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SEC Probing Disclosures Of Muni Bond Prospectuses
Adding insult to injury for holders of muni bonds, whose assets have plunged in value in the past month, pretty much as expected in light of pervasive state insolvency which is no longer being masked by the government's generous "Build America Bonds" distraction, is Charlie Gasparino's breaking news that now the SEC has gotten into the fray, and is looking into muni bond prospectus disclosures. Per Gasparino: "What they are looking at whether municipalities, cities and states, are
adequately disclosing their budget woes to investors who buy these
bonds." Which only means that as the risk of further pervasive impropriety is unearthed, and the muni space ends up being as much of a fraud as the MBS one, that the risk of holding on to MUB-derivative equivalents will only get higher, leading to yet another round of sell offs now that the muni bond situation has entered a toxic spiral where, in the inverse of the stock market, any news creates merely greater selling pressure.
From Fox Business' Gasparino:
“The SEC is ramping up a probe into troubled muni bonds. Sources are telling the FOX Business Network they are looking at disclosures made in the bond documents, they are known on Wall Street as prospectuses. What they are looking at whether municipalities, cities and states, are adequately disclosing their budget woes to investors who buy these bonds. More than any other investment, muni bonds are held by retail investors; average people looking to cash in on the triple tax free status. That’s why the SEC is concerned.”
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They'll settle. LOL!
SEC staff tired of viewing porno?
Refractory period.
Everything is AAA++squared what could go wrong? Buy buy buy, bbbbbbbbbbbbbbbBOOOOYAH
Short the farm now?
Something big is setting up. You will find me down at the pawn shop!
QE3 here we come.
This is just insane.
TARP/STIMULOUS/QE/QE Light/QE II...
So the next one would be....QE 6?
QE Double Down. QEDD, or QED2
What is insane is that Japan, with its debtto-GDP ratio of 200% and unable to manage its own financial mess or economy for the past 20 years, is bailing out European countries by buying recent bonds there. What next? Tunisia bails out California?
Who will invest in munis going forward? As 10,000 are expected to retire each day from 2011 to 2025, and retirees tend to not contribute to retirement accounts and many will need to draw down on their principal over time, that could create outflow. The newly minted college grads are drowning in student loan debt, so won't be putting a lot into savings until the pay down some of that debt.
So, the stream of contributions into Munis over the past 35 years by Baby Boomers and the like will slow to a trickle and eventually become a reversal as distributions and capital directed to munis reverses.
Good luck out there.
That is the number of Baby Boomers reaching retirement age. I am guessing the actual numbers who will pull the plug and retire will be significantly less since they are broke.
I agree, but also suggest that most that don't retire will still not be "investing" a lot into retirement streams but will use any non-retirement income to fund their lifestyle and sit on what retirement plan investments they have. Also, many will be forced to "retire" from certain jobs and will be able to draw on pensions etc. . . even if they find another form of employment elsewhere.
Also, I am aware of quite a few people, teachers and state employees in particular in my sphere of neighbors, who are counting the days to retirement and even looking at retiring earlier than required because they want to trigger their benefits before some of those benefits change. They see a risk of pensions being reduced (we can hope) and they want to be in the group that are no longer in the group to have to renegotiate.
So . . . hard to say what actual numbers will be day over day or month over month. Still a strong demographic shift with significant flow of funds implications, I think.
QE3, 4, 5, 6, 7, 8 ,9.....
silver.
That's right - why go after the well-connected trillion-dollar fraudsters on Wall Street and in the Federal government when you can make a big show of checking truth-in-disclosure for the Peoria sewer-bond issue?
Lot easier to piss off some far-away city management than the folks you have "working lunches" with.
+5
My thought exactly. Investigate Bumf**k County, Arkansas while Wall Street continues to tapdance on capitalism's grave.
Like the man from New Jersey said - "Markets don't like to hear the word bankrupt".
The market is up today.
Who here honestly believes that retail investors read the prospectus?
Credit Unions are known pushers of tax exempt muni bonds to "average" investors. Not sure if SEC probing is somehow connected with the following article:
http://www.zerohedge.com/article/what%E2%80%99s-going-credit-unions
You're absolutely correct, AP. I suspect Meredith Whitney's been reading the stuff, though.
They are probing with spiked dildo.
Nice!
Don't even try to convict the bankster fraud bastards or go after the algo-cheats on Wall street. Blame it on Main Street America.
Assholes.
That rally in JPM lasted a whole 4 hours and they pumped that one hard.
Odd action in JPM today... Ramped up all morning and half the afternoon, but then dropped like a rock straight down in the last two hours. I wonder what prompted the afternoon sell off?
What's the big deal? Yes, we had some robo-lying, inadvertent typos, and unintended failure to communicate reality, but these re not malicious acts. No sir, they represent the determined efforts of dedicated public servants doing God's work.
The real question is why is the SEC stoking the fire?
It makes NO sense. Everything else is put under the rug.
It is circus as usual with the financial reporting.
I don't know why I even bother watching. I saw
Meredith Whitney on CNBC saying NOT THE
STATES but the locals, ie cities, towns, counties,
etc. would have defaults. Now every show for
the last several days has people on and asks
them about what MW said, and they all say the
same thing. The states are not going to default
on their bonds. Which leaves these assholes two
options, either they don't know what she said
and are idiots, or they are intentionally acting
like politicians and are ignoring what she said
and spinning it so people who didn't hear it
think she said states will default, which is worse
than being an idiot, it is being a liar. Add to that
no reporters have the sense, knowledge or balls to
correct these assholes. I am so sick and tired of
the BS.
They were also trying to paint a picture of a fight
between MW and Bill Gross. I will hand it to
Mohamed El-Erian who said this morning that
the two didn't disagree on principle, just there
analysis doesn't lead them to think there will
be as many defaults, as her analysis. He could
have jumped on the BS bandwagon and say that
the states won't default, but at least he seemed
to have listened to what she said.
My bet is on a state defaulting. In essence, Illinois has. But unlike an individual there is no one to foreclose and they can pretend.
It has not paid it's bills. Oh, is that restructuring?
Yeah. Illinois is just like me. I've been restructuring for 7 years now. I have an exit plan that involves complete repayment of all my debts. The trigger event is Hell freezing over.
Any day now, for sure!
For many local governments and agencies one defense would be: how could they disclose their derivatives exposure when they never understood it? Of course nobody's talking about the preadatory crap that banksters are getting sued around the world for. Let's talk about how well municpalities disclose their economy driven revenue situation. I know! Perfect defense: they can just say they watch financial TV and listen to Ben Bukkake and therefore had every reason to believe we are on the road to recovery!
Boy this lawyer stuff is easy!
If the municipal bond news actually spreads to more mainstream outlets we could really see selling intensify on Monday.
Expect some intervention though on Sunday night in order to stop the muni selling.
2/3 of the $3T muni market is held by retail investors.
The best is that all of the muni mutual funds were reaching farther down the quality ladder into the second half of last year in an effort to boost yield. They are now getting their faces ripped off for such short sighted stupidity.
(Most likely buying them from Wilbur Ross and Warren Buffett who scooped them up cheap during the last crisis)
NEW YORK — The U.S. economy is on a recovery track, but now another dark and dismal outlook is hovering above — the threat of municipal bankruptcy.
Major cities from Los Angeles to Detroit are facing a crunch due to excessive spending, plunging city revenue and unsustainable pension costs, pushing them closer to going belly up.
Some experts see this problem as so serious that it’s labeled the next biggest threat to the American economy after the housing bubble.
“There’s not a doubt in my mind that you will see a spate of municipal bond defaults. You can see 50 to 100 sizeable defaults.
This will amount to hundreds of billion dollars,” said Meredith Whitney, a banking analyst who rose to fame for correctly predicting that Citigroup was in trouble just before the financial crisis.
She recently told CBS’ “60 Minutes” that the debt crisis could bring down more than 100 cities, leading to a municipal meltdown.
A look at dozens of state and local government operations show that coffers are drying up fast, if they haven’t already.
Cities including Los Angeles, New York City and San Francisco plan to lay off firefighters, police and other city workers, sell off properties and cut back services for city parks and senior citizen centers.
Facing deficits totaling billions of dollars in 2011, these decisions are no longer an option but a necessity for many local governments.
“We spent too much on everything.
We spent money we didn’t have. We borrowed money just crazily. The credit card’s maxed out, and it’s over. We now have to get to the business of climbing out of the hole,” New Jersey Governor Chris Christie said in an interview.
Sizing down is a start, but the real problem, experts say, is largely super-high pension costs.
For example, California now spends more money on public employee pensions than it does on the state university system.
Likewise, other states have pension payments that are impossible to meet so impossible that they can potentially drag the entire state down.
If the bailout comes, likely Ben will loan the banksters free money and have them buy the muni paper (with some backdoor gaurantee).
Just like the banks are asked to buy Eurobonds, Portuguese bonds, and Treasuries here in the US. And they can be POMOed back.
Just waiting for the Fed to POMO munis and greek debt. Ad infinitum i nauseum!
If CA starts collapsing hard, what do you thing happens to the US Treasury Income Statement. This ain't no disco.
Maybe they are trying to create a mechanism where the fed can do a stealth "audit" of a municipality.
Bugs, no stealth needed! Any public entity issuing tax exempt debt has both the SEC and the IRS as longterm auditors. IRS does random audits and is increasing as staffing permits. They are focussing on soft targets where they are most likely to be able shake out some money.
What with George Washington's exhaustively researched post yesterday on the Fed's failure to help the cities and states, while at the same time squeezing main street to stave off inflation, and now this, I do have to wonder if Laughner had committed his crimes on Wall Street instead of Tucson, might he not have been hailed as a patriot and hero.
The State/Muni defined benefit pension plans are $2-3 Trillion underfunded when market value accounting and rational 5-6% discount rates are used (AT&T moved from 6.5% to 5.8% yesterday) on their numbers. But on paper, the plans show $1b or less in underfunding. How can new investors in Munis know what they are buying with no transparency into the State figures. Especially when the hidden liabilities in the pension plans are 1-4x that total level of State/Muni debt already outstanding.
It is time for the States/Munis to become transparent or they will either not be able to sell new debt or they will be held liable for misleading the new investors on their finances at the time of the deal.
www.EliminateCorporateIncomeTax.com
"Become transparent?" Every sale of bonds is subject to strict SEC disclosure requirements. If people want to deliberately fail to disclose as required they may end up with criminal charges (as happened in Jeff County and in San Diego). Most issuers of any signifcance use a special disclosure counsel (in addition to bond counsel and perhaps underwriter's counsel) to ensure all material information is disclosed.
The criminal jamie Dimon spoke truth for the first time when he predicted (this week) widespread muni defaults. The story seems to have vanished from view. Did I imagine it?
Just for kicks I went to municipalbonds.com and read the prospectus for the oldest City of Bell bond offering I could find, it was a $3 million dollar bond from 1998 for routine street maintenance scheduled to be repaid by 2023-IMO a totally inappropriate use of bond funds (this was like a home equity loan to pay for weekly gardening services).
Basically everything they said was a flat out lie or misrepresentation of the truth from the income of the population to the city's revenue.
The city officials essentially put up their city's completely paid for sewer system as collateral for street repaving, repaving that at the most would be good for 7-10 years yet the loan was for 25 years.
Ratso Rizzo was one of the bond signatories as well as the usual council suspects along with a ream of lawyers, accountants and bankers also getting in on the looting of Bell.
I believe the 1.4 sq mile already built city of Bell CA now has over $170,000,000.00 in bond debt and no prayer of repaying any of it let alone the Bell residents feeding their own children, not only that their streets need repaving-12 years before their bond repayment is due to be paid off.
Oh ya the insurer was MBIA, it looks like mortgage backed bond insurers will be better off splitting away from the municipal bond insurers if this bond is any indication of their book of liabilities.
I can't for the life of me figure out why the SEC is probing the Muni bond prospectuses of the states and counties. When they know damn good and well that they are puffed up to look better than they truly are to sell bonds and get funding. Why even create an issue with a problem that has the possibility to tank the economy again and possibly for good. It may be that they are trying to get ahead of the issue with the Whitney's and Jaime Dimons (he actually said it, I will post a link) saying their will be municipal defaults. "If you are an investor in municipals you should be very, very careful," Dimon said, and he is correct. You see a state can default also if a bunch of municipalities in the state default and/or a few ver large ones do. And once you get that ball rolling who really wants to buy these bonds, we may actually see QE 3 come into being this year to bailout the state municipals.
http://www.huffingtonpost.com/2011/01/12/municipal-debt_n_807977.html