.floatimg-left-hort { float:left; } .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;}
Dear Mr. Berko:

Dear C.S. & H.R.:

The Economic Recovery Act of 2009 created a new form of municipal bond called Build America Bonds (BABs). I think BABs are a supercalifragilistic idea, and I’m as certain as morning that they are not the product of the musings of any member of Congress. There’s no possible way any member of Congress could be bright enough to conceive this expialidocious idea.

Eleven members of Congress claim this as their idea, plus ex-Vice President Al Gore.

However, if I had to ascribe authorship of the BABs concept, I would also suggest Volcker (probably the greatest Federal Reserve chairman of all time), who is one of President Obama’s economic advisers. In fact, several members of Congress with whom I occasionally visit also believe that Volcker is the brains behind BABs, but Volcker denies authorship.

I can’t give you the answer you want, but I can tell you with absolute certainty that it was not Pelosi. She is a nice lady, but if her brains were taxed, she’d get a refund.

Build America Bonds, the new wrinkle in government bonds, are issued by state, county or city governments to help finance essential projects at low borrowing costs. The attraction is a federal government subsidy: (1) The BAB buyer gets a federal tax credit of 35 percent of the interest income for each year of the BAB’s life, or (2) the Department of Treasury directly pays the issuing municipality 35 percent of the interest cost.

Because the interest is taxable, BABs are issued with coupons that are higher than comparable municipal bonds with identical maturities and credit ratings. However, contrary to what you have been told, neither the principal nor the interest is guaranteed by the Fed.

BABs have been a big hit with investors. In the past dozen months, it’s estimated that nearly $31 billion in BABs have been issued. During the first issue month, California sold $5.3 billion, the New Jersey Turnpike Authority issued $1.5 billion, and both issues were immediately oversubscribed.

There is a secondary market for BABs, and it’s beginning to compete with traditional tax-free debt, reducing the supply of old-fashioned municipal bonds.

Most brokers can easily provide quotes on BABs with varying maturities and can buy them for your accounts. However, the market is very competitive, and small investors like us will compete with mutual funds, institutions and wealthy investors for supply. Unfortunately, this temporary shortage gives most brokerages an excuse to charge small investors commissions between 2 percent and 5 percent on their purchases.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service