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Tuesday, January 25, 2011

Follow the Money | Are Municipalities and Local Governments Headed for Financial Calamity? Muni Bond Investors Seem to Think So...


Something is happening that may seem a bit unrelated to your life, but could turn your town upside down.

Most municipalities, cities, towns and local governments are able to get away with their wild spending habits, skyrocketing debt and pet projects due to being able to float municipal bonds.  It's a scheme that allows local governments to raise capital in markets that give investors "safe" returns (paid by taxpayers) with certain tax advantages.  Local governments use this since if they had to float a business plan, income and expenses like the private sector, they would get rejected.

As many muni funds grew last year thanks to other investments offering low returns, lately there's been a mass exodus from them.  Almost $4 billion a week has been leaving these investments.

Experts say there's genuine concern many local governments have stretched themselves far too much, leveraged too many tax-borrow-spend schemes and there's not a sustainable model to pay for it all thanks to the failure to reform the business model of government.

Would you trust your money with a local government as an investment?

3 comments:

Anonymous said...

Why would anyone buy these bonds? After 50 or so years of the politicians being in bed with the EVIL GREEDY UNIONS this is the outcome. Didn't GM and the UAW along with the crooked courts effectively screw the GM bondholders. A perfect example of having faith in your government.....not. They are all liars and crooks, and the sooner the voter realizes it the quicker we will recover from the idiotic decisions these idiots have left us with. AMERIKA UBER AL

Anonymous said...

TIF bonds are not any better. TIF bonds supporting development in Aurora are based false assumptions and claims by both the City and the developers. Bad investment.

Anonymous said...

TIF bonds are just another way the politicians screw the taxpayer and then make him pay for the screwing he got.