Goldman Sachs warns on NJ, CA, WI, FL, OH, MI bonds

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Goldman Sachs warns on NJ, CA, WI, FL, OH, MI bonds

Monday, December 15th, 2008 | Misc |

Bloomberg - Goldman Draws Ire for Advising Default Swaps Against New Jersey:

Goldman Sachs Group Inc., one of the top five U.S. municipal bond underwriters, is angering politicians and public-finance officials in New Jersey, Wisconsin, California and Florida by recommending that investors purchase credit-default swaps to bet against 11 states’ debt.

In the three months since the New York-based securities firm recommended “shorting municipal credit,” the value of the Markit MCDX index of the derivatives’ price more than tripled, to as high as 278.33 basis points from 87.75. A basis point on a credit-default swap protecting $10 million of debt for five years is equivalent to $1,000 annually.

Bets against public debt, once unheard of on bonds considered safe enough for retirees, have soared as the National Conference of State Legislatures projects recession-fueled budget crises will cause $97 billion of shortfalls nationwide over the next 18 to 24 months.

More Goldman Sachs coverage here that details the balance of the 11 states and which ones are having problems specifically due to pensions for public employees.

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