Richard Ravitch, New York’s putative lieutenant governor, “is looking into using pension funds to help insure municipal bonds,” according to an “insider” quoted in this New York magazine profile.

But more than a few pension fund managers and investors believe that using pension funds to insure municipal bonds is a bad idea in principle — so bad it’s actually outlawed in at least one nearby state.

New York’s main problem is not interest rates or a lack of access to credit markets.  The problem is a large structural budget gap that took years to accumulate, which was hidden during the 2003-2007 boom and has been exposed by the investment banking collapse of 2008.

Albany’s budget problems won’t be solved by financial engineering.

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