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March 12, 2010

Bailing Out The Banks Changed The Way People Think

-- by Dave Johnson

Tax-free municipal bonds are selling like crazy because they pay a very high yield. The thing is, they have a high yield because so many states and municipalities are on the edge of going broke, like California. If they go broke the bond holders are supposed to lose their money. But California's bonds are assumed by buyers to have no risk because everyone believes the government will step in and bail the state out, like they did with the big banks.

From Lockyer Sells 25% More California Bonds Than Forecast

The state, whose budget deficits have left it with the lowest credit rating among U.S. states, raised $2.5 billion, paying a top yield of 5.65 percent on 30-year bonds.

5.65 percent tax-free, when money in a bank might pay you half a percent, taxable.

meanwhile California's Republicans are working to force the state to go bankrupt, thereby forcing the federal government to come in and bail out the mess they leave behind.

Posted by Dave Johnson at March 12, 2010 10:38 PM


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