Bankrupt Cities

Warning Signs on California Municipal Bonds

Maybe not such a good place to park your investments


Last week, we first reported that "Moody's warns of mass Calif. municipal bankruptcies."

During the Great Recession of the last four years, the California private sector was forced to slash employment and infrastructure spending, but the public sector made only modest cutbacks. Much of this state and local spending was funded by selling municipal bonds to elderly investors who were told the "muni market" was safe because the default rate is very low.

Now a new Federal Reserve Board study, "The Untold Story of Municipal Bond Defaults," debunks the belief that municipal bonds are safe investments and blames the Moody's and S&P credit rating agencies for deceiving the public.