2/15/08 PARKSIAN FISCAL ALERT: CRA & Municipal Bonds are failing to sell on Wall Street due to bond insurer downgrades. Will have to offer 8% interest (or more) to attract buyers. OH MAN IS THE CRA AND MUNICIPAL BONDS IN TROUBLE!!! Hope LACER/CALPERS ISN'T HOLDING THESE. Taxpayers are set up for a bigger burn than Malibu.
These Municipal and CRA bonds were offered to buyer at 3%-4% interest. However, now that the bonds are not selling, due to downgrade fears, these government offered bonds will now have to offer much higher interest rates (8% or more) to attract buyers for all these bonds they are holding that they bought at a much lower rate.
So first of all, when the initial person who bought these bonds wants to sell, if they don't sell, you can default. I think you can probably dump them if you take much less than you anticipated. AND, the issuer of these bonds (government agencies like CRA and City) will have to cover the difference between the lower amount that they initially bought them at, and the higher amount they will need to sell them at (the new, higher interest rates). And guess who they pass these losses on to in the process of covering their ass...
It's all due to the subprime bet that everyone thought would be an infinite winning streak. Oops, the roulette wheel came up on green double zero -- and the bond issuers who thought they had their bets covered just killed the winning streak, and now the game is over the hard way. (No one ever walks away from the table until they have to walk away from the table.) And the gambling analogy fits perfectly in this case. I'm sorry for your loss.
LACityUpdate.com
Subscribe To Zuma Dogg
Posts
Comments