Municipal bonds have been used by cities and municipalities across the nation to fund large real estate and infrastructure construction projects. The problem is there is a current lack of financial stability in the municipal bond market. However none of this has made it to the news media. YET!!!
They offer investors a tax free stream of income and offered by brokers around the nation as a low risk way to receive income without increasing the investor’s tax burden. Nothing ever changes… the municipal bond markets now are starting to sound like a familiar story. Municipalities across the nation have taken advantage of low interest rates over the past two years to fund construction projects. Do you remember one of the problems of the housing crisis…? It is back now for the Municpal Bond Market. .It is the funds were borrowed using a variable rate of interest. Approx 1/3 of all loans were variable. Now the municipalities are having trouble paying back their investors. Does that sound familiar? Interest rates are jumping and cities tax base is diminishing. Just in 2007 $300 million dollars of these bonds has been defaulted. This year there are estimates of over 5 times as much…$1.5 billion dollars. Is this a small number since all we hear in the news is the $80 billion, $800 billion, $400 billion?
Municipal bonds were sold as one of the safest vehicles. Now nothing is safe…
There are not any easy quick fixes to our problems; confidence in the banking system is zero, and confidence in the Treasury and Fed is falling fast. There will be forced liquidations and they too will run their course. The question is what is the next shoe to drop? Where do you put your money now that this to is not safe? I would like to hear your suggestions?
Andrew Abraham
http://www.myinvestorsplace.com/
capitalinvestor1836.blogspot.com
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