Gov. Spitzer to give Congress warning about impact of bond crisis

[flashl]

Spitzer warns of bond crisis

New York Gov. Eliot Spitzer (D) was expected to warn Congress Thursday (Feb. 14) that states, cities and nonprofit organizations such as hospitals and museums face new financial obstacles unless problems in the bond market are resolved.

The problem is that investors are beginning to abandon municipal bonds – usually considered one of the safest investments on the market after U.S. Treasury bonds. The reason has nothing to do with the bonds themselves, but with how they’re insured.

But the effects, coming in the wake of the subprime mortgage crisis, could raise borrowing costs for state and local governments.

“The problems in this market will affect many average Americans. It will affect the cost of college loans. It will affect museum budgets. It will affect state and local taxes. And that is just one small portion of the municipal bond market,” according to Spitzer’s prepared remarks for a U.S. House subcommittee hearing on the bond insurance industry.

Stateline