February 24, 2009 08:35 PM UTC

Sen. Bennet doesn't sound so bright questioning Bernanke

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• by: Another skeptic

Sen. Bennet is questioning Fed Chair Ben Bernanke and is making a poor impression.

He initially seemed to be reading his question, which is a bad sign.  When he was appointed by Ritter, he was billed as very bright and a quick study. I don’t see that today. (Pun intended.)

What he’s asking is that the Fed and/or the Treasury bailout municipalities and other tax-exempt organizations that played the risky auctin-rate bond market and effectively got caught short.

That market is frozen, making it impossible for tax-exempt and even some for-profit organizations to lower their interest costs by borrowing for 30 to 60 days and rolling over those deals frequently rather than just issuing long-term bonds, which carry higher interest rates.

Tax-exempt organizations get big interest rate advantages by issuing bonds that pay tax-free interest to lenders. There is no reason the Feds should further subsidize them.

By promoting more subsidies for municipalities, school districts, etc., Bennet is promoting higher taxes that must be collected to make up the revenue shortfalls and subsidies granted to tax-exempt organizations. Historically, this has been public policy for a long time, but further subsidies aren’t justified. Tax-exempt organizations need to curtail their capital expenditures until the economy recovers five to 10 years from now.

Supporting frugality, of course, wouldn’t get Bennet elected in 2010. He’s looking out for himself rather than for taxpayers who are forced to subsidize tax-exempts.

Yes, lower interest costs for tax-exempt municipalities saves money for local taxpayers if the municipalities have to borrow. But they don’t have to borrow as much as they do and they should issue long-term bonds instead of playing the risky auction rate markets.

Wikepedia explains auction rate securities here:

http://en.wikipedia.org/wiki/A…