"Scranton: When Your City Needs to Go Bankrupt"
Bloomberg article today:
"Scranton’s officials are resistant. It’s not clear what they’re waiting for. The best sign that Scranton needs to go bankrupt is that the actions that would have to be taken to service its bonds, guarantees, union contracts and pension obligations, such as more than doubling property taxes, are unthinkable.Are we on the verge of a wave of muni defaults? How carefully vetted are the bonds in the California muni ETFs like CMF and CXA? Are the 2% yields worth it?
Scranton’s finances only work with big infusions of money from asset sales, borrowing or outside benefactors -- which is to say, they don’t work. This is exactly the situation for which Chapter 9 bankruptcy exists."
How likely is it that you will lose money buying California munis at a 2% yield, either through defaults or rising interest rates? The CXA has an average maturity of almost 16 years.
By the way, it mentions in the article that Scranton was "preparing to float $26 million in bonds, partly to cover the gap in the current year’s budget" when it defaulted on the Scranton Parking Authority bonds and lost access to the credit markets.
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