Will Municipal Bond Values Be Affected By Goldman Sachs?
How safe are your municipal bond investments when the large banks are betting against you? In the wake of widespread deficits, and with hovering fear over mass defaults in the bond market, the SEC now alleges that the Goldman Sachs Group, and its vice president, Fabrice Tourre, duped its clients by leading them to believe they were investing in quality muni bonds through fabricated information and ratings, while at the same time withholding key facts that would depict a starkly contrasting scenario. Goldman’s clients naturally believed the Abacus bond values would appreciate, but in reality, this would not be the case.
How You May Have Been Hurt By Goldman
The SEC has since filed a civil lawsuit against the major global bank, claiming Goldman was creating a veritable municipal bond junk pile and selling them off to clients while having other key clients, namely hedge fund manager, Paulson & Company, bet against the subprime securities. Subsequently, the bond values would depreciate and inevitably fail, and in the process, Goldman and cohorts would cash in at their misled clients’ experience.
The largest, most notable Goldman client to have allegedly been duped was ACA Financial Guaranty Corp, which advised banks on choosing mortgages to package into securities; however, these duplicitous actions would also have affected taxpayers, homeowners, and state pension holders, cheating them out of their hard-earned money and savings. With 73% of American believing that Goldman was “somewhat likely” to have engaged in fraudulence, according to a recent Rasmussen Poll, many are questioning if more banks are next in line to be exposed. Will this atmosphere of doubt serve as another nail in the coffin of the American economy and municipal bond market?
Positive Changes for the Bond Market
In truth, many are still optimistic about the safety and security of bond values and our ability to contain economic growth in due time. There are also many analysts who feel positive changes can come out of the upcoming hearings, as The Permanent Subcommittee on Investigations is also set to investigate Moody’s, and how the company can justify giving top grades to risky mortgages. We may also see more strict regulations in the bond market, which would ideally be held to a standard that parallels the oversight in the stock market. This is certainly something that the bond market has been needing, particularly with the aforementioned bond rating company and its ilk having long been allowed to give ratings that don’t accurately reflect true municipal bond values.
Before any changes can occur, investors need to take municipal bond matters into their own hands, investing in the safest bonds while personally looking into yields and prices to determine bond values and assess risk, in order to cultivate the healthiest of municipal bond investments.