Posted on 01/17/2011 2:40:22 AM PST by Scanian
The municipal-bond market is in crisis, with prices fall ing and investors running for cover -- and for good reason.
Munis -- bonds sold by states, cities, counties and other localities to finance government operations -- are in trouble because the Ponzi scheme of Big Government is coming unglued. The markets are merely reflecting this reality, as they always do.
The $3 trillion muni market was once regarded as the safest of all investments because the bonds are backed by government taxes. Now it's showing all the earmarks of the 2007-08 meltdown.
That mess began with investors fleeing from bonds tied to the housing market -- and ended with the collapse of the financial system. Mortgage-backed bonds were considered super safe because the housing market "always goes up," and any remaining default risk was covered by "super-sophisticated" securities.
So banks held tons of those securities, earning huge returns on their "risk-free" investments. The feds used Fannie Mae and Freddie Mac to keep the market booming by buying up tons of mortgages, leaving the banks with more cash to initiate more mortgages -- ensuring that even the riskiest borrowers could play.
As it turned out, the housing-bond market was a Ponzi scheme not all that different than what Bernie Madoff pulled off for so long. Eventually, the cash couldn't flow in fast enough to keep inflating the bubble.
(Excerpt) Read more at nypost.com ...
This is a unique opportunity to get munis at a discount with a tax equivalent yield that cannot be had elsewhere.
Do a Google search on "GM bond holders" to see how well things worked out for them.
I checked my portfolio, and my 7 or 8 are down overall 6% since purchase.(2001-2008). Hardly a meltdown
Because of the current skittishness in the municipal bond markets I'm more comfortable now in buying funds. That way I get the professional management and oversight of dedicated bond geeks who spend their days evaluating individual issues. Over the past 90 days we've seen several shocks that have sent prices of closed end funds down to such a discount that the risk/reward is hard to resist.
Falling from the Empire State Building, as he passed the 100th floor, “So far so good!” ;-)
That could be said about any investment in a short term correction. My point was that a 6% drop in value is hardly a meltdown.
No, it is probably just currency inflation. Your bond is still worth the same, just take more dollars to buy that value. Same thing with the price of gold.
How can we find out if any passed such a law?
My concern is that even if laws like that are passed, the states will accept bogus proof like the virtual fraud “Certification of Live Birth” that was posted on the “Fight the Smears” website.
LOL!
Tax frees that are backed by dedicated income streams, e.g., real estate taxes (schools) or water and sewer revenues, should be o.k. Those that are general obligation bonds of cities and other municipalities are higher risk.
Fortunately, for those holding bonds before the crisis have seen early pay-offs because the issuers have been able to refinance at lower rates.
Take the city of Chicago. They had ~80K foreclosure filings and ~80K notice of defaults for 2010. Real Estate values are off ~30%. That is trouble for the Windy City.
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