Behind every investor that buys a municipal bond---known for their safety and tax exempt yield---is the knowledge and belief in their safety, and secondly their tradability----in the event of the death or illness of a senior investor, they must be able to be traded easily at fair value. The problem----without insurance and a way of quicly and easily rating the safety of these municipal bonds----these bonds are not salable in the first place and then are not tradeable in the event of need.
That all spells big trouble for municipalities---who typically take in tax revenue at one part of the year and have ebbs and flows of long and short term borrowing between their peak inflows.
Right now---the municipal bond market is "Seized Up" and not effective because the insurance as well as the rating mechanism is not working---whatever the system of the past obviously did not work very well as far as default swaps, and a new risk rating system has to be made effective. The delay on this new rating could wreak havoc on local governments nationwide.
Right now...if you want to borrow for a municipal dream----good luck. Just the essentials might be difficult to borrow for. Stay tuned.
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