March 28, 2008
Auction Debt Failures: America’s Growing Problem
By admin
The U.S. economy depends on municipal auctions but as these auctions begin to fail, the increased costs of debt will eventually be levied on the consumer.
From California to Florida to airports in New York and Dallas, municipalities are exiting the auction market
An article in Bloomberg indicated that auction rate failures rose to about 71 percent this week.
In fact the Port Authority of New York indicated that it would redeem auction rate securities as interest rates head higher. Bank of America recently said that $26 billion of bonds a day failed to attract enough buyers since February 13, 2008.
Until the government or a large Warren Buffet type of investor bails out the bond insurers, there will continue to be no confidence in this sector of the financing markets. Some municipalities are now reporting interest in excess of 20% in order to complete the auction.
This is America’s next problem and could be a bigger problem than we’ve seen in the financial industry. Blame the housing market.
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