Bond Holders’ Pockets Picked!

You may be crazy to invest in debt of corporations and municipalities. Remember when GM went broke? There was little respect for senior bondholders who were raped in favor of the unions. Their secured investments are supposed to get first crack at the assets. One bondholder, a teacher, invested $70,000 in GM bonds and ended up with 140 shares of stock, currently valued at $5,600.

Now we are seeing the same thing happen again in Detroit. Municipal bondholders are finding out that General Obligation (GO) means nothing. Detroit “…proposed a deal last week that included skipping a $39.7 million payment on pension-obligation debt.” A GO municipal bond is backed by the credit and “taxing power” of the issuing jurisdiction rather than the revenue from a given project. Investors consider GO bonds the highest quality and safest and expect the bonds to be an obligation on all the property with the district.

It appears that when the going gets tough in cities, property rights and the rule of law gets thrown out. Good to remember.

6 Responses to “Bond Holders’ Pockets Picked!”

  1. I blame Bush.


    Had we relied upon bankruptcy proceedings in place, our economy would have healed and grown since then.


    Massive interventions have massive unintended consequences. And we’re not really talking intelligently about what those have been or might be.

    Instead, we helped out cronies on Wall Street.

  2. One problem, Oregon Guy. The bankruptcy was filed June 1st, 2009 and Obama is president!

  3. I was referring to TARP. GM was a follow-on to the policy decision for federal intervention in the markets.

  4. It was Obama working with the unions that screwed the GM bondholders. It had nothing to do with TARP.

  5. Right.

    But TARP set the stage for continuing policies that massively intruded into the private sector.

    What was TARP, $746-billion? When the D’s went into overdrive, their trillion looked a lot like Bush’s almost trillion.

    So they spent it.

    And continue to spend it.

    And intruded into the private sector in ways never before seen. Compare and contrast Lehman Bros.

  6. But, my point is has been and still is the screwing the secured bond holders took. It was an abrogation of property rights.

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