Tags: Gasparino | Wisconsin | Fight | Hope | Bondholders

Gasparino: Wisconsin Fight Is Hope for Bondholders

Thursday, 24 Feb 2011 08:03 AM

Author and financial journalist Charlie Gasparino says that Wisconsin Gov. Scott Walker’s effort to weaken public sector unions in a budget clash is a glimmer of light in a long, dark tunnel for municipal bondholders.

The muni market has been battered by warnings of a default meltdown in the hundreds of billions, largely brought by former Oppenheimer & Co. analyst Meredith Whitney, whom Gasparino calls a “fearmonger.”

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Wis. Gov. Scott Walker
Now, Walker and other governors are shifting the focus to unions, offering bondholders a shot at reclaiming their standing should pressures continue to build on their positions.

Walker, Gov. Christie in New Jersey, and “maybe even” New York’s Andrew Cuomo are “setting an example to other public officials that you don't have to declare bankruptcy and screw your bondholders to defeat the sponsors of big government,” Gasparino writes in an Op Ed in the New York Post. “That's great news for Wisconsin taxpayers and for anyone concerned with state and local government bloat, like muni-bond holders.”

Already, some muni holders he knows have exited at a loss, Gasparino says. But now, with the governors are stepping in, there is some hope that taxpayers and investors won’t have to shoulder the debt burden alone. What was missing was a political test of the strategy, which Walker et al have supplied, Gasparino contends.

“The three have felt almost no public backlash, except from the public-employee unions and their cronies in government,” says Gasparino, a correspondent for the Fox Business Network and author of “Bought and Paid For: The Unholy Alliance Between Barack Obama and Wall Street.”

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The very low historic default rate of municipal bonds, and their widespread use among pension funds and by the financial industry, has created a wide base of risk that snakes out to touch nearly every corner of finance — $3 trillion in debt between insurance companies, local banks, individual retirement savings, even the pensions of unions themselves, among many others.

Even suggesting that the risk is greater than supposed has raised worries among money managers who bought munis precisely in order to forget about them.

"You had a low default rate, relatively high ratings and bond insurance," Richard Ciccarone, chief research officer at McDonnell Investment Management, a fixed-income asset manager in Oak Brook, Ill., told The American Banker. "The combination gave them a sense of complacency."

Editor's Note: Get "Bought and Paid For" at a Great Price from Amazon -- Click Here Now.
 

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Author and financial journalist Charlie Gasparino says that Wisconsin Gov. Scott Walker s effort to weaken public sector unions in a budget clash is a glimmer of light in a long, dark tunnel for municipal bondholders. The muni market has been battered by warnings of a...
Gasparino,Wisconsin,Fight,Hope,Bondholders
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2011-03-24
Thursday, 24 Feb 2011 08:03 AM
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