Word: default
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There's no doubt that default is imminent. The market for new city and state bonds, despite their high returns, is drying up fast, while old notes are continually coming due. And there is little doubt that default will have disastrous consequences outside New York: the city is too important financially and the economy already too shaky for default not to have a significant impact. City and local bonds everywhere are already facing higher interest rates, partly because of New York's condition. Should the city default, municipalities will have a hard time finding any investors at all. The chairman...
Only federal intervention can prevent default. It's not a matter of "bailing out" New York, as Ford would have it, but of giving the city time through federal guarantees for city bonds or direct loans. Mismanagement and incompetence have created many of New York's problems, so the city can significantly cut costs without drastically cutting services. But this requires careful planning and time. Default, in contrast, would force sudden and wholesale cuts, applied indiscriminately...
...dollar. Even worse, investors' lack of confidence spread to state securities that had no connection with the city's crisis. The state's housing finance agency was unable to refinance $69 million worth of securities and warned that it might have to default and stop work at dozens of housing, hospital and nursing-home construction projects. The city again seemed headed for default-this time on Oct. 17, when $450 million in debts came due-and officials feared that the state might be pulled down as well, even though it is in basically sound financial shape. Said...
...injure the recovery process now under way in our national economy." Burns would not elaborate on that statement, but it is a significant shift in his position and puts him at odds with Treasury Secretary William Simon and President Ford. Simon and Ford have consistently minimized the damage a default by New York might have on the ability of other cities and towns to sell bonds. Both also have firmly opposed federal help for the nation's largest city...
...time is running out. Rohatyn warned that without federal help, New York may have to default by December. That would ruin the city's credit, force a drastic cutback in services and probably cause an exodus of major corporations. Said he: "The flow of blood would be irreversible...