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Just How Many Muni Defaults Are There?

Simon Willms | Stone | Getty Images

We're all used to hearing about how municipal bonds almost never, ever default.

But good data on defaults is hard to come by. Over at Reuters Muniland blog, Cate Long has produced a chart based on information from Income Securities Advisor. As you can see, it shows more than 50 defaults in the first half of 2010. All told, it looks like there were 84 defaults last year.

This is surprising, because Standard & Poor's says there were just three defaults last year. Fitch says there was just one.

What the heck is going on? Very clearly, it's not easy to obtain reliable information on the condition of muni bonds.

"The markets generally rely on credit rating agencies for these numbers. The major raters employ hundreds of municipal analysts, so I’ve assumed they would have the most complete data. Rating agencies don’t rate bonds unless they are paid a fee. So maybe bonds near default stop paying the rating agency fees and never get counted as defaulted?" Long writes.

I had no idea that the number of muni defaults was in dispute. Until this morning, this fact about muniland was an "unknown unknown."

Now I wonder how many more "unknown unknowns" are out there.

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