Top 5 Stories Week of April 17

1. Chicago Fed (May 2011 Letter): Richard Mattoon of the Chicago Fed provides a useful (and brief) overview of the state of municipal finances and argues that the market is over-estimating the risk of muni debt defaults and bankruptcies. Unfortunately and as Richard himself notes, unfunded muni pension obligations sit off balance sheet and the impact on local governments of funding these obligations is difficult to estimate. 

2. Josh Noble (Financial Times): In a week when S&P cut the outlook for US debt to ‘negative’, Josh Noble’s review of the move by Dagong (China’s official ratings agency) to downgrade the US from AA to A+ is prescient. Definitely worth reading.

3. Michael Burry (Distressed Debt Investing): Michael Burry (yes of short-sub prime/ Michael Lewis fame) recently spoke at Vanderbilt. The interview has been available online for a while but DDIC recently transcribed the entire address which includes a lot of content that the video didn’t pick-up. It is a damning critique of the government and private sector actors who continue to artificially inflate the property market. Here is his final sentence, “So all that said, I might recommend opening a bank account in Canada.” [Applause]. 

4. Judy Ward (Institutional Investor): Judy previews accounting changes expected from the Government Accounting Standards Board (GASB) in June of 2011. It appears likely that rather than applying the risk-free rate to value liabilities as the market and logic dictate, pensions may be permitted to continue using optimistic self-set discount rates to the funded portion of their plans and a high-quality muni bond index rate for unfunded obligations.

5. Fran Denmark (Institutional Investor): Fran takes a detailed (12 page) look at evolving risk management practices among the endowment community. There is not much ‘new’ in here but there is a lot of detail about risk management practices across various endowments.