If you want to wade through some unutterably depressing reading on this Monday morning, you should spend some time with the official Detroit Proposal for Creditors. It starts by noting that the city’s per capita income, averaged over its 684,799 residents, is just $15,261 per year. (That’s less than half the income of neighboring Livonia.) Auto insurance alone eats up a good $4,000 of that, for residents with a car.
Remember the Poway school district? They did a horrible bond deal, borrowing $105 million now and promising to repay a total of $981 million by the time 2051 rolls around. The deal was broken up into lots of tranches, none of which start paying back any money at all before 2033. The most egregious tranche of all was the longest one: a bond with an original principal amount of $13,986,037.80, which matures in 2051, when bondholders will receive a total of $321,740,000. That’s more than $22 of interest for every dollar borrowed today.
There’s a distinct whiff of the faux-naive coming off Mary Williams Walsh’s article about the fate of Jefferson County’s general-obligation bonds:
I’m normally a big fan of Bond Girl, but today is obviously the official day when bankers talk their book with no particular logic. In this case, the proposal which has attracted her ire is the idea that part of the jobs bill will be paid for by capping itemized deductions for individuals earning more than $200,000 a year and married couples earning more than $250,000. Basically, you can deduct away to your heart’s content — until your tax rate reaches 28%. At that point, you can’t deduct any more.
Is there something fishy about the bonds used to finance the parking lots at Yankee Stadium? Of course there is. And you don’t need to look far before you see two big reasons why. The first is that the bonds were issued by the Empire State Development Corporation. That’s Empire State as in New York State, one of the most corrupt and dysfunctional states in the union. The second is that these are conduit bonds — an asset class which, as Nathaniel Popper explains, is only for the very brave:
You’re probably not going to read all 3,700 words of William Alden’s huge article about the vicious financial circle in Milwaukee, Wisconsin, where local-government cutbacks are hitting the bus service, with the knock-on effect that a lot of jobs are literally out of reach for people without cars. But it’s a great article, and a fine example of the kind of in-depth original reporting being done by HuffPo.
The RGE report on muni bonds is very good, and I’m sad I’m not allowed to share it with you. (On the other hand, according to former CEO Camille LeBlanc, “pick a bank, pick a hedge fund—they’re probably a client.” So if you know anybody on Wall Street, they might well have a copy lying around somewhere.)
A couple of big names are out with cautious bond market views this week. For the big picture, turn to Bill Gross, who’s worried about what’s going to asset prices — both bonds and stocks — when QE2 comes to its scheduled end on June 30. He has two main points: