Last night 60 Minutes had a segment highlighting the budges woes of various state governments (HT Jeffrey Peshut). Meredith Whitney said it will be as big a meltdown as the real estate crash. On the other side of the argument, S & P and Moody’s say everything is A-OK. One muni bond portfolio manager took issue with Ms. Whitney calling her an alarmist, Ben Thompson says he can’t make her numbers work while another blamed her for causing retail investors to panic.
Steve Kroft commented during the piece that banks are large holders of municipal bonds. But it appears that individuals are the largest holders and more than a few holders of Muni Mutual Funds are running for the hills. The Bond Buyer reports “All muni funds, including those that report their figures on a monthly basis, collectively have reported a record average weekly outflow of $2.5 billion the past four weeks.”
Municipalities depend upon property taxes to keep the doors swinging wide at City Hall. And at least one analyst doesn’t believe the pain is over for housing and real estate. Richard Suttmeier’s thinks home values have another 15 to 30% to go on the downside. He’s also concerned about the $1.43 trillion in commercial real estate loans held by community banks and the $236.4 trillion in derivative exposure held by the big banks.
