Smith's Research & Gradings



SRG Puts Opiods on Credit


Should Opioids be included as a credit consideration?

Yes. Smith's Research & Gradings has decided the time has come to answer the question and put the epidemic of opioid use on "credit".

Stamford-based Purdue Pharma, the maker of pain-killer OxyContin, is the target of an increasing number of states, counties and cities suing the pharmaceutical firm, alleging it is partly to blame for the nation’s opioid epidemic.

The latest suit, filed the beginning of July by the state of Oklahoma, said Purdue and three other drug companies and their subsidiaries sought to increase their opioid sales by persuading doctors to expand the market beyond “a niche for cancer patients, the terminally ill and acute short-term pain” and to “prescribe opioids to a broader range of patients with chronic non-cancer-related pain.”

To do so, the lawsuit says, Purdue and the other pharmaceutical companies “elected to falsely downplay the risk of opioid addiction and overstate the efficacy of opioids for more wide-ranging conditions.” One argument Purdue has made is that OxyContin’s time-release properties made it less addictive.

“These companies have waged a fraudulent decade-long marketing campaign to profit from the anguish of thousands of Oklahomans,” said Oklahoma Attorney General Mike Hunter. “These companies have made in excess of $10 billion a year, while our friends, family members, neighbors and loved ones have become addicts, gone to prison or died because of the opioid epidemic.”



Richard Larkin, All-Star Analyst, Dead at 66 Years of Age

Richard "Dick" Larkin loved the Truth. He spent 40 years of his life in making honest assessments of credit quality and his death last Thursday hit the community of municipal analysts very hard.

“Dick Larkin spent half of his four-decade long career here at S&P and left a durable influence on our analytical culture,” said Tina Morris, head of the U.S. Public Finance at S&P Global Ratings. “He encouraged the sort of vigorous debate, exploration of different perspectives, and ultimate consensus that characterize our approach. We will miss him, and we extend our condolences to his family and friends.”

Mr. Larkin was elected to the First Team of Smith's All-Star Analysts in the Special Revenue Bond Category. in 2008, 2009, 2010, 2011, 2013 and 2014. He was elected to the Second Team in 2012 and 2015.

Born in Queens, New York, Dick graduated with a Bachelor's degree in Economics from Iona College and a Master's Degree in Economics from Fordham University.

Julie Egan, All-Star Analyst and a past chair of the National Federation of Municipal Analysts, expressed surprise at the news. "It's very said. He was always well respected and a brilliant analyst."




Is Mayor's Millionaire's Tax Going Anywhere Soon?

New York City Mayor Bill de Blasio proposed a "millionaire's tax" to fund the repairs needed for the NYC transit system. Under the plan, first released at the New York Times website, the city’s tax rate on individuals making more than $500,000 a year and married couples earning above $1 million would jump 0.5% from 3.876% to 4.41%.

MTA Chairman Joe Lhota issued a statement highlighting the MTA’s need for “short-term emergency financing” and pressed de Blasio to immediately match the state’s cash outlay for the system.“The mayor should partner with us and match the state funding now so we can turn the trains around,” he said. “There’s no question we need a long-term funding stream, but emergency train repairs can’t wait on what the state legislature may or may not do next year.”

More than $500 million of the revenue generated would go to subway and bus system upgrades, while about $250 million would subsidize half-priced MetroCards for about 800,000 living at or below the federal poverty level.






5 Years  Ago

10 Years Ago

15 Years Ago

20 Years Ago

There have been many headlines about bankruptcy for cities and states. In February 2010, Governor Chris Christie declared that New Jersey was on the "edge of bankruptcy". In July 2012, San Bernardino, California took steps to legally file for bankruptcy, which would allow them to renege on money owed to creditors that lent them money, and vendors which delivered services but have yet to be paid. When is the threat of bankruptcy for a city or state real? And when is talk of bankruptcy just a political scare tactic? Richard  Larkin, senior vice president and director of credit analysis at Herbert J Sims provided the answers to these questions.

"Here are some facts: the 50 states cannot file for bankruptcy, because there is no law that permits bankruptcy for states," Mr. Larkin said. "The 50 states are sovereign governments that have all powers to tax and spend without interference from the federal government. So, bankruptcy statements by Governors are merely exaggerated political statements geared to sway voters and legislators to enact balanced budgets. And by themselves, such 'bankruptcy' pronouncements can result in gaining political support for state spending fiscal reform."




Hours before an interstate bridge collapsed in Minneapolis, U.S. Senator Chris Dodd (D. CT) and U.S. Senator Chuck Hagel (R. Neb.) announced a bi-partisan plan to repair and replace the country's aging infrastructure. The Hagel-Dodd bill is called the National Infrastructure Bank Act of 2007. It would create an independent national bank that would identify, evaluate and help finance the largest infrastructure projects — mainly those of regional and national significance. Qualifying projects would start at $75 million. Currently, nearly all roads and bridges are publicly owned and funded through federal and state tax dollars.

"The current infrastructure in our country is wholly inadequate to handle the demands of a 21st Century economy," said Senator Dodd, chairman of the Senate Committee on Banking, Housing and Urban Affairs. "We see our ports backed-up by expanding international trade, our rails overloaded by our increasing energy demands and our highways hopelessly clogged by traffic. We run the risk of being left behind by our international competitors if we do not begin to modernize our national infrastructure."





The Responsibility of Finance Professionals in a Post-Enron Era: An excerpt from white paper on the subject of the responsibility of a finance professional in a post Enron era.

Summary: The Call to Action.

Now is the time to dedicate or rededicate ourselves to the sacred duty to the capital markets

  • Do only the "deals" that should be done
  • Disclose all the risks that exist (actual and perceived)
  • Demand real evaluation and recording of revenues and profits as well as expenses and liabilities
  • Disclose or eliminate all lingering legal issues
  • Define illegal to include the immoral
  • Deny market access to those who refuse to comply.





Smith's has started to wonder if the ratings on many G.O.s are rising too far, too fast.

The review is prompted, in part, because of the history of ratings in the commercial banking sector during the 1980s, when many Japanese Banks were rated "Triple-A." After the BIS G-10 Accord's risk-adjusted capital guidelines, the stock market plunge in 1986, and a demographic baby-boomer/bust cycle, the triple-A ratings evaporated like morning dew.

Similarly, California's G.O. rating soared into the triple-A stratosphere (because its economy was the tenth largest in the world), only to crash and burn in the wake of defense contract cutbacks.

Is it possible for municipal analysts to be swayed by irrational exuberance?



August 7, 2017, Vol. XXV, Issue 13  Municipal Edition


The Global Economic Doctor

August 7, 2017, Vol. 2, Issue 14



How Long Will This Go On?


How long has this been going on?

How long has this been going on?

Well, your friends with their fancy persuasion

Don't admit that it's part of a scheme

But I can't help but have my suspicion

‘Cause I ain't quite as dumb as I seem

                                                                                     —Paul Carrack, Ace

Summary: The Q2 earnings season is winding down, Washington is on vacation and the lazy days on Wall Street are beginning as top management heads out of the office and skeleton crews take over.  At the same time, the Dow Jones Industrial keeps hitting new records and the VIX refuses to move away from the 9-10 range.  Maybe even North Korea will go on vacation until September.  The next three weeks should be quieter.  We suspect they could be the calm before the storm — September and October are busy with the U.S. agenda dominated by the debt ceiling, budget talks, tax reform, and trade talks, while Germany goes to the polls and China holds major communist party leadership meetings. Look to the Trump administration to put its house in order for the battles that loom in the fall. We wish General Kelly good luck with his new assignment. It will be a significant challenge to bring order to a White House with one of the least politically experienced presidents and a fractious team of greenhorns to a backdrop of a deeply divided country, a dysfunctional Congress and complex overseas threats. Yet markets are keying off of relatively positive news from the Q2 2017 earnings season, while economic data runs from positive to marginally negative.

Looking ahead, if Congress is able to work its way through the debt ceiling and tax reform, the markets will continue their advance, even with the Federal Reserve in a tightening mode. If not, the fall could see a return to volatility. More importantly, bigger questions over the direction of the U.S. economy could return with a vengeance and then the party in the market is over.

Enjoy what is left of the summer because the fall has the potential to be a wild one.



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