Municipal Bond Market Collapse III
Just 44 failures were recorded between 1984, when the market was created, and the end of last year.
Yesterday's 641 auctions of publicly offered bonds resulted in 395 failures, or 62 percent.
A growing list of municipal borrowers exiting the U.S. auction- rate bond market as record failures push taxpayer costs higher.
Thousands of auctions run by banks to set rates on the debt failed this month as investors shunned the securities
and bankers refused to submit bids, sending interest costs to 10 percent or higher on some bonds.
Rates in the more than $300 billion auction market, where local governments, hospitals, museums,
student-loan agencies and closed-end mutual funds borrow, are determined through a bidding process every seven, 28 or 35 days.
Auctions fail when there aren't enough buyers. That's left bondholders who wanted to sell
stuck with the securities and taxpayers or other backers of the debt with higher interest costs.
Until this year, banks that collect annual fees to run auctions would step in to stop failures when bidding faltered.
The banks have stopped committing capital after sustaining at least $146 billion in credit losses and writedowns from the subprime mortgage collapse.
That's left corporate treasurers and wealthy individuals, some of whom bought the debt as cash equivalents, unable to access their money.
Meanwhile, interest rates or the risk premium on the debt has skyrocketed to double digits and will cost the institutions and taxpayer dearly.
Yesterday's 641 auctions of publicly offered bonds resulted in 395 failures, or 62 percent.
A growing list of municipal borrowers exiting the U.S. auction- rate bond market as record failures push taxpayer costs higher.
Thousands of auctions run by banks to set rates on the debt failed this month as investors shunned the securities
and bankers refused to submit bids, sending interest costs to 10 percent or higher on some bonds.
Rates in the more than $300 billion auction market, where local governments, hospitals, museums,
student-loan agencies and closed-end mutual funds borrow, are determined through a bidding process every seven, 28 or 35 days.
Auctions fail when there aren't enough buyers. That's left bondholders who wanted to sell
stuck with the securities and taxpayers or other backers of the debt with higher interest costs.
Until this year, banks that collect annual fees to run auctions would step in to stop failures when bidding faltered.
The banks have stopped committing capital after sustaining at least $146 billion in credit losses and writedowns from the subprime mortgage collapse.
That's left corporate treasurers and wealthy individuals, some of whom bought the debt as cash equivalents, unable to access their money.
Meanwhile, interest rates or the risk premium on the debt has skyrocketed to double digits and will cost the institutions and taxpayer dearly.
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