. Writing in the Wall Street Journal Nov. 3, Meredith Whitney, the top bank analyst on Wall Street, pointed out that "state bailouts have already begun. Over 20% of California's debt issuance during 2009 and 30% of its debt issuance in 2010 to date has been subsidized by the federal government in a program known as Build America Bonds." Under this program, the U.S. Treasury covers 35% of the interest paid by the bonds. Without this program, bond interest costs for some states could have already reached prohibitive levels, according to Whitney. "California is not alone," she pointed out. More than 30% of Illinois's debt and more than 40% of Nevada's debt issued since 2009 have been subsidized through this program.