Volume 5 Number 42 October 17, 2008
Dear Chairman Bernanke:
Our great country, like the rest of the world, is grappling with the ever-growing global economic crisis in our financial markets. As a former Florida president of Bank of America, I understand the fiscal dilemmas we face are more complex and multifaceted today than those we’ve faced in prior troubled times. One thing the current crisis clearly illustrates to the world is how interdependent our global financial markets truly are.
As you know, one of the most pressing concerns we face is the lack of liquidity in the short-term financial markets, and I applaud the Federal Reserve’s recent proposal to create the Commercial Paper Funding Facility (CPFF). I understand the plan is to create a special purpose vehicle to purchase short-term commercial paper to help stabilize the market.
As you develop this plan, I urge you to extend the CPFF to local governments. The tax-exempt municipal bond market represents an investment of more than $2.3 trillion in our country’s infrastructure. The credit crisis has caused the tax-exempt bond market to cease functioning for all practical purposes. State and local governments have very limited access to credit to finance infrastructure and cash flow needs. In particular, the short-term tax-exempt market, including commercial paper, is experiencing difficulties. Short-term interest rates have reset at 5%‑8% or higher over the last several weeks. The higher debt service for State and local government debt increases the cost for our already beleaguered taxpayers. More importantly, the limited access to credit is delaying important infrastructure projects. The tax-exempt bond market is essential to financing the construction of schools, roads and improving the infrastructure in our communities.
Including the tax-exempt municipal bond market in your CPFF will help stabilize the short-term tax-exempt bond market and hopefully facilitate a return to more normal market conditions. I encourage you to include state and local governments, in addition to commercial entities, as you work to resolve the credit crisis.
Chief Financial Officer