The Coming Municipal Bond Meltdown
by PubliusCharlie Gasparino in today’s New York Post:
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. Once the folks who couldn’t afford their mortgages could no longer flip out of the market, the whole thing burst.
The municipal-bond market’s assumption is that cities and states won’t default on their debt because they need to keep selling bonds to build roads and bridges. Investors will keep buying munis because they think the state will always make good on its obligations (and with the added incentive that these bonds are free of state, local and federal taxes).
But suppose taxes are so high that people leave cities or states in droves, depleting the pool of revenue need to pay bondholders? Suppose these states have so many other obligations — from federal mandates, massive “guaranteed” pensions to government workers and more — that they can’t or won’t make the vast cuts needed to keep paying on their bonds?
Read the whole thing here.
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81 Comments
So the question is….
How do we, the American public, make money off of this???
Insert California, New York and Illinois as the leaders in this "race" to the bottom.
Yep, let's see if the feds try to absorb this with more monopoly money. However, I always considered the municipal bond market to be a dangerous gamble since cities, and states had to rely on tax revenue to pay them back. And there is no guarantee with tax revenues. Just look at CA, IL, and New York. What a sad wake up call. This market was based solely on crystal ball, tax receipt projections rather than on fact. Who is going to bite the bullet this time the bond holders or the taxpayer?
probably both
i second that. i live in illinois, and somehow the democrat won, i didn't vote for a single one. what was the first two things quinn did? he took out a huge loan, with yet more bonds, and raised taxes. the thought of cutting spending never seems to make the to do list.
How does the American public profit from all of this you ask; invest in the Chinese Yuan.
yes, my house is worth less than when i purchased it, 13 years ago. and my property taxes are nearly double what they were 13 years ago. if i was to sell, who would want to purchase a house in a state where they are running out of other people's money faster than they can spend it. will obama make a deal with china to sell us off if we default?
It's a race to the bottom of the cesspool, and California is in the lead by a length and a half.
Maybe Gov. Edmund Brown-nose will increase the lead for a win.
Lets all face the facts.
Everything is in a state of turmoil, of flux. The paradigm is shifting.
Charlie Gasparino's current New York Post article says one thing today. But not too long ago, Charlie Gasparino, Larry Kudlow, Maria Bartarimo and a host of other cheer-leading celebrities at CNBC, partnered with their co-horts on Wall Street and Washington, DC to set the stage for total, global financial collapse.
The US sold the world a bill of goods that the US Dollar was the worlds reserve currency. They then bundled up tranches of worthless government backed securities, and sold them internationally to foreign investors; while simultaneously hawking Municipal Bonds as safe investments. Those same municipalities, that are for all intents and purposes bankrupt, due to excessive and exorbitant UNION contracts.
The party is over, and the Chinaman Hu is coming here this week, to call their marker. http://www.ft.com/cms/s/0/ae01a8f6-21b7-11e0-9e3b...
" The party is over, and the Chinaman Hau is coming here this week, to call their marker. "
I can see NoBama squirming from my house !
Muni-bonds have traditionally been among the lowest risk investments. The fact they are now in crisis is a flashing warning light for the wider debt markets. This is not an isolated problem.
I wonder.
I wonder how low Slim Shady will bow?
If all City, State and Federal Governments did what I do there would not be any problems, I only spend what I have.
Maybe he will crawl and kiss Hau's shoes. Ok, thats probably too much, but he may shine his shoes.
There is NO safe have, except comodities….Not the futures. The actual physical item. If you can't by physical gold or silver, buy "lead" and canned goods. Could come in handy.
At the end of the night…. Dinner, Drinks maybe some desert…… the bill is presented and: Someone has got to pay the bill! I've never been to a restaurant that accepts food stamps
Tax us to the poorhouse….. We’ll be marching to the Whitehouse. News to the econo-marxists…. That sound you hear is the closing of my empty wallet.
Suppose these states have so many other obligations — from federal mandates, massive “guaranteed” pensions to government workers
Maybe its time for states to tell uncle to kiss it and the unions to pound sand and join the public sector. How far over the edge before gov't acts responsibly and cuts spending massively? If they wait till we are over the edge all spending will be done, kaput. Hey O blabba socialism reqires money too.
I guess if they are bent on blowing it all up then get it over with.
Part of my IRA is in a China Fund (ok call me a traitor but…)…it made over $3000 the last quarter alone…
All I ask as a consumer is for the truth. Tell me what the trend is. Give me a chance to buy or sell munis. And for God sake, Security Exchange Commission, DO YOUR high paying JOB! Watch for compliance violations. Get in there!
If you guys had done your jobs in the first place, Obama wouldn't have been able to use you as justification for his Socialistic Financial takeover, which places moronic Union Bosses in Board Rooms on Wall St! – -
Who do we want in the Board Rooms in our Financial world? Union Bosses with socialist ties to BHO? or the S.E.C. who have a fidiciary duty to We The People?
Repeal Obama's Power Grab illegal "Financial Reform Bill." His socialist money grab! and don't expect help from Goldman Sachs, Mayor Bloomberg, or Chuck Schumer or Gillibrand………..
China has been using its surplus dollars to buy up assets in the US and elsewhere.
Remember this commercial?
http://www.youtube.com/watch?v=qeYClJcAuy0
I think the only thing that is inaccurate is the year at the beginning of the video……
A scary proposition….
Ah! The next domino in the libs' overall financial scheme better known as "wishful thinking."
First they trashed the mortgage market by forcing extension of loans to uncreditworthy borrowers.
Now they've failed to pay attention to the basics of meeting financial obligations.
How long do we have to put up with their rank stupidity in squelching business through increasingly higher taxes to pay for their social experiments which creates this vicious circle of producing lower business expansion which means lower absolute tax revenues which they then react to by increasing tax rates?
Is this what we're reaping by allowing the education experimenters to inflict "New Math" on an entire generation?
Also over the Cliff …Gold and Silver Derivatives …they've been selling more of this paper then there is Gold OR Silver. And when the sheeples that hold this worthless paper try to cash in their paper for the real thing …Ooops – ALL GONE …Sooooo Soorrry – have a nice day.
China will tell obama that the Yuan is now to be set as the World Reserve Currency. The end is near with this happens. Are you all preparing?
SEC ain't gonna do nothing, pnipni. They no longer have to …and is nothing You or I can do about it.
The White House via Exec Order EXEMPTED them from the FOIA …they no longer have to provide any info to anyone. And this has been done by design – Obama & Camp are Neck Deep in hidden, secret shenanigans …trying to protect their own. The saying "Blown a Gasket" will have a new meaning soon …and it ain't gonna be pretty.
Ahhh…the plan is working perfectly, we’ll all be Havana or Detroit soon, it’ll be cool.
All those corrupt Wall Street goons get hired by the government and then go back. It is an endless incestuous pool of human feces running the show and we are all just sitting on the sidelines thinking we got a say in all of this.
We don't…..
All the above. Even to inviting HU to dinner on the taxpayer's dime.
Think ruble and yuan. Both can be backed with oil, natural gas, gold, and strategic, rare earth metals. US dollars are only backed with a promise since we left the silver and gold standard. Know why? Had we stayed on the silver and/or gold standard the govt would have to have sufficient stocks of gold and silver to cover all foreign and domestic debt. It doesn't. Ergo, promisionary note to pay in what exactly?
Vote for Liberals and this is what happens.
I do not feel sorry for any City or State that goes under.
Sad but true.
"Socialist governments traditionally do make a financial mess. They always run out of other people's money."
– Margaret Thatcher, 1976
Some things never change…
Rich people are shacking in their boots. If the muni market fails its soynara to their wealth.
Based solely on a crystal ball…..hmmm….you mean like the dollar is?
As long as we have a central bank and scam paper currency we will be slaves to the Fed.
For some. Many have theirs in off shore accounts or in real commodities.
…………"And when the sheeples that hold this worthless paper try to cash in their paper for the real thing ."…………
Then you will see gold hit $ 5000.00
How's all that "Hope& Change '?
Imam Obama will not be happy till we are speaking Chinese.
/ but on second thought
The Chinese don't have a "Muslim Problem"
/ Hmmmmmmmmm ?
Or gold and silver.
I'm seriously wishing northern California had split from Southern California. Now even us in the generally conservative north part of the state are having to pay for the spending sprees in Sacramento, aided and abetted by Democrat strongholds in the south that keep electing a legislature of the insane big spenders.
Saturday Night Live got on this quite a long time ago.
This skit makes me tear up from laughter EVERY time I watch it. Classic.
http://www.hulu.com/watch/110317/saturday-night-l...
http://www.hulu.com/watch/110317/saturday-night-l...
i think you ask a great question.
i'm a pretty optimistic person who tries to be realistic about where to make money.
awhile back, the scenario's which presented themselves to me were less about making money than they were about surviving and not losing.
i think Gary K has an interesting point but if we get into this, you're talking about a domino effect in which there are no safe havens for a period of time. it should be accurate to say that if we get into debt default here among the states and with our own federal government, all paper will be debased (cut in half? or more?) and last time i checked, the guys who print the yuan own a lot of our paper.
the dynamic thing is that i think our system can take it. we will have severe disruptions but if it is handled the right way, we'll come out the other side fairly quickly and in a much stronger position with a much smaller governmental structure.
we might go into a brief period where an acre of arable land is worth a lot.
I guess that's why Obama hired so many lawyers who are experts in fighting the Freedom of Information Act! and where in the Constitution does it say that obama can use executive orders to exempt SEC workers from enforcing legal Compliance? This President is in over his head. By the time he fights ObamaCare, Financial (socialist) Reform, The car Industry takeover, and all of his other failed endeavors, he's going to be too far to be able to ever be trusted again for Public Office. Can't wait for the day of reckoning to come for him!
Also Obama trotting around with the Pres of China makes me sick! He looks way too comfortable in that Communist environment. He sees them as the U.S. when he's finished destroying US & 'Transforming' US!
80 years after Roosevelt's new deal. And that's all it takes.
The sooner we start learning the fundamental lessons of economics and history, the better.
We do need to bring down the hammer on Financial practices, especially derivitives, without taking them over in the Obama Socialistic way.
We need to stop Obama from his Marxist Power Grab of the U.S. Legal Financial World, using Union Socialists, and Radical Dems. He's doing enough damage combining his own marxism and anti-American beliefs with Sosos' megalomaniac obsession with collapsing Countries Economies!
(Soros is still wanted in the U.K. for collapsing their economy! ) He wants to do to U.S. what he did to them, with Obama's help. How's that Socialistic England thing working out for them? Not so well. The Pres is just supposed to hold people accountable without taking over their industry? Huh obama? and stop hanging around with the Chinese President. He's not your role model,….oops….oh, He IS.
The Fed has monetized the federal deficits and will monetize the muni bond crises and state bonds (public pensions) — it's coming.
We'll all pay for this next stealth bailout and the cost will again be redistributed to everyone else who was prudent. We'll all have to pay for it through more interest payments on the national debt and higher cost of goods. That's the real reason gas is going to $5 per gallon. The money has already been printed and re-distributed and that's us paying back the cost of socialism through the shrunken dollar.
.
The Imams are obsessed with stealing Americans money, our Freedoms, and our Country . They believe that if you are not of Islam they are allowed to either take you over, or eliminate you. The Muslim Invasion is a great book! Stop them.
There are 100 mosques in NYC, which is 14 miles. Do the math. do you think they're taking US over? Islam is not a religion. It is a twisted barbaric legal system made for those pathetic followers. The higher ups have all the money and they want to OWN America. Hmmm……….
and Mayor Bloomberg is starting new businesses in the Middle East? and he signed off on the Ground Zero Victory Mosque with Imam Rauf…… and he's now working with the new Imam to help him build a Ground Zero Victory Mosque a few blocks away………
Uh Mayor Bloomberg besides helping the Imams, and fighting for Amnesty and Free ObamCare for Illegals, are you doing anything FOR U.S? and are your buddies Schumer? Weiner? Gillibrand? Just askin….
Silver is the one my brother. I am fairly heavy in both, with a stronger leaning in Silver. Just since last summer, silver has gone from $20 to nearly $29.
Gold is used more as a monetary commodity than anything else, silver is used not only monetarily, but it is extremely valuable in electronics.
Land is another great investment, if one can afford it. I just purchased 9 acres in the mountains, will make a great homesite, has water and will be great for a garden. I worked the owner for two months and bought it for 1/3 of his original assessed value.
You are exactly right. Paper gold held in ETFs like GLD are leveraged up to 100:1. They lead you to believe they have actual stacks of gold for all of it and unallocated gold is available to withdraw upon redemption. Wrong.
The not-so-hidden custodians (owners) are JP Morgan and HSBC who use that leverage to illegally manipulate the metals market. The fine print of GLD prospectus says if there ever is a run for redemption of physical gold — they can just give you (worthless) paper fiat currency in exchange, no gold.
No more bailouts…Period.
I'll say it again..unless public employee unions are totally abolished, states, counties, and municipalities are going to in for a very rude awakening. Because when bonds are due to pay, they'll instead be worthless, and investors are going to demand more than a oops we're very sorry but! All governments, state and local are involved in "Ponzi" schemes…so why is Bernie Madoff the only one behind bars? Oh forgot, city attorneys, county counsels, and state attorney generals are considered civil service, and apparently part of the scheme. Got it!
I've yet to see Obama OR the Democraps do anything "US Constitutional", pnipni …like making up the rules as you go. His day of reckoning …was it me or did you notice how old and gray he looked at that Socialist Pep Rally (before I threw my shoe through the TV).
As for China & President Hu …watch the other hand. It has already started. The only way to get back at China (being that we already owe them our 1st, 2nd & 3rd born) is war. The democraps have already started beating the drum – a campaign to get Americans to hate the Chinese. At the forefront is Chuckie Schumer.
Gwar5 …BANKING HOLIDAY ANYONE ??? It's coming. As a very small business owner, I used to keep all I had in the bank …no more. Just enough to pay the bills …the rest is in "tangibles". Hubby & I jumped off the sinking Titanic 4 years ago …no more Wall Street, no loans or debts …other than the mortgage, which is another Block Buster Nightmare getting ready to explode – a sequel to the Housing Bubble.
……………", buy lead "………….
With lead you dont't need to buy anything else.
Just make sure you know how to use it.
Let the liberals store all the food and gold ,then we go in with the lead and redistribute the the food and gold , just like they are doing with our taxes.
/ Hahahahahaha
Finally, somebody has said it. Without a fact the airheads you mentioned at CNBC cheered up the economy on their shows and beat down Peter Schiff who was constantly warning of the coming collapse. Those talking heads only patted him on the head and treated him as their crazy brother-in-law but Peter's warnings of pending problems are now solidly entrenched into our economy.
Peter ran for the Senate but was beaten in a three-way Republican primary which just shows that the Republican Party and Republican voters are morons. It's possible that Peter's downfall was based on his father's downfall, I'm not sure, but the fact of the matter is that clear headed leadership is not what Republicans want and won't get if they don't start backing those such as Schiff.
The union employees need money? Take it from any union funds, raise union dues to what they should be to cover this liability and cut union leader's wages.
Bloomberg is entrenching himself in Sharia finance and wants the mosque on Wall Street to house the hundreds of imams that will be the financial advisors to his buddies on the street. This has nothing to do with religion and has everything to do with Bloomberg paying is "submission taxes" to the Islamists in Dubai and Abu Dabi.
you are spot on, gold gets all the talk but silver is on a roll, have some gold but much more in physical silver………….another great investment is firearms, none have gone down in value as long as you buy for a fair market price
and rental property, only if it cash flows by 30% at the getgo
Its all by design! collapse the system……install new system ( bottom up/ top down/ inside out )
IMHO once the muni bond falls flat on its a$$, chaos will ensue, look at history and honestly arm yourselves!
Let's see. Knowing what we know today why would any one buy a California or New York bond?
Hopefully the free market will "price" as the junk they are and leader of those state will change and make reasonable get things under control.
Think the unions will stand for it? They are first in line to get cut and the amount will be major.
Has to happen – question is how long will it take – do not plan on moving soon
Thanks redlion. Obviously we need to put them all out of business by exposing them on these blog communications! That Bloomberg has always been a slippery guy, along with Schumer, Weiner, Gillebrand and all of the NY Democrat Socialists. Combine them with muslims and it's like a powder keg!
The muslims have to be driven out of the U.S! . Their intentions are not good for America, and never have been. Our Socialist Democrats help them so much.
I've heard people talking about Mayor Bloomberg, the Billionaire, and his "dealings" with the Imams and the Middle East Muslim Leaders, and his businesses over there. We need to drive them out. That's the one thing that O'Reilly is doing well on FoxNews is exposing them for their real goals and nefarious intentions in the U.S. Bloomberg should be investigated for Conflict of Interest, and removed from Office in NY immediately!
No doubt, the creditor has all the cards and Nobama is a wounded dove.
Since NObama has no patriotic feelings for the USA, he will sell us out to save his skin.
Absolutely right! Silver, especially. Although, I expect it to take a hit in the next few weeks because of a shockingly stupid decision by the CFTC.
http://www.chrismartenson.com/print/50663
This is off the subject, but there is a housing bubble in China that, when it bursts, as do all bubbles, will make the US housing/ municipal bond/ fed money printing bubbles look like a drop in the bucket. Be prepared. I don't know what the consequencs will be, but they will not be good for anyone in the world.
Don't worry!, the FED will just buy those bonds as well.
They have figured a way to avoid a collapse, it's really never been tried before.
NOT!
Bible economics 101 is that Israel was not to charge or receive interest on loans or projects, let's say, amongst themselves.
They could charge others to non-believers. Why? Because they would end up with the collateral that was used for the loan.
Why? No cash or currecncy was put into circulation for the interest portion of the loan. Therefore, the economies of the borrower are shorted cash and eventually, it collapses.
Chairman Hu is here to tell Obama in person: "No more soup for you, you eat too much!"
China wants to use their Yuan money pegged to the price of oil, instead of our Dollar.
If you buy metals insist on physical delivery. There have been rumors that some sellers have been unable to deliver.
Unless the North-South dividing line is north of Marin County, northern California with San Francisco, Oakland and Sacramento has more than enough BIG spenders to make the northen half just as insane as LA.
AMEN
Yet our current group of Socialists-Progressives-Democrats believe that they can make this unsustainable theory work. Because (1) they are smarter than all the others who have tried in the past or (2) America has much more money available before we run out.
"Those who cannot remember the past are condemned to repeat it." George Santaynana
Obama will end up having no choice,NO CHOICE but to take over our 401k's to pay the tab.We will get a hefty 3% for this "investment" and hey, we will all experience a similar screwing that the GM stockholders took.We will grow stronger for it
That way, everyone will have skin in the game and the government can pay off it's debts….Until the next go around.
Together we thrive!!!
I think all this China ruling the world stuff is a bit like Japan ruling the world in the 70's.
From what I am reading, China is becoming the international version of Frannie and Freddie. Lots of bad loans on the books and other money going places that have no ability to have any reasonable rate of return.
China is in deep to many third world countries so they can get first dibs on the natural resources, yet all these countries are on the verge of total chaos with lack of food leading the way. China is also over extended in the South America and is now planning to feed big money into Europe.
In one way, this is what Japan was doing in the 70's but Japan was purchasing hard assets like real estate and corporations. China is buying bonds. When Japan hit upon hard times, it had something to sell. China?? When things go bad this time, those bonds will not be worth the paper their written on.
So will China threaten the world with its military? Yes. And when they sent out that force, it will leave their country open to an uprising of the internal conflict that the military has kept suppressed for decades. Thus China will need to call it's military home to get things under control. This is a common theme in Chinese history.
And all of this fun does not take into account the Mid-east problem which is slow but steadily heading to the tipping point and another place on the globe where China has overextended itself.
Exactly two years ago, with the coming inauguration of Obamugabe, I met with my financial advisor to discuss investment strategy for the coming 2-5 years. I specifically wanted to discuss protecting what little dough I have against hyperinflation. One of those strategies involved investing in Tax-free Municipal Bonds here in the Peoples' Demokratik Republik of Kalifornya. One the smartest decisions I ever made was NOT investing in CA muni's.
Yeah, those Glocks are just great. Are you going to get yours engraved? They should be real rare once those crazies decide walking around with fat clips and thin brains is a bad idea.
I've seen this coming for at least a year. Add to this the collapse of the commercial real estate market and what do you think is coming for cities and counties that rely on that revenue for a majority of their spending? Look at how many business building are for sale, for rent, or for lease. But the "experts" through the press tell us we've "turned the corner", that growth is already happening. What do you believe?
You can't short munis, just like its hard to short gold (inexpensively). You want to know how the hedge funds short munis? By buying credit default swaps. That's how.
The biggest banks write them and the big hedge funds buy them. That sums up the market for shorting muni's. Banks are long and hedge funds are short. Of course, Goldman probably has figured out a way to do both.
How to get excited about your "big government" failure:
When the hedge funds have both muni bonds and CDS, with far more in CDS, they sell the bonds fast. This drives up yields (like their friends did when they killed BABs). Higher yields become higher costs to borrow. Local governments probably then have a harder time even finding borrowers, on top of paying them more. The noose will tighten and the defaults will yield big dollars to the hedge funds. They will be so happy, all over again. Bonus time is here again, da di da da da…
Con't-
If this doesn't work, Hedge funds, the elite, the libertarians, the banks will all seek to disable the municipalities while more rule changes favoring the those racketeering the market are quietly put through, mostly under Republican leadership. The muni market would collapse more from insolvensy, than an inability to pay. They don't have much debt, now, or not at least until "the restructuring". This would make 20-30 cents of every dollar you used to pay a cop, or teacher, become money you pay in interest to some wealthy slob who you will never even see, or meet.
Yeah, it would be nice to be a hedge fund. How much have you got, Gary_K? Have you got enough to truly not give a sh#t about your country and run with a fist full when it all blows up? Trust me, there are those that do.
Soros, himself, couldn't produce so polished a political statement.
I voted Republican in 2004 and that's what go us here. Maddoff, Chris Cox's SEC, Too Big To Fail, CDS, Glass Stegall and such devotion to the free market that, in the end, even Greenspan "found a flaw". This was Phil Graham's mess, not some liberal's. That's pure revisionist history. Don't even start.
Good one ! Let's hope the gold increases in value and the food will come in handy for any natural disaster.
< Ann not seeing the apocolypse many are envisioning, we're too damn civilized >
WU ! Good evening!!
You sound like me and Randy. No trust in WallStreet .—- "Corruption Never Sleeps" –Good movie name for the next Michael Douglas ode to the creepy WS gonifs… Randy likes 1/20th oz gold coins and Mercury dimes, as long as they are purchased for the ounce price and not a big premium. It can be done on ebay..
TTYL!!
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