Reades suggested a topic on recent credit market trends. "MBIA has a liquidity issue, Fitch places on negative watch over 170K muninicpal issues. Banks reporting losses that have never lost money before, even in the Great Depression. California’s debt mushrooms from 4 to 14 billion in 6 months. Florida halts redemptions from its state fund. CA has 90K forclosures in the last two months. A number of midwestern cities are effectivly bankrupt. Anyone see a trend developing?"

A reply, "Where is it going to lead? For now, inflation seems the most likely result, since this will add points to the borrowing costs of a whole lot of local government debt issues or at least discourage refunding of existing ones. All roads lead to the taxpayer."

And another posted, "Not just inflation costs for additional borrowing, but is that borrowing going to happen? With falling tax revenues you have hard choices–continue to delay maintenance on bridges, roads, water infrastructure etc., or cut services like police, fire, etc. Will they cut current service jobs–again police, fire and teachers, or how will they close the shortfall in public pension liabilities?"

And lastly, "I have a feeling those 'secure' pensions will not exist in their current form for very long. Anticipating major defaults on state & municipal bonds in the coming years."

"No raises/pay cuts for govt employees, reduced healthcare and pension benefits. BTW, for those who don’t know, most public employees do NOT have health benefits after retirement (except for those 'grandfathered' in). I’ve seen people argue without knowing the facts here, so just wanted to point that out."

"I think there is no way to avoid a very serious recession/depression beginning in 2008. Actually, the recession is already here on the streets, but the statistics aren’t showing it, yet."

The North County Times. "The mortgage crisis has seeped into the municipal bond market, threatening to drive up borrowing costs for government issuers and reduce the value of investor portfolios, analysts said Friday."

"In order to secure lower interest rates, governments buy insurance policies that raise the credit rating of bonds, which municipalities such as city and county governments sell as debt in order to raise funds."

"Several of the biggest firms that sell those insurance policies are having trouble, because they also insured securities that hold subprime mortgages."

"This week, the three agencies that effectively determine interest rates on bonds by grading credit ratings -- Moody's, Standard & Poor's and Fitch Ratings -- have published reports with negative expectations for four major insurance companies that cover at least 1,088 North County bonds worth hundreds of millions of dollars."

"'This is probably the largest event that has ever occurred for bond insurance companies,' said Howard Mischel, managing director of Standard & Poor's. 'This is sort of like the 500-year storm for them.'"

The Wall Street Journal. "In recent months, bond insurers -- which guarantee the principal and interest payments on various types of debt -- have gotten clobbered amid uncertainty about some messy types of mortgage securities they have backed. The situation is raising questions about whether the insurers are financially strong enough to cover any potential losses."

"Uncertainty about insurers like these is hurting the prices of the bonds they insure -- including muni bonds, even though they remain relatively safe, given the rarity of their defaults."

"Some mutual-fund managers say they have never seen such deep price discounts. For a more aggressive bond investor, this could spell opportunities to lock in attractive muni-bond deals."

"'We've kind of gotten sucked into this whole flurry of credit concerns that's unduly affected some very high-quality securities,' says Reid Smith of the Vanguard Group."

"Monday, Mr. Smith's team noticed that California Economic Recovery bonds insured by bond insurer Financial Guaranty Insurance Co. were trading at a lower price, and 0.05 percentage-point higher yield, than a similar bond without insurance."

"Nuveen Investments municipal-bond-fund manager John Miller says he has similarly been buying MBIA-insured bonds now trading at attractive prices. 'Insured municipal bonds in general over the last several weeks have continued to get cheaper,' he says, adding: 'This is the widest spread I can recall,' referring to the difference between certain yields."

"In particular, offerings such as some investment-grade hospital bonds have been hammered, he says."

"'Right now, you have muni bonds that are yielding what Treasury bonds are yielding, despite the fact that they give tax-free income,' says Lewis Altfest, a New York-based fee-only planner. Thus, on an after-tax basis their yields are much higher."

"Despite the buys in the municipal market, so far investors aren't biting. This past week, municipal-bond funds reported their sixth straight week of net outflows -- the longest string of consecutive weeks in two years."