Municipal Bonds — the next subprime crisis?
February 20th, 2010, by JeffreyHare
Are municipal bonds going the way of subprime loans? Will the threat of municipal bankruptcies adversely impact real estate values? Should real estate investors be concerned? Recent articles suggest the answer to these questions is a qualified "Yes." But while it may be too early to tell for certain, the forecasting dynamics are like predicting earthquakes -- the proof of your theory may be a disaster of unprecedented magnitude.
The WSJ reported on 2/18 that cities around the country were evaluting the potential benefits of filing bankruptcy under Chapter 9, a seldom-used section of the Bankruptcy Code that provides limited ability for municipalities to file for bankruptcy protection. There have been only 600 Chapter 9 filings since the provision was enacted in 1934. One of the largest in recent history was Orange County, CA in 1994, but the current situation in Vallejo, California is grabbing the headlines. There, the City has moved to used Chapter 9 to get out from under its union contracts with municipal employees, including police and fire personnel, and the issue is under appeal. The WSJ reported that the City of Harrisberg, PA, with a population of only 47,000 -- is facing $288 Million in debt and...
