Comments on: Yankee Stadium’s conduit-bond boondoggle A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: Publius Fri, 17 Jun 2011 14:55:17 +0000 What risk to the taxpayer? Unless there is an explicit guarantee by some taxing authority, there is no risk.

There are plenty of problems in the municipal market–like bid-rigging, off-balance-sheet instruments designed to disguise payola, and outright misstatement of finances. But conduits? Seriously?

Yes, conduits default at a higher rate than GO bonds. Moody’s studied defaults from 1970-2010 and found of the 18,000 issues rated, 54 defaulted. Three were GO bonds. Okay, point conceded. But it’s not much of a point.

But anyone that blames the sell-off in the muni market earlier this year on conduit bond defaults is a moron. A certain 60 Minutes interview with a certain Brown University graduate had a lot more to do with December’s sell-off and the 30 billion in mutual fund net withdrawals that followed over the next 6 months than any conduit default. Where is that wave of defaults, BTW?

Yes, I remember Felix also confidently asserting that California was about to go bankrupt and would receive another Federal bailout because it is Too Big To Fail. How’s that working out?

By: gringcorp Fri, 17 Jun 2011 13:53:06 +0000 The risk to the public is less the foregone tax revenue (on bond interest, land, or profits) and more that the conduits serve as a dumping ground for unpalatable projects serving ill-disclosed private and political interests. They also often facilitate the use, and often misuse, of public land for private purposes (as is the case here), or the expropriation of private property for private purposes with dubious public benefit (see, well, Atlantic Yards, for starters)

By: MikeStanton1891 Fri, 17 Jun 2011 13:18:43 +0000 The data in the LAT piece is somewhat misleading: “conduit” bonds include borrowing for quasi-public purposes like non-profit hospitals and higher education (because 501(c)3s must partner with a public-sector “conduit” to access the muni market).

The 5-year growth trend they talk about, moreover, was primarily driven by a wave of refinancings by those 501(c)3s, who were larger users of auction-rate securities and bank-enhanced variable-rate products that needed to be restructured in the wake of the credit crunch — it didn’t represent a huge increase in debt outstanding.

As for the project today — the risks to taxpayers are overblown, and the risks to bondholders are serious (as demonstrated by recent trades in the 60-cents-on-the-dollar range). The garages won’t be making tax payments any time soon (or payments in lieu of taxes, to be more specific), but that can be said about many failing enterprises, public or private.

By: gringcorp Fri, 17 Jun 2011 11:16:30 +0000 I wouldn’t say that conduit bonds are always a bad thing. The interest subsidy can be used to improve the economics of projects like pollution control equipment, improved water treatment, some renewable energy projects, or community hospitals, where the pre-subsidy returns available to the owners (non-profit, or for profit) do not reflect the social benefits. The tax system has frequently been designed to produce socially desirable outcomes. But conduits are spectacularly vulnerable to misuse, mostly because their oversight is so poor, they’re so susceptible to political interference, and because the range of eligible assets (needy and vulnerable stadium-owners, anyone?) is so broad.

By: y2kurtus Fri, 17 Jun 2011 02:20:51 +0000 “Although conduits account for roughly 20% of all municipal bonds, they have been responsible for about 70% of all defaults”

So the default rate on conduits is tripple the rate on Munis overall eh… ok so that’s what a 0.75% default rate?

Those parking lots in the Bronx look like a better credit than most European sovs to this investor.

By: CDN_Rebel Fri, 17 Jun 2011 01:54:20 +0000 I would have to agree that Salmon seems more self-righteous and speaks as though he is infallible these days. Maybe the blatherings of Ben Stein recently have gotten Salmon back up on the high-horse from his usual astute analysis and opinion…?