After NoMotown, EXACTLY WHAT DOES It Take for GO’s to be Secured in Bankruptcy? Now that Motown has become NoMotown with Detroit’s Chapter 9 processing, the question has been framed concerning if the current framework for municipal general obligation bonds (GOs) is sufficient to require their classification as guaranteed for personal bankruptcy purposes. The relevant question has huge financial implications for bondholders and municipal insurers. If GOs are secured, they’ll continue being paid through the pendency of the bankruptcy, and they’re more likely to be unimpaired regarding the the rearrangement of debts confirmed in the bankruptcy plan.
It is safe to state that the overall expectation among municipal fund practitioners was that GOs should be categorized as guaranteed in bankruptcy. In essence, there’s a difference between security for municipal personal bankruptcy and fund purposes. This pledge, from bankrupties point of view, may very well be characterized as an executory contract that may be rejected as unenforceable by a municipality in bankruptcy.
So what is a GO bond trader and municipal fund insurer to do? I’d be stunned if future GOs are not organized in a fashion that provides better security in bankruptcy, at least in those jurisdictions where municipal bankruptcy filings are not prohibited by state law. This can be done easily. Among my recommendations is to require in the GO enabling authorization that tax receipts be deposited in a lockbox, and a security interest be granted GO investors for the reason that lockbox. A bank controls The lockbox that is required to pay, first, required principal of and interest on the GOs, and, second, disburse to the municipality staying funds for disbursement as the municipality sees fit.
In this way, as as the municipality levies taxes long, the concern (and hence security in bankruptcy) of GO investors and municipal financing insurance providers will be clear. To a surprising degree, finance follows styles, much as hemlines rise and fall in the fashion world. EASILY am right in this respect, then municipal fund insurers in particular need to insist upon a revised GO structure to deal with the moral risk bomb that NoMotown has just slipped. Disclosure: Long MBI; AGO. NB: this website is not designed to be investment advice, and should not be relied upon by anyone to constitute investment advice. Investing is a hardcore game, and everyone must do and “own” their own work, because you will certainly own your investments. Follow me on twitter. Posted by Christian S. Herzeca, Esq.
The Fed will always err privately of triggering faster development (and inflation with it) rather than slower development that may lead to deflation and induce a Japanese-style despair. 100 billion in stimulus inspections, and america is well at night most severe that the slowdown of the second option fifty percent of 2007 presented. This will not mean that the “strong financial performance” we anticipated has materialized – but the truth up to now is much more positive than the doom-and-gloom chat that dominated American media the first half of the entire year.
Obviously, not all plain things are cheery. The American property market is far from recovery – the rising inventory of unsold homes in particular is a critical factor to view – and strong commodity prices are making the U.S. Additionally, a combination of American subprime contagion and local structural and cyclical weaknesses could cause a European bank crisis in the 3rd quarter.
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But Stratfor’s main financial concern for U.S. Neither presidential applicant has any interest in pointing out strengths of the existing government’s financial management. And, in past elections, “It’s the Economy, Stupid” has not only garnered votes, but also offers had the medial side aftereffect of amplifying general public perceptions of the economy’s problems. Regional tendency: Inflation is increasing on a global scale. But as the USA is looking toward better times, the reverse could somewhere else prove true.
The sheer size of combined American purchasing power means that america can weather high energy and product prices relatively well – runaway commodity inflation plus the subprime meltdown still didn’t drive the U.S. The same can’t be said for the rest of the global system, where inflation is now pushing 5 percent.
140 a barrel oil. Most countries can no longer absorb such cost increases, and Stratfor desires to start to see the cracks that developed in major industrialized economies in the next quarter begin to lead to fundamental breaks in the 3rd. Barring a deep price drop, a great many states are beginning to have a great number of problems. Between sturdy prices for energy and food, there isn’t an overall economy in the world that has not needed to make some sort of adjustment. Stratfor divides the consequences into two categories. First, food shortages immediately impact politics balance; so food prices have been remain and – – the key issue to view.