Municipal Bankruptcy

I recently had dinner with someone who works at one of the (few remaining) investment banks in New York City in a group that is responsible for unwinding debt derivative products (for lack of a better description).  Of interest, he said that in years prior to 2008 there would be a “major credit event” perhaps every six months.  Last month, however, these credit events were occurring daily.

What was new to me, however, was his mention that possible municipal bankruptcies were something that his group was watching very closely.  The main reason being that as the debt held by local governments matures, these groups, with reduced tax receipts, will find it increasingly difficult to refinance, essentially causing maturity defaults.

This article, from MISH’S Global Economic Trend Analysis, Massive Surge In Municipal Bankruptcies Coming, goes into more detail:

The accountant who predicted the nation’s largest municipal bankruptcy says as many as 10 insolvencies will roil the $2.7 trillion U.S. market for state, county and city debt next year as public finances worsen amid calls for federal aid to state and local governments.

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One Response to Municipal Bankruptcy

  1. JayK says:

    Interesting blog..just found it. Let me note that the municipal bankruptcies have a silver lining of giving us an opportunity now to restructure some of the overly generous pension and other retirement benefits given to civil service employees in exchange for their electoral support. Some of these bankruptcies were bound to occur in the future as the cost of these benefits proved too burdensome to various cities, states and counties. Might as well do it now!

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