Can LessWrong pull another “crypto” with Illinois?
I have been following the issue with the US state Illinois’ debt with growing horror.
Their bond status has been heavily degraded—most states’ bonds are “high quality” with the standards agencies (moodys, standard & poor, fitch), and Illinois is “low quality”. If they get downgraded more they become a “junk” bond, and lose access to a bunch of the institutional buyers that would otherwise be continuing to lend.
COVID has increased many states costs’, for reasons I can go into later, so it seems reasonable to think we’re much closer to a tipping point than we were last year.
As much as I would like to work to make the situation better I don’t know what to do. In the meantime I’m left thinking about how to “bet my beliefs” and how one could stake a position against Illinois.
Separately I want to look more into EU debt / restructuring / etc as its probably a good historical example of how this could go. Additionally previously the largest entity to go bankrupt in the USA was the city of Detroit, which probably is also another good example to learn from.
COVID has increased many states costs’, for reasons I can go into later, so it seems reasonable to think we’re much closer to a tipping point than we were last year.
As much as I would like to work to make the situation better I don’t know what to do. In the meantime I’m left thinking about how to “bet my beliefs” and how one could stake a position against Illinois.
Is the COVID tipping point consideration making you think that the bonds are actually even worse than the “low quality” rating suggests? (Presumably the low ratings are already baked into the bond prices.)
Looking at this more, I think I my uncertainty is resolving towards “No”.
Some things: - It’s hard to bet against the bonds themselves, since we’re unlikely to hold them as individuals - It’s hard to make money on the “this will experience a sharp decline at an uncertain point in the future” kind of prediction (much easier to do this for the “will go up in price” version, which is just buying/long) - It’s not clear anyone was able to time this properly for Detroit, which is the closest analog in many ways - Precise timing would be difficult, much more so while being far away from the state
I’ll continue to track this just because of my family in the state, though.
Point of data: it was 3 years between Detroit bonds hitting “junk” status, and the city going bankrupt (in the legal filing sense), which is useful for me for intuitions as to the speed of these.
Can LessWrong pull another “crypto” with Illinois?
I have been following the issue with the US state Illinois’ debt with growing horror.
Their bond status has been heavily degraded—most states’ bonds are “high quality” with the standards agencies (moodys, standard & poor, fitch), and Illinois is “low quality”. If they get downgraded more they become a “junk” bond, and lose access to a bunch of the institutional buyers that would otherwise be continuing to lend.
COVID has increased many states costs’, for reasons I can go into later, so it seems reasonable to think we’re much closer to a tipping point than we were last year.
As much as I would like to work to make the situation better I don’t know what to do. In the meantime I’m left thinking about how to “bet my beliefs” and how one could stake a position against Illinois.
Separately I want to look more into EU debt / restructuring / etc as its probably a good historical example of how this could go. Additionally previously the largest entity to go bankrupt in the USA was the city of Detroit, which probably is also another good example to learn from.
Is the COVID tipping point consideration making you think that the bonds are actually even worse than the “low quality” rating suggests? (Presumably the low ratings are already baked into the bond prices.)
Looking at this more, I think I my uncertainty is resolving towards “No”.
Some things:
- It’s hard to bet against the bonds themselves, since we’re unlikely to hold them as individuals
- It’s hard to make money on the “this will experience a sharp decline at an uncertain point in the future” kind of prediction (much easier to do this for the “will go up in price” version, which is just buying/long)
- It’s not clear anyone was able to time this properly for Detroit, which is the closest analog in many ways
- Precise timing would be difficult, much more so while being far away from the state
I’ll continue to track this just because of my family in the state, though.
Point of data: it was 3 years between Detroit bonds hitting “junk” status, and the city going bankrupt (in the legal filing sense), which is useful for me for intuitions as to the speed of these.