F. George McDuffee wrote:
On Tue, 20 May 2008 12:29:21 -0700, "John R. Carroll"
wrote:
snip
My bet is on a CDS default resulting from a major municipal or
IDB default, possibly in California. Most likely not as a direct
result, but the consequence of the municipal bond insurer
attempting to exercise the CDS they have which "insured" the
bond, which exposes how "bare the cupboards are" and triggers a
mass stampede for the exits.

That's a possibility but the next round of mortgage defaults on
mortgages known as Alt-A's is where I'd place my money.
Sub primes were a small fraction of the entire mortgage market.
snip
==========
Unfortunately one does not exclude the other, and indeed one may
even trigger/promote the other(s).

Its always dangerous to extrapolate from a single data point, but
this could be the first drops of water seeping through the cracks
as the dam bursts, although Vallejo is not a major municipality.

Like Orange was?

There are a lot of cities here that are in trouble. Cities, Counties and the
State.
Through the use of ballot initiatives, we've largely removed the
legistlatures ability to maneuver either in advance of or during a financial
calamity.
The State is seeing a tremendous decline in revenues. All of the churning in
the real estate market generated a tremendous inflow of revenue. A real
surplus. Unfortunately, it can't be saved. That's the law here. No "rainy
day" funds allowed.

Because of this, and many other mandates from the voters, the State is just
plain not paying the muni's what is due.
There just isn't any money.

Think about this. The Governor is trying to close a budget deficit that
can't be precisely estimated by selling future cash flows from the State
Lottery Commission to PE funds.
It isn't that people in charge don't know what to do. It's that their hands
have been tied by the law.

--

John R. Carroll
www.machiningsolution.com