Muni mess: Another black eye for Wall Street

Colin & E-

You are both wrong & right. Yes the NYPA paid 20% on the ARP, but on only a small portion that they were floating that failed & only for 7 days. These things rollout every week(typically). They won’t” come to market another day”, these ARPs have been issued, some for years. What they are doing is trying to take the debt to a more fixed rate scenario until things settle down. This is also how the closed end funds get their leverage. They are not having the same probs in their ARPs because they have 300% equity coverage.

These are not hard instruments to understand for most of us.

where do I send my check?

hmm, Spitzer, Democrat. Does he have any stake in bad-mouthing the economy? Hmmm.

But I guess you’re right. They couldn’t say it or print it if it wasn’t true…

American Greed, people will do anything for money…

Squak Box the other day featured a story whereas a woman had made a 150,000$ deposit on a house and tried to get the rest out of her money market account at some brokerage house and they told her that she couldnt have her money because it was obligated to a security.

So I can certainly see this as being a major issue for Wall Street. Munis are in trouble because the money itsn’t there anymore.

e-

huh. way to stick to your position in the face of contrary facts. what would it take to persuade you? how about this testimony from gov. spitzer last week:

“One example of the way this crisis has directly impacted New York can be seen in the Port Authority of New York and New Jersey. Traditionally, the Port Authority paid four percent on its auction rate securities. Due to a failed auction earlier this week, caused by lack of potential buyers, it is now paying 20 percent on these securities — a rate level typically only paid by very risky borrowers, which the Port Authority is not.”

http://www.ny.gov/governor/keydocs/02142008-bondinsurancetestimony.pdf

i eagerly await your incoherent reply.

I’d hardly call a journalist’s misunderstanding or misrepresentation of a fact ‘ample documentation’ that it is so.

In a bid auction, lenders offer to lend money to a borrower (the municipality) in a process whereby lenders ask to be paid a certain rate, which they adjust downward as competing lenders offer to lend at lower rates. The fact that a rate REMAINED (not “soared to” at 20% (BTW, that’s not how Bloomberg radio presented it this AM) means there wasn’t a lot of competition, i.e. other lenders willing to lend for less. Ordinarily, that would be the underwriting guarantor’s role.

I note the article doesn’t state that the port authority actually BORROWED any money at that rate. They would be fools to do so.

Rather, the bond bid failed, and the port authority will come to the market another day - probably very soon — when there are more lenders.

Think about it this way: If you were running a money market fund, or a mutual fund or what have you, wouldn’t you RUN to lend money to the port authority of NJ at 20%? Of course you would! Talk about making your quarterly bonus easily! Except that all your competitors would do the same thing, and next thing you know, the rate is back at what the market sets - somewhere close to what your cost of funds was in the first place.

The story doesn’t come close to passing the common sense/smell test.

e gvapo-

au contraire, the port authority of new york and new jersey did indeed end up paying 20% on one issue of bonds recently, as my fellow know-nothings at bloomberg and the wall street journal have amply documented (see the table at the bottom of the wsj story).

http://www.bloomberg.com/apps/news?pid=20601109&sid=ap.PLy5Zkgz8&refer=home

http://online.wsj.com/article/SB120355364158181495.html

yours in media gloomstering,

Truly one of the stupider columns that have appeared lately on the so-called credit crisis.

Muni issuers are NOT paying 20% interest rates; they are paying, according to Bloomberg, “20% higher rates than before”. In other words, if they were issuing debt at 3% a few months ago, they are now having to pay 3.6%. Hardly a crisis.

Likewise, the niche hasn’t collapsed, as Bloomberg/Fortune breathlessly claim. There is less liquidity, certainly, as the money center banks have stepped away from their former role as underwriting guarantors, as they pare their exposure across a broad spectrum of risk classes.

Does it mean credit-worthy municipal bond issuers are unable to borrow money? No!

Does it mean the big banks or other investors have stopped lending to municipalities? No!

Chalk it up to yet more know-nothing fearmongering from the media gloomsters. What a joke.

Greed wil never end in the US. Its taught in every high end business school.

Another fine mess Wall Street has created. When will the greed and stupidity of the pundits who inhabit WS stop?