Muni's

Municipal bonds, never really dealt with them, they are as exciting as watching paint dry on a cold day in the middle of a snow storm. But I did a bit of research today. Muni's are basically how local governments and cities fund their growth. Issue a muni, grab the cash spend half on things they don't need and waste the other half on things they need but don't know how to build.

http://www.youtube.com/watch?v=sm1Jyusyoqk&feature=related

Anyway a triple A Muni has about 0pct chance of default history says and all classes of Munis right down to non-investment grade historically all together only default around .2pct so as safe as chips.

Now here is a thought, governments, states, cities and consumers all have one thing in common, we ALL geared up massively in 2000-2006 when we all had jobs if we wanted one. Now we all have one thing in common and I use the term "we all" loosely here, massive debt and no real way to pay it off. So why are munis any different? When tax receipts were at all time highs and unemployment at 6pct in 2006 these instruments looked safe, now with tax receipts going way way down as unemployment races to 10pct how do these leveraged cities pay the interest due on these muni's? Maybe hire less people, less fireman etc but that just puts us back in the same downward spiral.

Over 3,000 of these instruments were in default in 1935

Nearly 90% of the 310 cities with populations of over 30,000 were rated Aaa in 1929. Nearly 98% of this same group were rated Aa or better. Of all defaulting issues, 48.1% were Aaa rated in 1929 and 78.0% were rated Aa or better.

The fact is they can't, short munis.

Giddy Up