More Local Blowback From the Investment Banking Meltdown

The local municipal bond market swirls down the crapper

Reuters reported yesterday that the municipal bond market has been stopped dead in its tracks. This from yesterday's Reuters story:

MIAMI (Reuters) - The collapse of one Wall Street firm and the merger of another over the weekend may raise Main Street America's borrowing costs as those investment banks are central to the trading of the municipal debt that finances schools, parks, hospitals and roads across the nation.
The bankruptcy filing by Lehman Brothers Holdings Inc (LEH.N: Quote, Profile, Research, Stock Buzz), the No. 3 underwriter for competitive deals in the $2.6 trillion tax-free municipal debt market, and the $50 billion acquisition of Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research, Stock Buzz), will also restrict liquidity in the municipal bond market, according to traders, portfolio managers and investment strategists.
Indeed, on Monday, the first day of trading after the historic developments on Wall Street this weekend, U.S. municipal bond transactions were few and overall trading slow.
"People are very leery of jumping in," said a Midwest municipals trader. "You are losing two large issuers, two large sources of liquidity. People are sitting and watching."
Higher costs for cities, school districts and other public borrowers will show first in wider spreads between what investors are willing to bid for bonds and the offering prices sellers demand, according to portfolio manager and Vice President Evan Rourke at M.D.Sass Associates in New York.

This information is also particularly interesting:

Smaller and regional firms (can you say Wells Fargo [Ed.]) have grown more active in municipals during recent months, but may not be able to pick up all the slack, traders and portfolio managers have said.
Some hard-pressed local governments and other issuers will postpone borrowing, according to Matt Fabian, analyst at Municipal Market Advisors in Concord, Massachusetts, who cut his forecast for new municipal debt for 2008 to $425 billion from an earlier forecast of $450 billion.
"This may translate into ratings or even credit issues for some governments that have planned on selling bonds to patch current year budget gaps," Fabian said in a weekly commentary. "Further, the deferral of needed infrastructure, replacement and maintenance will increase future costs while slowing economic growth; this puts more pressure on tax rates and political infrastructure going forward."

And this info is flat out fascinating:

Bonds with unusual coupons or structures are proving harder to sell because of deteriorating liquidity. [Emphasis added.].

As all regular WCF readers know, the Junction Project bonding is subject to a "rate swap," which is an extremely unusual payback structure.

For our readers' convenience we've put together a page on our storage site to provide a little more detail re the Junction bonding swap.

We know at least three Ogden City Council members regularly read this blog. We suspect there may be more. We do hope they're all keeping their eyes open as they watch the financial markets deteriorate.

As for the little twit BIG SPENDING and borrowing dope Boss Godfrey: We doubt he reads this blog. Somebody obviously needs to at least send him a link.