Let me begin my blog today by telling everyone reading this that I am not a financial genius or wizard. I don’t give stock tips. I do not make investment decisions for the City. Now, with that clearly understood, I’m going to try to explain the U.S. economy….
Not really. But I will try to explain one aspect of the recent financial market turmoil and its impact on the City of Eden Prairie.
MBIA and AMBAC are two insurance companies that offered insurance in the bond markets that allowed lower credit risks to offer their bonds with better credit ratings. The purpose of the insurance was to allow the party issuing the bonds to issue them at a lower interest rate than they would have been able to sell their bonds without insurance. Like many financial institutions during the past five years, it seems that MBIA and AMBAC involved themselves in risks associated with the mortgage markets, and now they are in trouble. Here’s a link to a good article on the issue at CNN/Money: http://money.cnn.com/2008/01/28/markets/bond_insurers/?postversion=2008012812
The City of Eden Prairie does not buy bond insurance when it issues municipal bonds. We don’t have to. The City has the best bond rating available from Moody’s Investor Services: the coveted Aaa rating. The triple A rating is a result of a combination of steady political leadership, competent staff leadership and a strong local economy. Our local taxpayers benefit from the triple A rating in many ways – one of them being that we don’t have to buy bond insurance to get the best interest rates when we sell our bonds.
Another benefit from the triple A rating is that we are not mixed up in the turmoil surrounding MBIA and AMBAC right now. In fact, the general market turmoil is making municipal bonds a very good investment right now. Here’s another link from CNN that talks about that: http://money.cnn.com/magazines/fortune/fortune_archive/2008/02/04/103006904/index.htm
