Ask a Nobel Prize-winning economist what’s the difference between the mayor of Baltimore losing taxpayer money with derivatives sold by Wall Street and millions of Americans defaulting on subprime loans and he’ll say there isn’t any: State and local governments are victims of opaque financing they don’t understand, the same way individuals go broke on borrowing at rates too good to be true.
Fannie Mae, Freddie Mac and Harvard University are among public and private entities that could be shut out of the $605 trillion privately negotiated derivatives market they use to manage risks under legislation being debated in the U.S. Senate, according to an industry group.
Providers of municipal-bond indexes and benchmarks have been asked to meet with the organization that sets rules for the $3.7 trillion market as it seeks to improve disclosure about how the financial tools are prepared.
Representative John Mica , who becomes House Transportation and Infrastructure Committee chairman in January, plans to introduce a “reincarnation” of the Build America Bonds program, set to expire Dec. 31.
Peter Kuhn, an investor from San Jose, California, who owns more than $1 million in municipal bonds, scours pricing websites and uses Zions Bancorporation’s online brokerage to avoid getting overcharged when he buys tax- exempt debt.
Citigroup Inc . analysts say there’s something missing from the Federal Reserve’s tally of the municipal-bond market’s size: more than $700 billion of the securities were bought directly by individual investors.