A front-page article in yesterday's edition of The New York Times reported that many local governments have been effectively shut out of the bond markets for the past two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a major source of jobs and stability.
Analysts said the dysfunction in the municipal bond markets "appeared to signal the end of an era of relatively cheap money for governments and, probably, the start of an era of tough choices for communities." When the market starts moving again, they observed, it will look a lot like the municipal bond market of 10 years ago, before the arrival of financial wizardry in the form of structured-finance products, which lowered borrowing costs but added big new risks. Instead, governments will probably be issuing bonds with fixed, higher rates of interest.
Meantime, cities will be doing lots of belt-tightening--forcing them to lower the level of service they provide, cut payrolls, or raise taxes and fees.
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