Buffett, Berkshire’s chairman and chief executive, has
previously warned about the risks of insuring municipal bonds. In his annual
letter to shareholders in 2009, he said public officials may be tempted to
default on bonds whose payments are guaranteed by insurance companies rather
than push through needed tax increases. He said guaranteeing municipal bonds
against default “has the look today of a dangerous business.”
Local governments rely on the $2.8 trillion municipal bond
market to raise money for construction projects and fund other budget items. The
financial crisis and recession battered governments across the U.S. by cutting
into tax collections and causing pension-fund losses. Some governments failed to
set aside enough money to cover retirement benefits promised to employees, which
may place increasing strain on public finance.
Buffett set up a municipal bond insurance company in December 2007 as
competitors, including Ambac Financial Group Inc. and MBIA Inc., struggled to
maintain top ratings. Berkshire has scaled back sales as Buffett said the rates
that bondholders are willing to pay don’t match the risk.
In a related article, the following news from California is noteworthy:
NEW YORK (CNNMoney.com) -- A bill that clamps down on municipal bankruptcy filings is headed for Gov. Schwarzenegger's desk, which is bad news for Los Angeles and other cash-strapped California cities.
It the governor signs Assembly Bill 155, it would place a hurdle in the path of filing for Chapter 9 municipal bankruptcy. The bill stipulates that a city may only file for bankruptcy with the approval of the California Debt Investment Advisory Commission, which provides information on debt to public agencies.
In a related article, the following news from California is noteworthy:
NEW YORK (CNNMoney.com) -- A bill that clamps down on municipal bankruptcy filings is headed for Gov. Schwarzenegger's desk, which is bad news for Los Angeles and other cash-strapped California cities.
It the governor signs Assembly Bill 155, it would place a hurdle in the path of filing for Chapter 9 municipal bankruptcy. The bill stipulates that a city may only file for bankruptcy with the approval of the California Debt Investment Advisory Commission, which provides information on debt to public agencies.