Marty

Muni Bond Holders: Don't Lose Sleep Over Insurance Guarantee Failure

While I certainly hope your bonds are safe, I have to say things have a way of coming around the backend lately with risk you never counted on. Please review articles in the WSJ and other places by doing a google search for auction rate municipal bond failures. Right now over 1000 failures of these short term muni bond papers many AA paper have failed. While the underlying securities have not defaulted there is no liquidity. Here is the problem, some of these municipalities which included places like the Port Authority of NY etc have been forced to pay crazy rates of interest (up to 20%!!!). This is not possible over the long term and with the middle class up their ears in "unnannounced inflation" as I call it, property taxes, tolls and other fees might be in jeapordy that noone ever thought would be.

People affected by these short term money market like instruments being frozen are everywhere and there money is locked up.

This cannot be good for the market. While the insurance might not be important, illiquidity can cause problems for anyone and lead to other problems.

I wish I could talk to those in the know about this issue because if you peak behind the news everyone I talk to sees this as a potential systemic problem that is just getting noticed now. It is very serious and is unprecedented.

Marty