Municipal Bond Defaults Suggest Issuers "On the Brink"...

Distressed Debt Newsletter ^ | Richard Lehmann

[the invisib1e hand]

Municipal borrowers defaulted at three times the typical rate even as the pace fell from records the past two years when Jefferson County, Alabama, and Lehman Brothers Holding Inc.’s failure sustained historic levels.

Thirty-five municipal bond issues totaling $1.5 billion defaulted in the first six months of 2010, the Miami Lakes, Florida-based Distressed Debt Securities Newsletter reported in its July edition. That annualized $3 billion pace is triple the rate of $1 billion or less a year going back to 1983, Richard Lehmann, publisher of the newsletter, said in a phone interview today.

The rest of the story...

[MSF BU]

This is another wave of debt defaults this time to finance a myriad of public works, many of which were ill advised and/or didn’t need to be done at all.

[the invisib1e hand]

well, it would be a shame if all those public sector employees missed out on the recession completely.

[MSF BU]

Well, in this case it will be the bondholders who will pay the price. Hopefully the feds will resist the calls to bail them out. Pensioners will pay the price, along with taxpayers and eventually current municipal employees as well. I expect this will be compounded as states and localities realize that pensions that were promised are not capitalized and cannot be capitalized. I would be willing to be many pensioners now collecting ample monthly stipends will eventually be collecting much less from the PBGC.

[whitedog57]

A buddy of mine did muni bonds for a big bank. He rode high — big $$$, started doing lots of alcohol, pain killers, etc.

He tried to get me involved. At look at the muni deals. “No town will ever default on fire engines. Even if they do, the resale is tremendous.” I replied, “There is so much muni debt out there, how can this NOT blow up?”

He is now a cook at a Chicago restaurant. He agrees with me that the U.S. won’t survive the debt folly run by mostly by Democrats, but some Republicans as well.

[ully2]

But, but, the Courts will surely save them.

[Jimmy Valentine]

Arkansas Road Bonds any one?

[Presbyterian Reporter]

Is this posting for the purpose of selling this service???

[Liz]

FLA AND THE LEHMAN BROTHERS BANKRUPTCY The death grip Lehman Brothers had on just one state.

Lehman Brothers managed Florida's public assets, sold securities, underwrote bond deals and handled residential and commercial mortgages. Local Fla governments are stuck with about $556 million in tainted securities that they can't redeem.

Fla counties, cities and school districts face a loss of more than $300 million for roads, sewers and schools. The state has $290 million less to pay for everything from hurricane claims to health care, community colleges and care for infants with disabilities.

The biggest casualty is Florida's giant public pension fund. Fla took a $230 million hit on Lehman stocks and bonds. More than $440 million disappeared from the pension fund that pays benefits for some 1 million retirees and public employees.

The pension fund holds another $53 million in Lehman bonds that have lost most of their value and has $323 million tied up in tarnished mortgage-related securities purchased from Lehman. If the state sold those securities today, the pension fund would lose about $188 million more.

Further north, 75% of then-NJ Gov Jon Corzine's appointments to the State Investment Council (invests pension billions) had ties to the bankrupt Lehman Bros. The New Jersey Economic Development Authority gave Lehman Bros $123 Million tax dollars FOR DOING NOTHING. That's right---FOR DOING NOTHING. The EDA brainiacs unloaded $123 million tax dollars on Lehman Brothers (AND Morgan Stanley) .... simply to cancel an earlier deal. Can you say buddy bailout? Kickbacks? Wire-transfers offshore? NOTE: Corzine once headed Goldman Sachs.

Yet these losses are trivial compared to the collateral damage on the economy that followed the collapse of Lehman. Obama's trillion dollar bailouts are a direct result of that instability.

============================================

REFERENCE
Will Miami Declare Bankruptcy And Start A Nationwide Trend?
Business Insider ^ | May 27, 2010
FR Posted May 27, 2010 by george76

The city of Miami is in such financial dire straits that commissioner Marc Sarnoff is using the "B" word, bankruptcy. "We are not the only city, municipality to be going through this. It looks like Los Angeles sometime next week or the week after will be going bankrupt. It looks like there will be 30 more cities following suit." Increases in public worker salaries is one of the main reasons why the budget is so tight.

The average salary for a Miami city employee is $76,000. The average salary for a Miami city resident is $29,000. Employee pensions are choking the budget too. In 2000, pension payouts cost taxpayers $16 million. In 2009 that number spiked up to $70 million. (Excerpt) Read more at businessinsider.com

HOW MUCH DID YOUR STATE LOSE FROM THE LEHMAN BANKRUPTCY?

[stephenjohnbanker]

” The average salary for a Miami city employee is $76,000. The average salary for a Miami city resident is $29,000. “

Good lord.

[Liz]

” The average salary for a Miami city employee is $76,000”.....

........does not include perks like credit cards, expense accounts, free state cars, fillups, insurance and maintenance .......plus pensions, benefits, tax-evading annuities, bonuses, platinum exit packages, etc etc etc.

[stephenjohnbanker]

If you adjust for cost of living, it is as bad as California.

[Kozak]

New defaults this year include Crawfordsville, Indiana, which missed a July 1 payment on a $16.6 million debt issue sold to build a high-speed Internet system and the Carter Plantation Community Development District in Louisiana, which missed a May 1 payment on a $23.5 million bond issue for a golf resort, according to the newsletter.

Meanwhile, Roads to Ruin: Towns Rip Up the Pavement

[MSF BU]

I think we’ll survive. Russia survived much worse. I think people holding cash and fixed debt instruments are going to be screwed as are pensioners, ESPECIALLY nonfederal pensioners and ultimately union folks. Like gays in the military and carbon credits, if the liberals don’t get the union bailouts done before the new congress comes in, the unions are screwed.

[MSF BU]

Actually this is good to see. Let the state and local bankruptcy begin and let’s get the case law established. I believe this will have the effect of defunding the left wing in this nation.

[MSF BU]

It will also be interesting to watch those pensioners, from Miami in this case, who THOUGHT they’d be getting pensions checks of 60K plus starting at 55 years of age, being told that the pension is gone. I don’t know what the maximum pension is that is guaranteed by the Pension Benefit Guarantee Corporation, but it isn’t as much as these guys were supposed to get from Miama, (or Harrisburg, or LA, etc.), that much I guarantee.

[GOPJ]

It’s so much fun being a citizen of Florida... /s

[Condor51]

1. The average salary for a Miami city employee is $76,000.
   The average salary for a Miami city resident is $29,000. ....

2. In 2000, pension payouts cost taxpayers $16 million.
   In 2009 that number spiked up to $70 million.

Are these people NUTS ?!?!?!
Or is 'THEFT by Public Employee', now legal in FL?

The difference in item #1 is a whooping: 262%

And in item #2, that's an 37½% increase every year!.
And from 2000 to '09, that's an overall increase of 437½%!!!

No wonder the Mafia is going downhill, the Public Employees are outstealing them. So 'Joe Sixpack' doesn't have any money left for Hookers, Gambling, Drugs or any vices. Hell he can't even be extorted -- the Gubmint Employees got to him first.

[CutePuppy]

That's what happens when citizens start work for the government, instead of the government working for the people.

Some municipalities, particularly smaller ones, started outsourcing most or all of their essential services, to cut current expenses and most importantly, accruing public benefits and pensions. Some of these may not survive independently and go "out of business" and merge with larger neighbors. In the more socialist financially mismanaged states (e.g., CA, IL, MI, NJ, NY) with their own budget problems, there is no money or the will to keep bailing out the mismanaged cities.

They are not Greece or other sovereign, they are not even states, so there is no one on the big enough hook to bail them out... and muni bond holders will have little recourse (except trying to sue the investment banks and "advisers" that sold them "quality rated" muni bonds, which only feeds the lawyers). That's why large investors are piling into the Treasurys (bonds, notes, bills) despite their historically high prices / very low interest rates - another bubble in the making, but that's still ways off and another subject.

Municipal finances - There goes everybody - The Economist, 2010 July 08

Maywood is a tiny city in Los Angeles County, just south of downtown Los Angeles, where almost everybody is Hispanic. Two or three families are squeezed into most of the single-family homes with cheerful, toy-strewn yards, and locals say with a certain pride that if all are counted Maywood’s square mile or so is the most densely populated area west of the Mississippi. The place is blue-collar and modest but well-kept and welcoming. People especially like the new medians separating lanes on the main drag: a gift “from Obama”, as the mayor, Ana Rosa Rizo, calls them, since they came with federal stimulus dollars.

But those medians are about the only sign of economic help for Maywood, which, on July 1st, became the first municipality in California, and perhaps anywhere, to have no employees at all, after laying off nearly 100. The few clerks doing business in Spanish in Maywood’s small art-deco administrative building are now independent contractors or on loan from the neighbouring city of Bell. All Maywood’s police have been laid off. The three or four police cars patrolling the streets are driven by deputies of the county sheriff.

“It was either this or bankruptcy,” says Ms Rizo. All Maywood’s revenues have been falling. Property taxes are down as houses are reassessed at a lower value. And funding from the state has been frozen or cut as California confronts a $19 billion hole in its own budget. Like many local governments—mainly cities, counties and school districts—Maywood has therefore been running deficits on its tiny budget of $10m. Sooner or later, says Ms Rizo, there was going to be a crunch.

Each unhappy city is unhappy in its own way, as Leo Tolstoy might have said, and the particular catalyst for Maywood, in June, was the refusal of its insurance company to renew the city’s coverage. In part, that had to do with specific problems in Maywood’s police department, which has a history of corruption and abuse, and is being sued.

But many other municipalities are under extreme fiscal pressure, and more are now considering versions of Maywood’s extreme solution. San Carlos, a middle-class suburb in Silicon Valley that has to close a $3.5m hole in its $25.8m budget, is currently negotiating with San Mateo County to outsource its policing to sheriff’s deputies, just as Maywood has done with Los Angeles County. .....

Addendum on problems of Maywood (and of other cities and states that have been run into the ground, like Thirld World "banana republics") - Welcome to Maywood, Mexico - Human Events, 2010 June 26, by Roger Hedgecock

Of course, the real and permanent solution is for the governments at any level to do what is done in private sector and live within their means, i.e., stop profligate spending on anything but public essentials (including, first and foremost, on government employees' payroll and benefits) or more than their citizens can afford and/or are willing to pay for.

And government should not be in the business of "creating jobs". Any politician saying that they want to "serve the public" so they can "create jobs" should be voted out of office ASAP.

[Southack]

"Yet these losses are trivial compared to the collateral damage on the economy that followed the collapse of Lehman. Obama's trillion dollar bailouts are a direct result of that instability."

Incorrect. It wasn't the collapse of Lehman's that caused the damage to the economy and subsequent bailouts.

The **myth** of the collapse of Lehman's is intended to drum up support for more big bailouts of other Wall Street players under the guise that if you don't bail them out that the economy will worsen.

Instead, it was the damage to the economy that collapsed Lehman's, and letting firms collapse that made bad investment decisions is good for the overall economy because that prevents good money chasing bad money down the drain.