This Vaping with Vic video is Interesting

[Darrgoe]

 

[smacuser]

Diassidole.

 

[Mazinny]

Perhaps if he included a link to the actual MSA payments through the years, in Michigan, NJ and NY, I could take this clown a little more seriously.

 

[FLICK]

ANNUAL tobacco SETTLEMENT PAYMENTS RECEIVED BY THE STATES, 1998-2019
https://www.tobaccofreekids.org/assets/factsheets/0365.pdf

Hmmm, am I missing something?

 

[Mazinny]

ANNUAL tobacco SETTLEMENT PAYMENTS RECEIVED BY THE STATES, 1998-2019
https://www.tobaccofreekids.org/assets/factsheets/0365.pdf

Hmmm, am I missing something?

No, I don't think you are. He is just spewing off a bunch of nonsense that doesn't cohere at any point. There has not been a "precipitous" drop in MSA payments. It has been pretty steady from 2007 through 2019.

 

[ScottP]

No, I don't think you are. He is just spewing off a bunch of nonsense that doesn't cohere at any point. There has not been a "precipitous" drop in MSA payments. It has been pretty steady from 2007 through 2019.

I agree there hasn't been a "drop" per-say, but it isn't what they thought it would be either. When the MSA was signed ecigs were not a thing. 10 Years ago ecigs were barely a blip on the radar. So the assumption was that sales would remain fairly steady. However, the MSA has a built in automatic 3% increase every year which would have acted similar to compounding interest on an investment for the States. So taking California as an example, based on the 2007 payout of $774.8 (I assume that is million) and assuming steady sales and the 3% annual increase, their 2019 payment should have been closer to $1060 than the $849.3 that they got. You also need to understand that the bonds issued by states require them to pay that back with interest.

So what this means is that for States that over leveraged their selling of bonds based on the assumption they would be getting significantly more now than they are actually getting, are in fact going to be in real financial trouble and in high danger of defaulting on their bonds. States that did not over leverage themselves are not going to have this risk or least a lot less exposure to it. Also if not for that 3% annual inflation adjustment, the payments would be down by quite a bit.

the base payment amounts allocated to the states each year are subject to various adjustments prior to payment. The two major adjustments are the downward volume adjustment (based on declines in the nationwide sales of the top four, now three, U.S. cigarette companies) and the upward inflation adjustment (equal to the higher of 3% or the actual rate of inflation each year). The volume adjustment’s payment reductions have been increasingly offset by the upward inflation adjustment.

 

[Mazinny]

I agree there hasn't been a "drop" per-say, but it isn't what they thought it would be either. When the MSA was signed ecigs were not a thing. 10 Years ago ecigs were barely a blip on the radar. So the assumption was that sales would remain fairly steady. However, the MSA has a built in automatic 3% increase every year which would have acted similar to compounding interest on an investment for the States. So taking California as an example, based on the 2007 payout of $774.8 (I assume that is million) and assuming steady sales and the 3% annual increase, their 2019 payment should have been closer to $1060 than the $849.3 that they got. You also need to understand that the bonds issued by states require them to pay that back with interest.

So what this means is that for States that over leveraged their selling of bonds based on the assumption they would be getting significantly more now than they are actually getting, are in fact going to be in real financial trouble and in high danger of defaulting on their bonds. States that did not over leverage themselves are not going to have this risk or least a lot less exposure to it. Also if not for that 3% annual inflation adjustment, the payments would be down by quite a bit.

Seems to me a pretty smart move by the states that issued the bonds then. They got the money upfront, and they only pay to the extent of MSA payments received. It would be the bondholders that are at risk.

Regardless, Vic is wrong about the "precipitous drop" in MSA payments. And what on earth does he mean by "banks are demanding that the bonds be paid now". They have absolutely no right to make that "demand", and there is no evidence that they have actually made that demand, in any case. Plus, what on earth is the link between the federal reserve "throwing $200b into the banking system" and the tobacco bonds!?

 

[FLICK]

I agree there hasn't been a "drop" per-say, but it isn't what they thought it would be either.

That all makes sense... I found this document from 2001 which confirms what you're saying..
https://www.tobaccofreekids.org/assets/factsheets/0070.pdf
The Table on page-2 projected a payment of $9.89b for 2018, the actual amount was only $8.2b ...

 

[ScottP]

Seems to me a pretty smart move by the states that issued the bonds then. They got the money upfront, and they only pay to the extent of MSA payments received. It would be the bondholders that are at risk.

Except that isn't the end of the story. States depend on bonds sales to fund projects, build roads, sometimes pay public workers, etc. When they start defaulting on outstanding bonds, do you think people will continue to buy them? It also damages their credit rating making it harder to get money from banks as well. In other words defaulting on these bonds would be like pushing the flush handle on a toilet and their whole financial stability would be what is in the toilet.

 

[Mazinny]

Except that isn't the end of the story. States depend on bonds sales to fund projects, build roads, sometimes pay public workers, etc. When they start defaulting on outstanding bonds, do you think people will continue to buy them? It also damages their credit rating making it harder to get money from banks as well. In other words defaulting on these bonds would be like pushing the flush handle on a toilet and their whole financial stability would be what is in the toilet.

Fine, but these are very specific and complex bonds. These bonds are at little risk of outright default, since the payments go on in perpetuity. So bondholders will get their money, but not at the time of maturity, if there is a "technical default". There may be some damage to these states reputation, but it won't have too much impact on general bonds, which depend on the health of the states economy as a whole. And what on earth is the link between the NY Fed pumping money into the banking system to shore up liquidity, and the tobacco bonds!? Also, which banks hold these tobacco bonds, and do they have a right to demand the money now?

 

[ScottP]

Fine, but these are very specific and complex bonds. These bonds are at little risk of outright default, since the payments go on in perpetuity. So bondholders will get their money, but not at the time of maturity. There may be some damage to these states reputation, but it won't have too much impact on general bonds, which depend on the health of the states economy as a whole. And what on earth is the link between the NY Fed pumping money into the banking system to shore up liquidity, and the tobacco bonds!? Also, which banks hold these tobacco bonds, and do they have a right to demand the money now?

Some of those questions may never get answered. I don't know where or how to find out who bought which bonds and when. So knowing who holds them might be neigh impossible to answer. I don't know anything about Fed giving banks money recently or where he heard that. i have not searched for that info either.