For further reading, here's the December 19 Wall Street Journal article I referenced (behind a paid firewall, unfortunately). Here is Da Joinal again, reporting on the Jefferson County derivatives bet Gasparino referenced. Here is our earlier appearance wherein I hipped Gasparino to the Jefferson County story. Here is a good report on the Hercules, California situation by Dan Oney at Public CEO. Here is my previous report on Gasparino's pursuit of the banking analyst Meredith Whitney. Here is a Fox Biz chart failing to show that comments by Whitney caused the municipal bond market to plummet.
And here is another reason to be concerned about local governments' ability to keep paying their obligations. Property tax assessments lag the real estate market by as much as three years, and 2010 was the first year property tax collections around the country actually started to fall. The fourth quarter saw the largest drop since the real estate bubble popped. But while that may mean most of that drop will take place in 2011, it won’t end this year, because the real estate collapse didn’t stop in 2008. As of right now, real estate prices, like Gasparino in a debate, are taking a dive.
I’m glad this particular discussion is widening to include more of this information. I have yet to find any evidence of Gasparino mentioning the blessed death of the Build America Bonds swindle, but I'd be happy to update this post if he can provide some. The post-election consensus that BAB – which had been providing artificial support for munis – would not be continued tracks the decline in muni performance much more closely than do Whitney’s comments.
Again, this is not a prediction that any or many municipalities or municipal utility districts will default. But Patrick Courrielche is highlighting a wrinkle from history: When Jerry Ford bailed out New York in the 1970s, the city never technically defaulted, but bondholders did take a bath thanks to Ford’s unconstitutional moratorium on paying bond debt. Maybe that couldn’t happen again, but we all know what a stickler for the Constitution Barack Obama is. In any event, a journalist aiming to serve muni investors should be paying attention to dangers like this rather than to trying to get the House of Representatives to subpoena a banking analyst. I’m not sure why we’re still talking about Meredith Whitney or why I’ve been drafted as her champion, but I'm here for you, Meredith. (Call me! :-c)