Municipal Bond Forum

I read your response to the New York Times article on how policymakers are trying to figure out how states might be able to declare bankruptcy to relieve massive debt. The plausible case for state-level bankruptcy is more likely focused on unfunded pension liability, not current muni obligation/revenue matching capabilities. The bankruptcy poster child is General Motors. If GM were a state, would its name be General Motors?

J.S., New York

In your article, you said misinformation in the market has created a number of outstanding opportunities. You should’ve said that it has done considerable damage.

L.L., Virginia

I’m looking for simple yet specific education on selling bonds purchased through a firm like yours. Mellon Bank or any other fiduciary can hold bonds. How do I sell them? Is there a ready market? Do I use an intermediary such as your company? What are the costs? Are these readily marketable compared to stocks?

B.C., Texas

While I wholeheartedly agree that “fear sells,” and I would like to have confidence in the municipal bond market, the question remains, “Can we trust our government to bail everyone out no matter what?” I would hope that municipalities would be on the front burner — way ahead of banks and corporations. I think the government owes every citizen/taxpayer at least that much. If the government doesn’t make sure that municipal bonds are backed and repaid on time, I think they will have a huge rebellion on their hands. The municipal bond market is not where the ball should be dropped.
L.J., Colorado

No less a personage than Newt Gingrich has said that he would support legislation allowing states to declare bankruptcy to escape unbearable union contracts. This, of course, strikes fear in the hearts of people like me, with a long and successful career behind me (I’m 80) and a lot of my sizeable savings invested in New Jersey munis. It would helpful to know what steps states would have to take to declare bankruptcy so I can judge how probable it might be. If it’s probable, I’ll probably join in what will become a run on munis. That’s the issue people like me are dealing with, and prudence would dictate that we get some really solid answers before beginning to sell millions in munis.
J.S., New Jersey

Thank you for providing such a well-stated response to the New York Times article last month on alleged work being done to figure out a way for states to declare bankruptcy. As you stated so beautifully, the sensationalism and inaccuracies regarding the nature of the municipal bond market were misrepresented by those seeking to misquote Sen. John Cornyn and the committee hearings he tried to conduct. As a 40-year investor in munis, I take great pride in knowing that my investment dollars are serving a community-minded, positive purpose. It is a wonderful feeling to know that one’s community consciousness can be used for mutual benefit and profit. Thank you for using your prominent position in the municipal bond market field to articulate our mutual concerns so well.

A.A., New York

As a resident of New York state what other kinds of munis can I buy, i.e. national, territories? Also, what is a national muni?

J.H., New York

I own a number of zero coupon non-callable munis that are Escrowed to Maturity (ETM) in U.S. Treasurys. All mature in the next 2 to 17 years. Additionally, they are insured (although the value of that insurance may now be dubious). Given that U.S. Treasurys are rated “AAA” at the moment, why are all the muni ratings (underlying and otherwise) below that (typically “BBB” in my case)?

A.B., Pennsylvania

Do individual tax free municipal bonds also reflect a good tax-free income for someone who is in a lower tax bracket than 35% (I’m in the 28%)? I visited a broker who suggested I invest in an individual tax-free municipal bond. They charge 1% to manage the bonds. I visited your Web site and am reluctant to let his firm purchase the muni bond for me since it appears I can buy an individual muni bond through you at a lesser fee and won’t have the ongoing 1% his company would charge me. Your opinion is appreciated.

C.T., Pennsylvania

I saw your message in the Dallas Morning News that put the muni market in perspective. As a fairly significant investor in municipal bonds, I have been alarmed and puzzled about the market’s negative actions in recent weeks and have found no answers that make sense to me. I hope your message results in a stable and improved market over the days and weeks to come . Thank you again.

J.G., Texas

According to the New York Times, there are discussions in Washington that would allow states to declare bankruptcy and be relieved of their pension and municipal debt obligations. In your opinion, what is the likelihood that laws/rules will be made to allow states to default on their municipal bond debt? If this is allowed, what effect could it have on municipalities, counties, hospitals and other issuers of muni bonds? Could it possibly have any effect on bonds escrowed to maturity?

V.G.