What Would Jim Lebenthal Say? | The Woman's Investment Bible: "... It starts with a highly visible market expert making claims for the imminent financial ruin of hundreds of billions of dollars of municipal bonds during the middle of a financial crisis. Nervous investors look at the isolated and well- known problems in the market—Detroit, Jefferson County, Puerto Rico, Illinois—and start to generalize across an entire market. A run ensues. It continues with a zealous tax reformer pays for an income tax cut with a surcharge on tax-exempt income. On a relative value basis this tax structure diminishes the after-tax yield advantage for muni investors, and investor demand continues to wane. A sizeable municipal bankruptcy follows, one in which general obligation and revenue bondholders are forced to accept less than par in a workout situation. Investors continue to shy away from the sector, liquidity dries up, muni yields rise as a result, and issuers find it more difficult and expensive to finance their projects through the municipal market. So they find other avenues for project financing... " (read more at the link above)
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