Credit Crisis hits Main Street
Bond market woes make municipal borrowing more expensive and that could mean higher taxes and fewer services.
NEW YORK (CNNMoney.com) -- When Wilkes-Barre Mayor Thomas Leighton hears about the troubles afflicting bond insurer Ambac Financial Group, he worries whether his Pennsylvania city can renovate a blighted park or repair the sewer system.
Wilkes-Barre, which suffers from a weak BBB credit rating, depends on bond insurance to issue municipal bonds at favorable rates. If Ambac were to lose its AAA rating and its credibility, it could mean higher taxes, fewer services and lost jobs for the people of Wilkes-Barre.
"Without affordable funding, projects don't get built, streets don't get repaved," Leighton said. "It affects the people driving on those roads and the people paving those roads."
The credit crisis that began in the subprime mortgage market last year has now spread to municipal bonds. Governments and public authorities face steep increases in borrowing costs because investors are losing confidence in the credit markets and the companies that insure the debt.
Public officials nationwide are now weighing whether to restructure their debt to lower rates - if they have good enough credit ratings - or to ride out the storm with the hope that investors will return. However, some are concerned they may have to raise taxes or cut services to balance their budgets.Read Rest of article
