first from Meredith Whitney ...
(snip)"Meredith Whitney Advisory Group is now predicting dramatic declines in US home prices, large layoffs at US banks and widespread defaults in the municipal bond market. As concerns munis, people, she says, will not want to own this asset class after the shit hits the fan. The rating agencies have helped generate a false sense of security about the tax-exempt market. States will focus on their own survival first, leaving local governments to fend for themselves. Housing market will remain disrupted, banks cannot do well under this scenario. Eighty thousand layoffs in the US due to fallout in housing."(snip)
from
(snip)"CALIFORNIA WILL DEFAULT ON ITS DEBT, Says Chris Whalen
Chris Whalen on TechTicker today. He says there's no bailout coming for California--or, for that matter, any of the other bankrupt states. And that means big losses for muni-bond holders...
You might think a government bailout is the solution that awaits California, but this time that may not happen, says Chris Whalen. Whalen thinks that California will default on its debt, thereby hammering all the pension funds and other investors who have loaded up on apparently safe state bonds.
The state won't immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year. But, eventually, the debts will have to be restructured, and this will result in those who own California's bonds receiving less than 100 cents on the dollar.
California won’t get a bailout because the Republicans now control Congress, Whalen says. Also, if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says--and eventually, the country will be forced to face up to its bad debts and write them off. "(snip)
from
'Official' fears that tax free muni bonds ( and thus muni bond funds ) are facing a serious risk of default by the issuing state are really causing a stir ( and a selloff ) among muni bond investors. In case you haven't been following muni bond discussions, in general, there are two major types of muni bond buyers. The first are state pension plans that invest in these bonds by tacit agreement with the states ( i.e. states 'borrow' the pension money of state workers in order to pay the salaries of those same state workers, with a future promise of repaying the pension fund with interest ). The second are high earning residents of those high tax states ... who can afford the $50k-$100k price tag of these bonds, and for whom the tax exempt interest earnings are a way to legally avoid high federal and state tax rates on ordinary income and ordinary investment instruments.
For the first time, the possibility of states defaulting on muni bond interest payments and principal repayments is being openly discussed. In the absence of a federal bailout ( which is said to be unlikely for reasons discussed by the author above ), this means that the uber-rich residents of high tax rate states may be facing actual loss of principal.
Recent selloffs of muni bonds to avoid additional future losses also explains the otherwise inexplicable recent rise in the US dollar WITHOUT a matching rise in the US stock markets.



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