Never having invested in municipal bonds, I had only a passing acquaintance with their structure and history. And, I confess, when I requested a review copy of Joe Mysak’s Encyclopedia of Municipal Bonds: A Reference Guide to Market Events, Structures, Dynamics, and Investment Knowledge (Bloomberg/Wiley, 2012) I anticipated a slow, dull read. How wrong I was!
Joe Mysak is a journalist who has covered the muni market for thirty years—and he knows how to tell a good story. In this so-called encyclopedia he both defines terms and recounts some high and even more low points in municipal bond history. The result is a surprisingly compelling, informative read.
The definitions in this book are not the one-liners we are accustomed to. Consider, for instance, “All bonds go to heaven.” Mysak writes that “This is an old market axiom describing how municipal bonds are bought and held, and rarely trade, after they are sold in the new-issue market.” Mysack provides data to support this axiom. Moreover, he writes, “This also helps explain why prices on outstanding municipal bonds rarely react to news in the way stock prices do.” (p.3)
Or, to take another example, this time from the law, the term ‘ultra vires’ “meaning ‘beyond the power of men’ is used to describe bonds that have been invalidly issued. Municipalities often used such claims to repudiate debt in the nineteenth century, particularly in the Reconstruction South and in the railroad-mad West, which led to the growth of the bond counsel business. In modern times, the Washington Public Power Supply System default in 1983 was caused by a judge ruling that a majority of the participants in the system had entered into contracts without the specific authority to do so, thus invalidating the bond payments and causing the largest default, $2.25 billion, in the history of the municipal market.” (p. 197)
The three-page entry on ‘tourist attractions’ begins “No, no, no, no, no, no, and no. Aquariums, theme parks, glorified rest stops, and zoos have a checkered history in the municipal market, and have left behind a trail of defaults and heartbroken investors.” (p. 191) The lead sentence for ‘Convention centers’ is “Stop the madness!” (p. 36)
Naturally, Orange County, California, rates a lengthy entry, but so does the concept of escrowed to maturity. We read about bid rigging, Chapter 9, garbage, bond insurance, pay-to-play, the 11 Deadly Sins, and Jefferson County, Alabama.
Everyone who invests in municipal bonds should read this book. I would highly recommend it as well to those who simply want to broaden their knowledge of the financial markets. I personally learned a great deal and had fun doing it.