Democrats Look to Extend Federal Support to Muni-Bond Market 0 Comments Add Comment ShareThis | Respond to Editor | Print Rich Edson FOXBusiness The municipal bond market is in trouble, and Congress wants to grant it a federal guarantee. Investors are concerned about ability of state and local governments to pay off their municipal bonds, and lately, some governments have even been experiencing trouble raising money through bonds. Congressional Democrats will soon push measures for the federal government to reinsure, help purchase and regulate municipal bonds, according to Congressional staff and industry sources. The House Financial Services Committee is scheduled to consider a series of bills that would provide massive government backing and intervention to the municipal bond market. Draft legislation is expected to be introduced as early as this week. A full committee hearing on municipal bonds is tentatively scheduled for Thursday, May 21, according to an internal staff schedule. The measures, if passed, would take some of the same tools out of the governmentâs bailout kit and apply them to states and municipalities. This latest intervention would: Create a liquidity facility through the Federal Reserve to purchase municipal bonds, much like what the Federal Reserve does with mortgage-backed and federal government bonds. Form a temporary federal government program to reinsure municipal bond insurers. Almost all municipalities buy bond insurance because it boosts their credit ratings. The cost of the insurance is usually lower than the higher interest payments that come with a lower credit rating. If the insurer runs into financial trouble, then the credit ratings on the municipal bonds drop because there is doubt about the insurance. Government backing would eliminate that concern. Provide additional regulation for financial advisors to municipalities. Many, including former Securities and Exchange Commission Chairman Arthur Levitt, have been calling for stronger oversight of the municipal bond market in the wake of pay-to-play bond scandals, in which banks and advisers have made gifts or political contributions, and received financing jobs along with the fees for those jobs. House Financial Services Committee Chairman Barney Frank (D-Mass.) is leading the effort and has long touted his investments in municipal bonds that finance public projects as a civic duty.