Market Talk

Welcome to New Jersey. Now pay up.

Our Newswires colleague Brad Davis sent this snippet along from a conference in Dallas:

Euro zone might struggle with its own sovereign debt crisis, but cash-strapped US municipalities are waiting in the wings with a debt crisis of their own, Thomas Glaessner, Citigroup global policy strategist, says at a forum hosted by Dallas Fed. “You can’t imagine how many clients come to us” looking for a way to bet against the debt of US states and municipalities, Glaessner says. It’s not just the euro zone, where Greece is implementing a belt-tightening program, that must “sacrifice” to meet austerity budgets, Glaessner says. Sacrifice also is going to be needed in US localities, he says.

We’ve been banging the drum on this topic for a while, that the states are getting ready to stage their own Greek drama. It’s very telling to me that Glaessner says “you can’t imagine” how many investors are coming to Citi that want to essentially short the states.

As Han Solo once said, I can imagine quite a bit (hey, I know this is a serious topic, but sometimes you just gotta let your geek flag fly, know what I mean?)

Look at my own beloved (and just as often reviled) Garden State: the new governor, Chris Christie, unveiled a harsh budget that’s already got some folks howling, and relies almost completely on spending cuts. As the Times explains:

To close a deficit that he asserted was approaching $11 billion, Governor Christie called for the layoffs of 1,300 state workers, closings of state psychiatric institutions, an $820 million cut in aid to public schools, and nearly a half-billion dollars less in aid to towns and cities. He also suspended until May 2011 a popular property-tax rebate program, breaking one of his own campaign promises.

Town councils, school boards, home owners and families are all going to feel this ax fall. And while Jersey in a tight spot, it’s far from the only state facing a crunch. Welcome to Sparta, kids. Don’t mind the implements of destruction.

- AOL paid some hefty sums to its former employees – $28.4 million to be exact – to its four top executives it replaced last year. “Want to make money? Become a former AOL executive,” MediaMemo blogger Peter Kafka says.

- Housing starts tumbled 5.9% in February. “This level of starts is both good news and bad news,” Calculated Risk says. “The good news is the excess housing inventory is being absorbed – a necessary step for housing (and the economy to recovery. The bad news is economic growth will probably be sluggish – and unemployment elevated – until residential investment picks up.”

- Bearish stance from Albert Edwards, Societe Generale strategist, isn’t losing steam. He questions recovery’s sustainability in large part because “credit is disappearing at this debilitating dehydrating rate.”

- Google’s (GOOG) Nexus One sales only 135,000 after 74 days at market, according to analytics firm Flurry. “A piddling amount,” Digital Daily blogger John Paczkowski says, especially since Apple’s (AAPL) iPhone and Motorola’s (MOT) Droid sold 1M and 1.05M, respectively, after their first 74 days on the market.

- A downgraded US credit rating wouldn’t be pretty. Good thing Tim Geithner says there’s no way that will happen.

- “Don’t kid yourself: the hype currently surrounding short sales and the HAFA program will prove to be short-lived, and REO expertise will be prove to be the key to recovery, as it has been in prior cycles,” Paul Jackson writes at Housing Wire.

- What does corporate America think about financial reform? “It’s actually really hard to say,” Justin Fox says.

- Columbia Journalism Review argues blogs have been doing a better job covering the examiner’s report on Lehman’s collapse when compared to mainstream media’s coverage.

- The worry about the Fed ending its MBS purchase program is it will cause long-term interest rates to rise, which will hinder recovery. But if that happens, the Fed’s capable of restarting the program “very quickly if needed,” Mark Thoma writes.

- NJ Gov Chris Christie proposes steep spending cuts that will hit “the poor, elderly, schoolchildren, college students and inner-city residents hardest, while largely sparing the wealthy and businesses,” NYT says.

Greece has finally put the Castor oil on the table. The question remains can the Neo-Spartans drink it and digest it. And who else is going to have to drink it before this whole drama reaches its denouement? Because what the Greeks are having force-fed to them is the same stuff taxpayers in the United States are going to have to swallow at some point, voluntarily or not.

The Greeks unveiled a harsh austerity plan that includes a variety of tax hikes and pay cuts, designed to save them about $6.5 billion. “The decisions were necessary to be taken. Necessary for the survival of our country, of our economy. For Greece to emerge from the vortex, from the speculators, from the negative publicity,” Prime Minister George Papandreo said.

The measures have already been met with fierce resistance. “Black crows ready to devour country’s wealth and leave half the population jobless,” one newspaper headline said. As we said yesterday, it’s worth considering whether or not Greece can even make this plan work. But they’re pushing it because they have to in order to get the kind of “support” they need from their eurozone partners, and the Germans aren’t going to pony up any money unless they see the Greek’s flagellating themselves for their past profligacy.

Make no mistake, that belt-tightening is the cost of  “support,” from the eurozone and whomever else buys all that Greek debt they have to issue this year to fund their budget (and do so without paying such a high yield that the interest rates alone overwhelms their revenues.) And that’s a cost that might be ringing up cash registers across the globe before this whole great deleveraging wave passes.

Jim Bunning may have been tilting at windmills with his little quest to make Congress actually pay for its spending bills, but Don Kentucky is onto something, make no mistake (perhaps you’d prefer to compare him to King Lear; either way.) Now, the Greeks are trying to cut about four percentage points off their debt-to-GDP ratio. If the United States were to embark upon a similar plan, we’d be looking at cutting something like $500 billion in spending (very roughly.) Those spending cuts would come very dearly. Or perhaps I should say, will come very dearly. Because at some point, we will hit the wall, and that point is coming faster than some reckon.

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MTV at the Jersey Shore, circa 1915.

Somewhere in the state of New Jersey, there’s already some little man, in a little green lampshade-colored plastic visor, who’s calculating just how much my property taxes are going to rise. I can feel him.

There hasn’t actually been much reaction among my fellow New Jerseyans, at least the one’s I know, to the “state of emergency” invoked by our new governor, Chris Christie. Just about everything, it seems, costs just a little bit more in New Jersey, for some odd reason that nobody can ever seem to figure out (ahem.) There’s a fiscal bomb going off? What else is new?

(Editor’s note: everything costs more in New Jersey, except gas, Russolillo points out.)

So this latest disaster scenario has invoked the usual response: There go our property taxes. It’s all just part of the delicate dance we entertain every day here in the Garden State.

But west of the Delaware (and east of the Hudson for that matter,) New Jersey suddenly is known for more than just mobster shows and trashy kids down the shore. Hey, we’re like California! Or New York. Or Illinois. Or Michigan. Or Ohio. Actually, when you think about it, there are a lot of states that are up against the wall, aren’t there? We’re just one in a long line. The state of the state, to state it just so, is pretty bad, and getting worse. California’s crisis last year grabbed all the headlines, but the Golden State is far from alone in sitting on top of a ticking debt bomb.

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There's money in this toll road thing, I tell ya.

We’re going to delve slightly from the business pages here, and touch on a subject near and dear to the hearts of your three writers: New Jersey politics. Now, the people of the Garden State spoke last night, and they sent Jon Corzine packing, opting for former US Attorney Chris Christie and his corruption-fighting street cred.

You know when Corzine lost the people? Well, that idiotic crash on the Parkway when he was rushing to meet Don Imus and the Rutgers basketball team didn’t help. And that odd little dalliance with the union president, well, this is New Jersey, everybody’s got some kind of odd dalliance with a union boss. And, of course, nobody’s very happy after the new property-tax bills arrive.

But I’m not talking about any of that. No, what I want to focus on today is Corzine’s goofy scheme to monetize the Turnpike.

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