Municipal Bonds for Junk Collectors

June 1, 2010 by  
Filed under Economics, Investing

Poor financial management exists at all levels of government. City politicians have to buy votes too. Also, local politicians and bureaucrats are more likely to be naive in their thinking about where the money will come from to pay for everything. It’s no surprise, then, that we have cities staring bankruptcy in the face, including a state capital.

Seven at-risk municipalities are identified in this article. Anyone who owns bonds issued by these cities now owns junk.

The reasons for the financial distress are typical of government incompetence: Underfunded, overly-generous pension obligations and hugely expensive infrastructure improvements, e.g., a whiz-bank trash incinerator.

Harrisburg, Pennsylvania may put their parking garages on ebay or Craigslist to raise money. The City Controller is recommending bankruptcy. I say go for it – as a wake-up call to voters around the country that bad government has real economic consequences.

I’m now officially gun shy about muni bond funds. The tax free yield is not high enough to compensate for the risk.

Meanwhile, we continue to look for ways to lower our monthly hit and increase our ROI.  I returned some surplus equipment to Comcast last week which will lower our cable bill by $37. There is still more more work to be done on that account.

We are also firing Bank of America, replacing it with a community bank with a high interest checking account. The rate – 3.78% – can’t be touched by the Internet banks that many PF bloggers like to push.


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Comments

9 Responses to “Municipal Bonds for Junk Collectors”
  1. MasterPo says:

    No surprises here. As the states go so do the cities there with in.

    Just raise taxes and problem solved! :-)

  2. Jack Clark says:

    They are in a catch-22 where other than the government jobs that exist from the capital being there, there truly are no jobs. And it’s been this way for a good thirty years.

    All of the state employees commute from wealthier suburbs and other than about a two block area, Harrisburg is not a place that you would want to be after dark.

    No jobs + old and rundown housing + lots of crime = a bankrupt city

    Quite honestly bankruptcy might help, but without a decent property/commercial tax base from which to work with the city is perpetually screwed.

  3. Evan says:

    3.78%?! Where did you find that bank?

  4. No Debt Plan says:

    Local banks offering rewards checking accounts are beating out the big name internet banks. I’m getting 3.61% with a local bank if I have 10 debit card transactions, online statements, and 1 direct deposit or ACH debit. No brainer — over 3x the rate of ING.

  5. MasterPo says:

    One other thing you forget.

    Low rates and higher risk not withstanding, you can’t overlook the tax free income.

    Taxes are going UP next year and muni’s will be in demand.

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