Tags: Addison | wiggin | muni | bonds | subprime

Financial Author Wiggin: Muni Bonds Are the Next Subprime

By Dan Weil   |   Tuesday, 03 Aug 2010 09:31 AM

Municipal bonds are headed for a meltdown similar to the subprime mortgage fiasco that began in 2007, says financial author Addison Wiggin.

He’s editorial director of The Daily Reckoning and executive publisher of Agora Financial, a financial research firm.

“The clouds are turning black once again,” Wiggin he wrote on dailyreckoning.com.

“Strip out the finer details, and you’ll find the very same mechanics that brought the subprime market from boom to bust. ... This crisis-yet-to-be is municipal bonds.”

He offers a thorough list of the woes:

• “Widespread investor acceptance;

• Complicated derivatives;

• Intense incentives for banks to make deals;

• Boneheaded assumptions of endless return on investment;

• Under-qualified borrowers;

• Stunning amounts of leverage and debt;

• A loosely regulated multitrillion-dollar market;

• Overstated credit ratings from Wall Street;

• Social and political pressures to maintain growth.”

Much of the problem is that cities and states have promised more retirement and health benefits to their workers than they can afford.

“Their biggest expense of all is untouchable – pension plans,” Wiggin wrote.

He’s not the only one worried about a muni meltdown.

“There will be a terrible problem, and then the question becomes will the federal government help,” said investment icon Warren Buffett at a hearing of the financial crisis commission, Bloomberg reports.

“I don’t know how I would rate them myself. It’s a bet on how the federal government will act over time.”

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Municipal bonds are headed for a meltdown similar to the subprime mortgage fiasco that began in 2007, says financial author Addison Wiggin. He s editorial director of The Daily Reckoning and executive publisher of Agora Financial, a financial research firm. The clouds...
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2010-31-03
 

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