[bratticus]

Cities in Distress: Calling All Bankruptcy Lawyers
By Nathan Koppel - WSJ law blog

Municipal bankruptcy is a rare phenomenon, spurned by state and local leaders as an admission of failure that could wreak havoc on the municipal bond markets, the Times reports. Some states have laws that require an elaborate approval process before a city can head to bankruptcy court and at least one state, Georgia, bans municipal bankruptcies.

So what happens if a city in Georgia goes into default?

[jdmartin]

My guess is that the state ends up taking over management of the town in Georgia if things get that bad...then they likely tax the residents into oblivion.

Back to topic: considering the basket case that most of the state finances are, I'm surprised it's taken this long for things to go considerably south. General bonds are still likely to be a reasonable bet, as historically you're talking about a ridiculously low default rate, and even with the economy in the crapper most places are likely to lay off half their employees and turn roads back to gravel before they default on debt (see: Camden, NJ). Society has done a good job of training us as individuals to continue paying debt into infinity, even when it no longer makes sense to do so, and even as we regularly watch our corporate counterparts default and restructure without blinking an eye. Cities are more of an extension of the individual than they are thought of as "running a business", and I expect most of them will continue to just suffer in the debt tunnel rather than walk away.

[Vogelzang]

If you live in a state that won't default on their muni bonds, you might consider buying some shares of Nuveen closed end funds that have bonds from your state. Wait and look for a bottom. The yields are pretty good now. Get rich!

http://www.marketwatch.com/story/nuveen ... &sid=10150

[bratticus]

Pensions are earned
So far, we pensioners largely have remained silent during your drumbeat against us. I take it personally. Here is my story. After taking six years in graduate school to earn a PhD from Yale University, I joined the faculty of UIC in 1971 as an assistant professor of economics. We had high hopes for a public university that, at long last, was established in the city of Chicago. While those hopes have not been fulfilled completely, it is not because of me. I rose from assistant professor to professor to research center director to department head (of three different departments at various times) to senior associate dean to interim dean of the College of Business Administration, and devoted 38 years to UIC. My original salary was $13,000 - and I was underpaid for many years. I was not a member of a union, and oppose faculty unions for major universities.

The State promised a pension, and the rules were clear. I receive a big pension, and I earned it.

Translation: I built this highly efficient and sustainable world and now I'm going to reap the benefits from it, right?

[Outcast_Searcher]

If you live in a state that won't default on their muni bonds, you might consider buying some shares of Nuveen closed end funds that have bonds from your state. Wait and look for a bottom. The yields are pretty good now. Get rich!

http://www.marketwatch.com/story/nuveen ... &sid=10150

And you know which states will definitely remain solvent how?

Remember, the whole game of wealth redistribution is arbitrary - there are no rules preventing state X from being sacrificed for the "need" of state Y in this environment of government careening toward ever greater insanity.

[bratticus]

Illinois Democrats foist budget crisis onto working class
January 17, 2011

... The IGPA report notes that in a December survey of state budget gaps, it was found that the deficit in Illinois “accounted for about half the total of state deficits nationally and was nearly twice as large as the deficit in California, the second largest.”

... The cost of credit default swaps on Illinois’ bonds are the highest in the country, indicating that many investors believe the state will eventually default on its bond payments.

Is this still true? $300K is still pretty big.

Illinois Governor to Seek $8.75 Billion Bond for Overdue Bills
SFGate / Bloomberg
January 12, 2011

... part of a package of measures that included a 67 percent increase in the personal income tax aimed at plugging a $13 billion budget hole ... boosted the corporate income tax by 46 percent, to a rate of 7 percent from 4.8 percent.

... The cost of insuring against default $10 million of Illinois debt maturing in five years fell $28,000 to $300,000 yesterday, the lowest since Dec. 9, according to data provider CMA.

[mattduke]

Time to leave Illinois before it imposes an "exit tax". I certainly don't know why anyone would want to move there now and voluntarily take up that yoke.

[Daniel_Plainview]

Bernanke Will Not Rescue Cities

The first major city to declare bankruptcy will send a massive stir in the municipal bond market.

Fortunately, Bernanke has already stated he cannot and will not come to defense of cities. I believe Bernanke for the simple reason he is beholden to banks and bailouts of banks not bailouts of cities.

Moreover, I doubt a Republican Congress will bail out cities or state either. Legislation is even in the works to allow states to go bankrupt. Given that Illinois is indeed bankrupt, with an adult governor instead of someone in the unions' pocket, bankruptcy is a viable approach and one I recommend.

That said, I do think Meredith Whitney has it wrong about the dollar amount of defaults. Most cities will probably pay off the bondholders and stiff the public unions. Vallejo blew it in that regard, by failing to fix its structural problem.

However, if Oakland, Miami, Newark, and Detroit all file bankruptcy and all stiff the public unions and renegotiate public union contracts, maybe a few adults in the public unions will step up to the plate and negotiate some appropriate haircuts in pension contracts before cities file.

Don't count on it.

Mish

[mattduke]

Bernanke also said he wouldn't monetize the Federal deficit, under oath. The Fed bailed out GE after Congress decided not to. The worst prognosticator of future central bank actions are statements made by central bankers.

[mattduke]

The words debt and crisis have become terribly associated with each other over the last few years. We have had a mortgage debt crisis, a sovereign debt crisis and now a lively debate over the likelihood of a municipal debt crisis.

Everyone agrees that the muni debt is undergoing a serious and perhaps permanent change. Muni debt was once viewed as almost risk free. Now even those who advocate investing in muni debt acknowledge the “very real credit risks in the municipal space,” as Pimco put it in their most recent note on munis.

The debate underway now is about the likely severity and scale of muni defaults. Or, more precisely, we have a debate about how to fairly price the default risks inherent in muni credits. On the one hand, there are analysts like Meredith Whitney and hedge fund managers like Jim Chanos who warn that investors are taking on too much risk for too little yield. Whitney has predicted a “wave of defaults” that could be in the “hundreds of billions of dollars.”

Why a taxpayer would ever buy taxpayer-funded bonds in the first place is beyond me.
http://www.cnbc.com/id/41717507

[crude_intentions]

Why a taxpayer would ever buy taxpayer-funded bonds in the first place is beyond me.

The same reason people buy Shamwow's, Jupiter Jacks, or dutch tulips. Because some guy who really seemed to know what he was talking about told them to do it.

[Tyler_JC]

Why a taxpayer would ever buy taxpayer-funded bonds in the first place is beyond me.
http://www.cnbc.com/id/41717507

1. You don't have to pay federal or state taxes on municipal bonds. So a 6% yield on a Muni bond is like a 8% yield on corporate bond once taxes are factored in.

2. Historically, the default rate on municipal bonds has been extremely low. The only losers in Munis tend to be those who invest in bonds designated for a specific project that goes bust. If you invested in bonds for a local water treatment plant or toll bridge that goes broke, you could lose money. But if you loan money for general purpose bonds, the default rate is very low.

Granted, neither of those is guaranteed to stay with us.

The federal government might change the tax status of muni bonds to cope with its yawning deficits. More states could find themselves wedged between tax-hating tea partiers and spending averse unionized teachers, unable to close their deficits. More local governments could become swamped by unpaid property taxes as foreclosures wreck the tax base.

In finance, things often look stable. Up until they collapse.

[mattduke]

As the Federal government tries to wrangle a deal to keep the country afloat, there are already some parts of the country that are bankrupt, even if not technically “in bankruptcy.” Cities that borrowed money by issuing municipal bonds are now so burdened with debt that they can’t pay back what was promised to those who invested. Add to that mess, a few bribes, an unfathomable refinancing deal with a leading Wall Street bank, and a broken sewage system, and you’ll end up with Jefferson County, the local government for Birmingham, Alabama.

The Muni crash is coming.
http://www.thetakeaway.org/2011/mar/01/ ... orruption/

[mattduke]

Broke Town, U.S.A.

“Munis are not like subprime bonds”

Fav quote of the day right there.
http://www.nytimes.com/2011/03/06/magaz ... ss&emc=rss

[sparky]

.
Munis are a good proportion of the pension funds
there is a battle royal for the cash of the baby boomers pension system .
It's not really cash anyway just promises

[bratticus]

House Tax Panel's Top Democrat To Seek Build America Bonds Renewal In Muni Bill
By Andrew Ackerman / Dow Jones / Mar 4, 2011

WASHINGTON -(Dow Jones)- The top Democrat on the House tax-writing committee plans to introduce legislation next week that will renew Build America Bonds and other municipal market provisions of the 2009 stimulus law that expired last year, people familiar with the matter said.

Rep. Sander Levin of Michigan, the ranking Democrat on the Ways and Means Committee, could introduce the bill as early as Monday, but it is unclear if he will have bipartisan support for the legislation, particularly any revival of Build America Bonds.

... skip ...

Extending BABs also has the support of the Obama administration. Last month, the president's fiscal 2012 budget called for BABs to be permanently reinstated at a subsidy rate that would make them revenue neutral, or about 28%.

... snip ...

[mattduke]

Muni bonds: Set for worst quarter in a decade

As investors fear cash-strapped states and cities across the country are on the brink of default and local governments slow debt issuance, the municipal bond market is heading for its worst quarter in a decade.

http://money.cnn.com/2011/03/29/markets ... ipal_bonds

Municipal bond issuers with widest credit spreads
http://www.reuters.com/article/2011/03/ ... SP20110329

This thing hasn't even started yet.

[mattduke]

Illinois Treasurer Warns Against Lending to Illinois

Illinois chief fiscal officer said Monday he is willing to dial up the bond houses and finance companies to alert them that lending the state more money, as Gov. Pat Quinn has proposed, would be a "major risk."
' 'If I need to send letters o the rating companies to tell them the treasurer of Illinois is opposed to more borrowing, I'm going to do that," said Republican Treasurer Dan Rutherford.

lol
http://www.stltoday.com/news/local/illi ... 0f31a.html

[mattduke]

The average Chicago household now owes a staggering $63,525 to cover local government debt, according to Cook County Treasurer Maria Pappas.

Suburbanites are deeply in the red, too, with the average household owing $32,901, according to the treasurer.

Among the biggest reasons: $25 billion in unfunded pension liability.

"This goes well beyond big cities," she said. "These fiscal problems permeate townships, villages, school districts, park districts, fire protection districts and more, and the taxpayers are on the hook."

http://www.chicagobusiness.com/article/ ... -says-greg

[mattduke]

Insurers can manage U.S. municipal bond risk: Moody's

"In spite of pressures in the public finance sector, P&C insurers' muni portfolios remain sound," said Moody's Vice President Paul Bauer in a statement. "Under our baseline economic scenario, we estimate that muni bond credit losses will be low, at $500 million for the entire P&C industry, or the equivalent of a little more than 1 percent of last year's net income."

Get a load of this.
http://www.reuters.com/article/2011/07/ ... EH20110707