October 1, 2008

BUT MY CONGRESSMAN PROMISED IT WOULD ONLY HURT BANKERS AND SUB[PRIME] HUMANS?:

Municipal Bonds Freeze Up: Interest payments soar for cities and counties, some of which loaded up on complex derivative deals similar to ones that swamped many banks (Nanette Byrnes, 10/01/08, Business Week)

Like other credit markets, municipal bonds are nearly frozen. During the week of Sept. 22, three significant bond deals were done. Normally the tally would be about 100. Those that are getting done—like New York City's Sept. 29 deal—are high-priced.

What's worse, untold dangers may lurk just beneath the forbidding surface of the muni market. Some locales set up complicated derivatives deals with the now-defunct Lehman Brothers and other troubled New York banks. Shedding those investments can be costly and complicated.

Even before the tumultuous past few weeks, many municipalities were facing fundamental problems: quickly rising pension costs, aging roads, and large drop-offs in income and real estate tax revenue. A lot of governments had moved away from safer, fixed-rate bond issues, leaving them vulnerable to a sharp rise in those rates over the past two weeks. These factors could add up to serious trouble for scores of communities.

Posted by Orrin Judd at October 1, 2008 3:03 PM
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