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Posts Tagged ‘Meredith Whitney on the municipal market’

Auction-Rate Securities and Municipal Market Dislocation

Posted by Larry Doyle on January 13th, 2011 9:39 PM |

[ROLLOVER]

The demise of the $330 billion auction-rate securities market may have culminated in February 2008 but the impact of that reality continues to be felt today. How so?

Large segments of the ARS market provided financing for a wide array of municipal entities. How did those municipal entities receive financing when the ARS market froze? Reports indicate that bank letters of credit (LOCs) provided ongoing financing for many municipal borrowers. Now what?

As those LOCs are rolling off, banks are extremely reluctant to roll them forward and impending default is staring many of these municipal borrowers right in the face. The capital markets are not anxious to provide liquidity and banks are equally reluctant. Thus while the Federal Reserve throws support behind many market segments, the municipal market has retraced back to levels last seen in early 2009. (more…)






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