Moody's Negative Municipal Bond Rating - A Noteworthy Development

Seeking Alpha - April 12, 2009

Following the revelations of the past two years, there's no doubt that the credibility of the big credit rating agencies leaves much to be desired. Even so, the fact that one of the majors has put every single municipal bond on credit watch, as Clusterstock reports in "Moody's Downgrades The Whole Country," is a development worth noting.

The Federal government is still AAA, but every municipal debt issuer is now suspect and shaky according to Moody's.

For the first time ever, the ratings agency placed all munis on negative outlook, a precursor to potential downgrades. Historically, the agency looked at munis individually and considered them to be too diverse to make blanket statements about.

But it seems overspending and the hollowing out of the revenue base is a nationwide phenomenon affecting cities and states everywhere.

And of course the US government is affected by those same phenomenon -- we think the government's revenue expectations remain wildly optimistic, given the slowdown and the collapsing of the income gap -- but alas the Fed still has the printing press and should be able to hold onto its AAA rating for awhile longer.

Meanwhile, New York actually managed to float a bond at a 5.55% interest rate and a 2036 maturity. Who'd have guessed?