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Bye-Bye Muni Bonds? “Muni-TARP” to Follow?
Richard Shaw (June 25th, 2009) Writes:
June 25 (Bloomberg) – “Barack Obama may be the worst thing that ever happened to tax-exempt bonds …. “
We certainly agree and see more trouble for tax-exemption down the road.
Obama Chief of Staff, Emanuel said, “A crisis is a terrible thing to waste.”, and the administration is taking that advice by sponsoring and subsidizing the issuance of fully taxable municipal bonds — “Build America Bonds” (the camel’s nose under the tent).
Presidents since Franklin D. Roosevelt have tried to tax the interest payments from municipal bonds without success, but the debt crisis has provided Obama with a way.
Build America Bonds (we prefer “Obama Bonds”) pay 35% of the interest cost for fully taxable muni bonds.
Presumably the subsidy also improves the credit quality of the bonds by having a portion of the interest come from the US Treasury.
Example Bonds YTM Rate Comparison:
We based our credit quality argument on logic suggesting the
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