Seattle Bubble Forum Archive

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Maybe I get overly excited about things, but I believe the muni – bond market freezing up is a serious development for everybody. Muni-bonds are how infrastructure maintenance and improvements are funded, right? Investors are not buying muni-bonds right now because of increased perceived risk. Communities servicing existing muni-bond debt are getting hit with increased rates because of the games they played with derivatives and some may have to consider default. How can this be good? To believe that Seattle and vicinity isn't caught up in this problem would be naïve.
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I keep on hearing that confidence in the market needs to be restored. If investors perceive muni-bonds as an unacceptable risk, there is going to be major fallout. Little old ladies invest in tax free muni-bonds because they are perceived to be one of the most safe investments out there. That is changing as you read this.
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....``It's ugly out there,'' said Bob Cline, executive director of the Texas Bond Review Board, which oversees state bond issuance and saw the cost of short-term debt rise 3 percentage points to 8 percent. ``There's a terrible liquidity problem.''
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September was the worst month for tax-exempt bonds in at least two decades, according to Merrill Lynch & Co.'s Municipal Master Index, which dropped 5.1 percent, the most since the index was created in 1989.....


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Interest payments soar for cities and counties, some of which loaded up on complex derivative deals similar to ones that swamped many banks.
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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.
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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....
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The growing constrictions in the U.S. credit markets are bringing a halt to what is arguably considered the safest area of finance — government-backed bonds.
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Institutional investors — the biggest buyers of municipal bonds — are generally selling off the bonds they own, and aren't interested in buying new bond issues. Nationally, few new bond issues were sold in September, traders and advisers say.
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"You've seen the municipal market come to a standstill because of lack of liquidity and uncertainty in the market," said Rob Collins, a Dallas public finance attorney at law firm Vinson & Elkins......
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The Wall Street meltdown has made its way to Main Street in Oregon or, in Portland's case, Naito Parkway.
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State and local governments are putting bond sales on hold as they wait to see whether a congressional bailout might calm the markets.
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In Portland, the city may hold off on plans to sell $31 million in general obligation bonds later this month. About half the money was for remodeling the aging Naito Parkway firehouse.
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"There aren't a lot of buyers out there right now," said Eric Johansen, Portland's debt manager. "We're one of the markets that's being negatively impacted right now."
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State Treasurer Randall Edwards said that's about on par with what's happening with the municipal bond market throughout Oregon and the nation. It's a problem, he said, because state and local governments sell bonds - government IOUs - to raise money for projects such as roads, bridges and affordable housing......
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