Comments on: The muni loan market emerges A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: fixedincome Thu, 17 Feb 2011 17:51:11 +0000 Banks and bankers have a way of finding money if the price and incentives are right.

The syndicated leveraged loan market was a mere 20% the size of the high-yield bond market in 2001, and even tinier in the early 1990s. By 2008, it had almost reached parity (92%) thanks to all of the LBO issuance and the numerous CLO and other structures the Street came up with to absorb the paper.

They don’t have the same buckets of cash to tap now, but if they can get the structures and IRRs right to match the demand (there’s a huge retail bid for high-income/low rate-vol investments right now) they can almost certainly find somebody to buy municipal loans.

(HY and leveraged loan data cited from Credit Suisse)

By: linushuber Thu, 17 Feb 2011 05:22:15 +0000 The financial system depends on extending credit in excess of the economy’s growth rate or it may collapse. The big banks do not care a lot about the risk with munis as they will be saved by the Fed if need be. The states who run deficits continue on the same path. All is well it seems.

Well, to me it looks like a ponzi scheme. To increase debt endlessly is not sustainable and one day the market will demand higher rates and the aftermath will be again stuck onto the taxpayer.

The way to move is cut salaries/benefits and other government expenses and reduce debt not just deficits.

By: KenG_CA Thu, 17 Feb 2011 00:13:27 +0000 So the banks will borrow hundreds of millions of dollars from the Fed at near zero, and loan it to cities and towns at 4% or 5%? That’s better than lending it to the treasury at 3%! If the Fed didn’t object to banks lending their money to sub-sub-prime home buyers, why are they going to care about these loans?

It’s just more of banks borrowing money from the government to loan that same money back to a different level of government. That warrants a big bonus, don’t you think?

By: DrJJJJ Wed, 16 Feb 2011 23:02:39 +0000 If banks want to gamble so be it-not me! Flirtin with dynamite here folks-confidence is low and it wouldn’t take much to fall off a cliff! Another reason to live at our means not miles above!

By: y2kurtus Wed, 16 Feb 2011 22:57:04 +0000 The monoline business model is and alwasy has been fatally flawed. 10 billion in private capital backing up 2 trillion in munidebt… it’s fake insurance always has been always will be.

The FDIC insures a couple trillion in deposits with about the same 0.5% cushion but there is one little difference… the FDIC is backed by a line of credit to the U.S. Treasury.

By: MRLAMF Wed, 16 Feb 2011 22:20:05 +0000 That’s crazy. Its TBTF banks lending huge sums to other TBTF institutions without the transparency and discipline that a market issuance entails. At least with with monoline wraps there is a layer of private capital that must be annihilated before taxpayers get pushed into the breach.

By: y2kurtus Wed, 16 Feb 2011 21:22:24 +0000 Banks have always been willing to lend to muni-issurers. The issurers just got use to the looser terms and lower rates that wallstreet had to offer. Guess someone was doing gods work after all eh!

My small bank is happy to offer low rates on loans to municipalites because in the case of cities and towns the loans are usually self funding. The town needs a million bucks for a new firehouse… sure we’ll give them a loan at prime minus a half…

if they use us for their non interest bearing municipal deposit accounts of course.

Cities and towns might be in tough shape financially but they got nothing on a 2nd lien loan to a small business or an unsecured loan to an average consumer…

The story is not about will banks lend… it about the rate on the loan. In New England an average town can get fixed for 10 years sub 4% on a G.O. JPM and C would balk at those terms just on the interest rate risk alone.