Muni Bonds and Transparency: Improving the Municipal Bond Market
While the muni bonds market is bigger than the stock market in terms of dollars, there’s always been a surprising lack of transparency and regulatory oversight involved. While a municipal bond has always been viewed as a relatively safe bid, the fact remains that there’s far too much money flowing into a market that many worry holds insufficient protection during our national debt crisis.
The Problem
Millions of dollars can be gained or lost with muni bonds. For example, in 2008, there were 136 municipal bond defaults, adding up to an unfortunate sum of $7.5 billion in lost assets. The solution for making the market safer is transparency, which can create an environment less conducive to conflict of interest among issuers.
It’s no secret that municipal bond issuers can be self-serving, and unfortunately, even the smallest of discourtesies they may display (i.e. snail’s pace disclosure rates) can hurts investors majorly. There’s currently not a whole lot in place to stop the big issuers from reaping profits through dubious means in an unchecked municipal bond market.
Fixing Muni Bonds Corruption
Thankfully, the Securities and Exchange Commission is stepping in to examine the flawed muni bonds market in an attempt to add some structure, increase overall safety, and bring some good old fashioned justice to issuers who’ve long enjoyed free range to practice, and profit from, dubious conflict of interest policies. Serving as a not-so-shining example, the SEC is currently investigating Moody’s, a ratings agency that’s been known to regularly pass out high grades to the same entities that pay them.
These hearings are largely motivated by the recent Goldman & Sachs scandal in which the company is alleged to have sold junk bonds to major clients while also betting against the bond in order to cash in when it crashed.
The primary buzz word of enactment being thrown around by The SEC is “transparency," and while many investors may feel the agency has dropped the ball in the past, particularly in their handling of Bernie Madoff, largest Ponzi schemer in history, and Allen Stanford, most should agree that less opacity and more oversight is precisely what the municipal bond market needs.
The bottom line is that muni bonds need to be held to the same regulatory standards that the stock market features before investors can feel safer about bringing their money to a bond manager.