Municipalities and Public Institutions Getting Creamed by Collapse; Government Functions Endangered
Lyndon LaRouche
February 15, 2008 (LPAC) --As one of the effects of the collapse of the securitization markets, local governments and public institutions, from hospitals and museums to water treatment authorities, are facing skyrocketting interest costs as they find it near-impossible to sell bonds and other securities. One corner of the municipal bond market, the $330 billion market for "auction-rate securities," has nearly ground to a halt for lack of buyers, with almost 1,000 auctions failing over the past three days. As examples, the Port Authority of New York and New Jersey has found its costs of debt service quadrupled, and is now paying 20% on its debt, and New York's Metropolitan Museum of Art is now paying 15%.
Meanwhile, New York Governor Eliot Spitzer is warning the monoline bond insurers to find substantial amounts of new capital within days, or face the prospect of the state stripping them of their municipal bond business and selling it to someone with deeper pockets, such as Warren Buffett's insurance operation. Such an action would leave the monolines holding little but CDOs and other toxic waste, and hasten their doom. The number three monoline insurer, FGIC, announced today it would split its municipal bond and non-muni businesses.