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Credit crisis in Wilkes-Barre

2008-02-25 15:43:58 (GMT) (Caymanmama.com - Business News)



New York: CNN has reported that Wilkes-Barre, which has been suffering from the weak BBB credit ranking, highly depends on the bond insurance for issuing municipal bonds at favourable rates. In case Ambac Financial Group loses its credibility and its AAA credit ranking, the situation will lead to an increase in taxes, a decrease in services and unemployment among the masses of Wilkes-Barre. The Mayor of the city, Thomas Leighton, said, “Without affordable funding, projects don’t get built, streets don’t get repaved. It affects the people driving on those roads and the people paving those roads.”
The crisis of credit that had begun last year in the sub-prime mortgaging market has now entered the field of municipal bonds. Public authorities and governments are facing sheer boosts in cost borrowing as investors have lost confidence in credit market and debt insuring companies. A lot of bond insuring companies are in danger to lose their AAA ranking because they are exposed to the securities linked with sub-prime mortgages.

Now, investors fear that insurers will be short of capital for covering their potential defaults, therefore, guarantees are not reliable, and this short of trust in bond insurers has created havoc on weaker and smaller municipalities. Because the insurance is not trust worthy, the governments have to pay higher rates of interest to attract the investors. “The result of a destabilized bond insurance market is that some governments, already facing reduced income due to the slowing economy, will have higher borrowing costs,” says Eliot Spitzer, New York Gov., giving evidence before the Congress during last week.



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