More Dominoes Falling - Municipal Issues Becoming a Big Issue

http://www.bloomberg.com/apps/news?pid=20601087&sid=aTfAdljNImeo&refer=home
UBS AG won't buy auction-rate securities that fail to attract enough bidders, joining a growing number of dealers stepping back from the $300 billion market, said a person with direct knowledge of the situation.

and

Bank of America Corp. estimated in a report that 80 percent of all auctions of bonds sold by cities, hospitals and student loan agencies were unsuccessful yesterday. That may mean as much as $20 billion of bonds failed to find buyers, based on the $15 billion to $25 billion of auction-rate bonds scheduled for bidding daily, according to Alex Roever, a JPMorgan Chase & Co. fixed income analyst.

and

Auction bonds have interest rates determined by bidding that typically occurs every seven, 28 or 35 days. When there aren't enough buyers, the auction fails and bondholders who wanted to sell are left holding the securities. Rates at failed auctions are set at a level spelled out in official statements issued at the initial bond sale.

and

Until recently, UBS and other banks that collect fees for running auctions have stepped in with their capital to prevent failures when bidding faltered. These firms have grown unwilling to commit their money to auction-rate securities after suffering at least $133 billion in credit losses and mortgage writedowns stemming from the subprime mortgage collapse.

In my opinion, this is more of a big deal than just the investment banks taking more losses and the credit crises continues. It is another issue that puts major headwinds in the economy. I do not have the statistics in front of me for what municipal cities spend annually on infrastructure and public work projects but I would be willing to bet it is not a small number. All of a sudden these projects are not getting financing and if they get delayed or canceled this is another blow to overall economic growth. Unfortunately the banks have acted like monolines are fine and not insolvent. Well the market is starting to say that is a lie which leads to yet more dominoes falling.