States Aren’t About to Default on Debt

It’s not commercial real estate or credit-card debt or Greece. It’s the wave of municipal defaults that are expected to hit as tax revenues slow down and cities will be forced to declare bankruptcy. And now that we are a country of debt experts (people are coming out of the woodwork to say they could have easily predicted the subprime fiasco), everyone has an opinion.

There are big differences, however, between municipal debt and subprime debt. Subprime debt in the later vintages (2004-2007) was often lent out fraudulently and with few assets to back up the debt. Municipalities have assets and the ability to collect taxes to create revenue. Homeowners don’t.