I try to shrink complicated technical issues down to 750 word reports. Although the Fed’s report did make clear that not all bonds are created equal, the focus was on Moody’s and S&P fraudulently “luring” the public to buy risky debt based on phony default statistics.

Luring is a word normally associated with child molesters. This is a road map for litigation against the rating agencies if these are large numbers of muni defaults.

I was all set to buy California muni-bonds in late August 2008 through my investment advisor at the time but after amply research on my own into California’s debt situation and the yield on California muni-bonds, I thought better of it and backed out at the last minute.

Safe to say, I have no regrets. Investing in California muni-bonds is a risky proposition and to the unsophisticated investor, the yield on California muni-bonds seems very attractive. Blinded by the high yield rates,they never bother to understand the caveats attached to buying muni-bonds and especially California bonds.

Financial planners, investment advisors and the lot do a poor job of explaining the details of muni-bonds and all the little gotchas. They will sell you garbage as long as they get a commission on the sale.

I read that article in the WSJ and let me summarize what the author is essentially saying:

Don’t believe what you hear or see. They’re all lies put out by the Wall Street, the Feds and the republican party.

There is no budget deficit in the state of California;

There is no unemployment problem in California;

there’s no truth to the rumors that California cities are going bankrupt; California bonds are the safest investment in the world;

jobs are plentiful in the state of California;

California doesn’t have a spending problem;

California has some of the lowest taxes in the nation and lastly, California would be better of as a one party state controlled by the democrats.

Legislation is pending to finance the building of crematoriums to take care of the state’s republican problem but until then, it’s all Bush’s fault!!

The State is praying that the meat cleaver doesn’t come down on their credit card. They know damn well that the voters will not pass their tax measures if the credit cards get cut up…

This is really a big deal, because the FRNY used the term “luring”. This is the type of volcanic language used regarding child molesters. The FRNY is delegated all securities and derivatives regulation of banks. This “research report” must have been vetted by the most senior Fed staff appears to reflect the Fed’s intention to pull the plug on the muni market.