Nova
February 21st, 2008, 07:02 AM
February 21 2008: 4:01 AM EST
Common sense fix for muni bonds
If muni bonds got the ratings they deserve, we wouldn't need to bail out the bond insurers. We wouldn't need bond insurers at all.
By Jon Birger, senior writer
NEW YORK (Fortune) -- What the municipal bond market needs most is not an injection of capital into the bond insurance companies. What it needs is an injection of common sense into its credit rating system.
The simple truth is that the overwhelming majority of tax-exempt bonds issued by states and cities deserve a triple-A credit rating without any bond insurance, given their historically miniscule default rates.
The only way Fitch, Moody's and Standard & Poor's can justify denying them a triple-A is by applying a completely different ratings standard to munis than they do to other kinds of debt. Consequently, the bond market winds up with crazy situations in which, for example, State of California bonds are rated triple-A when the state sells taxable bonds to foreign investors but single-A when California sells tax-exempt (but otherwise identical) bonds to muni investors in the United States
http://money.cnn.com/2008/02/20/magazines/fortune/birger_muniratings.fortune/index.htm?postversion=2008022104
Common sense fix for muni bonds
If muni bonds got the ratings they deserve, we wouldn't need to bail out the bond insurers. We wouldn't need bond insurers at all.
By Jon Birger, senior writer
NEW YORK (Fortune) -- What the municipal bond market needs most is not an injection of capital into the bond insurance companies. What it needs is an injection of common sense into its credit rating system.
The simple truth is that the overwhelming majority of tax-exempt bonds issued by states and cities deserve a triple-A credit rating without any bond insurance, given their historically miniscule default rates.
The only way Fitch, Moody's and Standard & Poor's can justify denying them a triple-A is by applying a completely different ratings standard to munis than they do to other kinds of debt. Consequently, the bond market winds up with crazy situations in which, for example, State of California bonds are rated triple-A when the state sells taxable bonds to foreign investors but single-A when California sells tax-exempt (but otherwise identical) bonds to muni investors in the United States
http://money.cnn.com/2008/02/20/magazines/fortune/birger_muniratings.fortune/index.htm?postversion=2008022104