I wanna be a bond vigilante

<p>I venture to guess that most of us think, "I would not invest in those CDOs or mortgage backed securities or asset backed securities or any of that other nonsense that is causing so much grief."</p>

<p>But, if you are invested in a pension or a money market fund or any one of a thousand mutual funds, you are invested in some of that toxic waste.</p>

<p>Any thoughts?</p>
 
<p><em>"Any thoughts?"</em></p>

<p>Yeah. I'm gonna be PISSED if my pension peeps invested in too much of this crapola. I tried calling a few months ago to inquire on the exposure...was put on hold for 5 mins. Called back and left a voicemail for <em>someone</em>...who never called me back.</p>
 
<p>Trooper, </p>

<p> Haven't you been taught better? You and only you are responsible for yourself. In life, health, saftey and retirement....</p>

<p>goodluck</p>

<p>-bix</p>
 
Sarge - I do not know if this will help, but I moved my pension and retirement assets into self-directed accounts.
 
awgee,

I would rather see Congress spend its time on something other than baseball. However, just to answer your questions, Congress gave baseball an antitrust exemption in 1922 and has been meddling ever since.
 
<p>I understand that a bunch of auctions which are normal business, not subprime anything, are failing. One by mastercard, and some muni bonds, ummm, last Friday, I think. Investers wanted incredible interest rates 15-20% to buy. I think they were cancelled. Read it on Calculated Risk.</p>

<p>Also on squalk box, yesterday I think the lead story was how some rich folks couldn't get money from a supposedly conservattive, but not Federally insured money type fund.</p>

<p>Does some of this stuff go on all the time, and we didn't used to be informed of it? Or is it omens and portents?</p>
 
<i>"Does some of this stuff go on all the time"</i><p>


No.<p>


Maybe every once in awhile, but there are events every day now.
 
<em>Sarge - I do not know if this will help, but I moved my pension and retirement assets into self-directed accounts. </em>

<em></em>

This is the City of L.A. Pension....I have no idea if I can move it. I contribute 9% and they contribute 1%.....not sure I would even consider doing such a thing. I also have a Deferred Compensation account which is self-directed (as I've said before, I took the money out of funds and put it into a 1 yr CD late last summer).... I don't know of anyone that doesn't participate in the pension plan offered.
 
lawyerliz - my understanding was that Mastercard was making a short-term loan via ARS and now can't sell the security they thought they had just "rented". I had assumed they were muni/state securities although I'm not completely sure. This is beyond ominous IMO because ARSs are the kind of thing people use to park short-term working capital. Some companies are running desperately short of cash right now because of this (I have no particular knowledge, but I'm sure some companies park most of their short-term cash in ARSs and have next to nothing right now). The money market fund may well be linked because ARSs are the kind of thing they use too. And yes, this is totally off the charts.
 
FE is straight on. And let me add. The MSM keeps writing that investors and funds are hesitant to buy ARS and other securites right now. That is just plain wrong. They aren't hesitant. They just don't have the capital. They aren't buying because they are scrambling to find cash to meet reserve requirements or fund their own purchases for which they can no longer get credit.
 
awgee - I hope you're wrong and they do have the capital. Indeed, I'm praying you're wrong - and I'm an atheist! But the fact that the banks won't guarantee these auctions - even though they could get excellent returns from securities that should be fairly safe - is very frightening - especially since the market panic this is engendering will hit them hard, and they know it.
 
FE - As an atheist you will probably value facts:<p>




http://financialsense.com/fsu/editorials/andros/2008/0215.html<p>


By the way, IMO, munis are no longer fairly safe. They depend upon tax receipts.
 
<p>It seems that just about everyone involved is accepting the idea that the monoline insurers will each have to split into two organizations; one insuring munis and one insuring everything else. The idea being that the munis are safe and the investors in munis and the municipalities themselves should not have to pay for the toxidity of the CDOs and other derivatives. Of course there are problems with the idea, but all the smart folk think this is the solution. Even Buffett offered to take part.</p>

<p>But what if the munis aren't safe. Munis have a historical default rate of 1%. But munis are completely dependent upon tax receipts. Does anyone think tax receipts this year or next will increase or just not decline? My guess is that the portion of the monolines which keep insuring the munis will not deserve AAA status for long. Maybe not even now. Would you loan your money to Orange County right now? And at what rate of interest?</p>
 
awgee,





I think munis may be more endangered in states like California that cannot raise their tax rates. In most other states, the millage rate is determined by taking the budget and dividing by the assessed property values and sending out bills. Unless people start failing to pay property taxes en masse permanently, most municipal bonds should be OK.
 
awgee - I was hedging with the "fairly safe" phrasing. I understand munis may have trouble. But so might corp bonds or honest mortgages from, say, 2001. For the most part munis have good default rates compared to other bonds, and profits and wages are at risk just as taxes are. Of course we will probably agree that it doesn't make much difference whether banks don't have the cash or whether they've made an informed decision that cash is better than a large and historically safe bond category even at 10% interest. In either case the failure of the ARS market is a black swan event - this is just not something economists/financiers thought about, because they thought relatively creditworthy agents would be able to issue short-term debt. I suspect not even Roubini discussed this until recently.<p>



FWIW, I poked though the Beaumont and Hemet budgets (for the non-Californians, they are two older exurban-ish towns in the Inland Empire which had huge, huge building booms recently) and both of them look pretty good debtwise on direct city debt.Debt-to-income was less than 10% for both, IIRC. So the cities <i>per se</i> should be able to take the property tax hit (not that this will save Vallejo or Half Moon Bay). I don't know a way to look for Mello-Roos and other special assessment district quasi-muni bonds, which might be much more at risk.
 
<p>Question regarding property tax,</p>

<p>If a bank forecloses on a property that owes property tax, does the tax collector get his cut before/when the bank resells it? </p>
 
<p>In Florida, if you don't pay by June 2008, your 2007 taxes, they sell tax sale certificates. After 2 years, the holder of the certificate can ask for a tax deed, or they can wait up to 7years, collecting interest. It's a dutch auction going from 18% downward. </p>

<p>When a tax deed is asked for there is this procedure where everybody they can find, including mtgees, get notified. Presumably the mtgees are smart enough to pay the taxes. Then, with notice in the legal newspapers a date for the auction is set, and the vultures show up and bid away. If the mtgees are too dumb to pay the laxes, they theoretcially get eliminated. There are a lot of recent cases where the court refused to honor the deed because the former owner didn't get notice worthy of due process. I was working on a case like that all day today. The courts have less sympathy for mtgees than owners.</p>

<p>I don't if there is any substantial difference in this anywhere, but the detail surely vary.</p>

<p>Gosh, I wonder what will happen to Miami-Dade if that auction fails? There are always worthless properties that nobody bids on, that the county takes and tries to sell later, sometimes many years later.</p>

<p>What if they give a tax sale auction and nobody comes? I guess the certificate holder bids the amount he is owed and gets the property. For virtually nothing.</p>
 
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