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  #131  
Old 08-01-2012, 10:01 AM
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http://www.nytimes.com/2012/08/01/bu...2&ref=business

Quote:
The Securities and Exchange Commission said, for example, that municipal bond investors were entitled to basics like audited financial statements — something investors in stocks take for granted — but said it could not force municipalities to undergo audits unless Congress gave it that power.

“We think we’re at the edge of the current authority that we have,” said an S.E.C. commissioner, Elisse Walter, in a conference call with journalists to explain the content of a 165-page report on the municipal securities market and the commission’s recommendations. As a practical matter, Congress does not typically amend the federal securities laws unless faced with a crisis.
....
The report devotes most of its attention to the relative lack of information that is available to investors about the municipal bonds they are buying. This has made it harder for investors to evaluate the prices, and easier for financial companies to overcharge municipalities when helping them issue bonds, according to the report.

Individual investors now hold 75 percent of the one million municipal bonds outstanding in the $3.7 trillion market, the commission said, either directly or through mutual funds and exchange-traded funds.

....
There have also been complaints about the information available to investors about bond prices and yields, which must be generated by pricing models because many municipal bonds seldom trade, so there is no market mechanism to set the price. The most widely cited municipal bond yields are based on proprietary models, and individual investors have no way of learning what assumptions they are based on, why they give rise to different quotes or whether the prices are fair.

The S.E.C. report noted that in the past, investors were willing to buy municipal bonds without such information because munis had a default rate much lower than either corporate bonds or foreign sovereign debt.

Some now worry about possible signs of a growing willingness to default, and the commission said that broad societal problems could result if ordinary investors ever lost confidence in municipal bonds. In that case, communities would find it impossible to borrow affordably, threatening the way essential services and infrastructure are provided in America at the local level.

....
Although the new report described the muni market as “illiquid and opaque,” Ms. Walter said the S.E.C. did not think a lot of “granular, prescriptive” new regulations would be the best way to improve it. With tens of thousands of municipalities issuing debt, ranging from New York City to tiny irrigation districts, she said that it was difficult to write ironclad rules suitable for all.

Do they have ironclad rules for other entities issuing debt securities, hmm?

If not, then fine, they have a point. If so, I bet they can figure something out.
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  #132  
Old 08-01-2012, 11:08 PM
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it's official

http://www.nbclosangeles.com/news/lo...164678716.html

Quote:
San Bernardino on Wednesday became the third California city to declare insolvency, joining Stockton and Mammoth Lakes after officials say they filed an emergency petition for Chapter 9 bankruptcy.

The filing – prompted by a $45.8 million budget shortfall the city faces this year – makes official a move the City Council approved last month.
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  #133  
Old 08-13-2012, 05:41 PM
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http://www.investmentnews.com/articl...&utm_term=text

Quote:
Vermont's worst flooding in 75 years and the lowest borrowing costs in more than four decades are pushing the state and its municipalities to borrow at the fastest pace in the U.S.

Facing a $733 million repair bill from Tropical Storm Irene almost one year ago, Vermont and its local issuers have sold $492 million of municipal bonds this year, according to data compiled by Bloomberg. That's up from $99 million in the same period of 2011.

“The muni market has been pretty friendly toward debt associated with making repairs and replacements and improvements after weather-related events,” said John Hallacy, head of municipal research at Bank of America Merrill Lynch in New York. “Part of the issuance was just driven by the need to make repairs quickly.”
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  #134  
Old 08-16-2012, 05:02 AM
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http://www.nytimes.com/2012/08/16/bu...2&ref=business

Quote:
Municipal bonds, widely seen as one of the safest investments, actually default more often than most people realize, according to research issued Wednesday by economists at the Federal Reserve Bank of New York.

.....
For example, Moody’s Investors Service has reported that from 1970 to 2011, there were only 71 municipal bond defaults. But the Fed report counted 2,521 defaults in that time.

....
The report found a similarly vast gap in the raw numbers of defaults in Standard & Poor’s data. The Fed’s combined database indicated 2,366 defaults from 1986 to 2011, compared with S.& P.’s 47 defaults during this same period.
....
The researchers said the debt backed by a city’s general obligation pledge seldom defaulted, while debts backed by revenues generated by individual projects were more uncertain. Bonds to create housing constituted 17 percent of the defaults in the Fed’s sample, for instance, and bonds to finance nursing homes and health care projects accounted for 12 percent and 11 percent.

The biggest portion of defaults was associated with industrial development bonds, a type issued by a government authority on behalf of a company. That type of bond accounted for 28 percent of the defaults.

....
Mr. Kurtter, of Moody’s, said he was not sure that industrial development bonds belonged in the Fed’s database. Normally a municipal credit analyst does not count such bonds as municipal bonds, he said. Although industrial development bonds are issued by a municipality, the entity standing behind the debt is a profit-making company, so analysts rate them as corporate credits, he said.

....
When comparing the defaults with those of corporate bonds, the Fed analysts noted that corporate defaults happen more often during periods of recession, while municipal defaults are less tied to economic downturns.

In addition to debunking the conventional wisdom about municipal bonds, the Fed team’s report appeared to undercut positions taken by members of Congress in the wake of the financial collapse of 2008. Then, lawmakers often complained in hearings that the ratings agencies had been treating municipalities unfairly by rating their credit too low, given how seldom they defaulted. That, in turn, was said to be forcing municipalities to waste money on unnecessary bond insurance, and to pay excessive interest on their debts.

Moody’s has since recalibrated its methods, and it now applies the same criteria to corporate debt and municipal debt, Mr. Kurtter said. Initially, the changes raised some municipalities’ ratings, but many of the ratings have fallen back down.

Mr. Murphy said Standard & Poor’s had not changed its rating system for municipal credit in light of the Congressional complaints.


It's a bit of a , in that there's a reason that those bonds were unrated (and that's noted in the article) - usually the munis knew the rating would likely not be good.
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  #135  
Old 08-16-2012, 05:55 AM
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Here's a page on the fed findings:
http://libertystreeteconomics.newyor...-defaults.html

I like these graphs:

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  #136  
Old 08-16-2012, 05:58 AM
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And here is the composition of muni defaults, as defined by the Fed

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  #137  
Old 08-17-2012, 05:01 PM
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http://www.investmentnews.com/articl...&utm_term=text

Quote:
High-yield municipal bond funds are getting a lot of love these days, thanks to their blistering performance and relatively high tax-free yields.

With a return of just over 10% through mid-August, high yield muni funds are neck-and-neck with emerging-markets bond funds as the top fixed-income performers of the year. The promise of a 4% to 5% tax-free return in today’s nearly no-yield environment has led to a stampede into the funds.

....
High-yield munis generally are used to finance specific projects, such as infrastructure, nursing homes or housing for the developmentally disabled.

Coupons depend on the ability of those projects to generate enough revenue to make the bond payments. For example, if the project is an airplane terminal but consumers cut back on travel because of the economy, the issuer may have a hard time making the payments and the investment suffers.

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  #138  
Old 08-20-2012, 03:35 PM
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a rather large

http://hosted.ap.org/dynamic/stories...08-17-19-12-49

Quote:
ENTO, Calif. (AP) -- One of the nation's top credit rating agencies said Friday that it expects more municipal bankruptcies and defaults in California, the nation's largest issuer of municipal bonds.

Moody's Investors Service said in a report that the growing fiscal distress in many California cities was putting bondholders at risk.
....
The municipal bond market has long been characterized by low default rates and relatively stable finances, Moody's said, but that outlook is beginning to change as bankruptcy becomes a tool for cash-strapped cities.

As a result, the agency will reassess the financial position of all cities in California, which issues about 20 percent of the municipal bond volume nationwide, "to reflect the new fiscal realities and the governmental practices."

This should be a fun fall.
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  #139  
Old 08-21-2012, 12:50 AM
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And, from the Orca of Omaha--excuse me, that's Oracle:

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A decision by Warren Buffett's Berkshire Hathaway Inc. to end a large wager on the municipal-bond market is deepening questions from some investors about the risks of buying debt issued by cities, states and other public entities.
http://online.wsj.com/article/SB1000...LEFTTopStories
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  #140  
Old 08-31-2012, 09:37 AM
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Unsurprisingly, Illinois downgraded again.
http://senategop.state.il.us/images/...IL-Ratings.pdf

Quote:
Standard & Poor's Ratings Services
lowered its rating on Illinois' general obligation (GO) bonds to 'A' from
'A+'. At the same time, Standard & Poor's assigned its 'A' rating to the
state's $50 million GO bonds of September 2012. The outlook is negative.

"The downgrade reflects the state's weak pension funding levels and lack of
action on reform measures intended to improve funding levels and diminish cost
pressures associated with annual contributions," said Standard & Poor's credit
analyst Robin Prunty. "The downgrade also reflects continued financial
weakness despite significant measures in the past two years to improve
structural budget performance," added Ms. Prunty.
and now for the (explicitly) political content

http://senategop.state.il.us/index.p...-rating-plunge

Quote:
Governor Pat Quinn set a new record for credit downgrades, when the credit rating agency Standard & Poor's lowered Illinois' credit rating Wednesday, Aug. 29. Since becoming Governor in 2009, Quinn has presided over 10 credit downgrades, which now represent more downgrades that the previous four governors combined.
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