Second Generation Success Stories

[nevergaveitathought]

http://www.bloomberg.com/news/2010-0...-protests.html

want to buy california muni bonds for your retirement?

[HoneyRose]

Because the mayor of Coppell Texas recently committed suicide partially due to financial problems, I happen to know there is NO salary for the mayor of that town,
population 39, 154. (Her finances were reported in newspaper articles).

Reading that the chief administrative officer of a town in California of about the same size makes almost $800,000 per year is a striking contrast.

[Sa_artman]

Originally Posted by HoneyRose

Because the mayor of Coppell Texas recently committed suicide partially due to financial problems, I happen to know there is NO salary for the mayor of that town,
population 39, 154. (Her finances were reported in newspaper articles).

Reading that the chief administrative officer of a town in California of about the same size makes almost $800,000 per year is a striking contrast.

http://www.cbsnews.com/8301-504083_1...19-504083.html

Such a pretty daughter. Why take her life as well? I've never understood that, people that do the murder-suicide route. Suicide in itself is a very selfish act, but to take another life is beyond comprehension. I've seen so much death in my life it doesn't faze me as I think it should, but senseless acts by a mother to a child like this boggles my mind. Money comes and goes and in the end, no life is worth it.

Those officials in Bell need to be strung by their toes from the downtown. In a country with so many problems people like that taking advantage of the working class need what's coming to them.

[Texas Contrarian]

Originally Posted by nevergaveitathought

want to buy california muni bonds for your retirement?

Nope.

Not even with a really big risk premium.

While on the subject of outsized compensation packages, check this:

http://www.realclearmarkets.com/arti...ops_98581.html

Just another example of our exploding entitlement culture.

Don't worry about those folks serving on city councils and state legislatures, though. They won't be forced to make any tough decisions that might compromise their ability to collect bribes...sorry, campaign contributions...from public employee unions. The federal government will simply borrow and/or print more money and bail 'em out again -- just as they did with a large portion of the American Recovery and Reinvestment Act of 2009!

[Rudyard K]

Originally Posted by nevergaveitathought

want to buy california muni bonds for your retirement?

Originally Posted by CaptainMidnight

Nope. Not even with a really big risk premium.

Generally, GO bonds of a governmental agency are backed by the obligation of the governmental agency to tax the property within its jurisdiction. Of course, there are revenue bonds and other type bonds that are backed by other governmental obilgations...tied to specific revenue streams...and I'm not talking about those at this time.

But I am curious, even in the bankruptcy of a governmental body, does the bankruptcy court "cram down" the bondholders debt instrument? I recognize there may be interest deferment, etc., but it would seem to be very, very difficult for the bankruptcy court to relieve the governmental body of the obligation to tax the properties located within its boundaries when that taxable value exceeded the bond obligation. Again typically, the bond document requires the governmental body to set the tax rate at a rate sufficient to repay the bond.

Generally, property tax of a governmental body is even superior to an IRS tax lien placed on the property or the property owner.

I'm damn sure not running out to buy these bonds at a discount...but it does make me wonder how they are not a good buy to ultimately be paid back your principal plus a good return. Becuase it does seem that the underlying property owners can never escape the debt obligation...short of someone just washing it out.

Any of you have any real knowledge of such things?

[Texas Contrarian]

RK, I'm not sure I can envision any circumstances under which a bankruptcy court would be likely to oversee a cramdown involving revenue bonds, let alone GOs. Maybe it's legally possible, but I would make the following point: Unlike a corporate entity, a municipality or county will still be there, no matter what. People will move heaven and earth to arrange the entity's affairs such that it will be able to obtain financing on a continuing and reasonably favorable basis. Stiffing bondholders, even to a small extent, would do a pretty effective job of torpedoing that opportunity.

Therefore, risk premiums for troubled munis are typically a small percentage of those for troubled corporate issues. A muni with an effective return high enough to interest me would probably reflect a near-armageddon scenario!

One of the most famous defaults involved Orange County, California back in the 1990s. There was much discussion of whether the bondholders would come out OK. As I recall, they did (except for some extended deferrals of principal and interest payments). The same was true of NYC's debtholders after the spectacular 1970s bust.

I prefer the corporate (junk bond) arena. At times, the risk premiums (and potential rewards) are extraordinarily high -- but, of course, so is the risk.

Nobody ever claimed that vulture investing was for the faint-hearted!

[Rudyard K]

That was kind of what I thought the situation would be. I'm not sure exactly how the governmental body would shed itself of the obligation...short of some kind of federal intervention that simply just took the asset base away from the bondholders. I would think such intervention would be unprecedented.

Nevertheless, I also think the various governmental bodies are going to be faced with unprecedented shortfalls...for 2011, 2012 and maybe into 2013...in virtually every venue one can imagine. Kind of a catch 22....no way they can really raise the tax rate enough to support exisiting bonds and existing (or even partially reduced) operational budgets...and no way to escape the obligation to do so.

It is going to be interesting to watch.

[..]

Originally Posted by Rudyard K

That was kind of what I thought the situation would be. I'm not sure exactly how the governmental body would shed itself of the obligation...

It is going to be interesting to watch.

thoughts / comments on Iceland?

Iceland Voters Reject Debt Deal
http://online.wsj.com/article/SB1000...707894556.html

[..]

addendum: before someone thinks he's Captain Obvious. in the case of iceland it's not muni bonds, but nationalized debt from previously private banks.

[Rudyard K]

Originally Posted by ..

thoughts / comments on Iceland?

Iceland Voters Reject Debt Deal
http://online.wsj.com/article/SB1000...707894556.html

"Icelanders Saturday roundly rejected a deal to repay the U.K. and the Netherlands €3.9 billion ($5.3 billion) lost in the collapse of an Icelandic Internet bank, complicating the island's bid to access badly needed international-aid funding and render normal its relations with the rest of the world."

Well, that about sums it up.

Sovereign debt is quite a bit different than municipal or even state debt. At the municipal or state level there is a federal level above as the mediator...with the ability to enforce a mediated solution.

With the exception of war or conquest, there is no enforcable mediation process for a dispute in sovereign debt. Nevertheless, if the sovereign nation needs additional borrowings, they will have to find someone who believes they will pay it back, when they just demonstrated they won't. That's a tough sale.

[pjorourke]

I suspect we are going to see a whole lot of new decisions in the area of state/municipal bankruptcy law over the next few years.