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9:00 AM EST, Monday, March 23, 2009. A hummingbird has built her nest next to the front door of our rented house in La Quinta, California.

She is nesting two tiny white eggs. Each day we watch for the new hatchlings.

While the economy (and our government) act weirdly, our hummingbird tells me life continues.

They're running bus tours of AIG executive homes in ritzy Fairfield, CT.

AIG exec James Hass' home on top. AIG exec Douglas Polling's home on bottom. Both in Fairfield.

Our government paid $173 billion for 80% of AIG, . Our Congresspeople are outraged over $165 million of bonuses. There's a lot more to be outraged over -- like who got the $173 billion. At the top of the list -- surprise, surprise -- is Goldman Sachs, the same place our previous Treasury Secretary, Hank Paulson came from.

Chart from the Economist.

Personally I'm not outraged by the bonuses or the payments. I'm outraged by how badly our adminstrations -- this one and the previous one -- have bungled the financial crisis. When I first heard the phrase "systemic meltdown," I knew we, the American public, were about to be sold something fast and something very expensive.

Washington doesn't run businesses for one very good reason. It can't.

The sad part for all of us is that so much of our investing lives are now basically controlled by bureaucrats spending vast quantities of our money (and our children's money) in dubious ways. Should I be surprised that our money is ending up in Wall Street executives' pockets?

Washington is no match for the smarts of Wall Street.

This morning, futures are up. Bonds are down. Last Friday the market was down. Bonds were up. This is not easy to play, though my friends continue to gamble with "cheap" bank stocks, like American West Bancorp (AWBC), up from 30 cents on March 6 to 90 cents last Friday. The bank is desperately undercapitalized. But, perhaps it will follow Citigroup's bounce -- up from $1 on March 6 to over $3 early last week, now down to $2.60. Can I play this? No! Do I think bank stocks are going higher? Answer: stranger things have happened.

So buy muni bonds? They're safe. Historically they've been safe. But the black swan has arrived -- dramatically falling revenues driven by huge jobless, lower sales taxes, etc. Worse, munis are a black hole for many investors. There's no public market. Information is scarce. The moral of the following story -- from Gretchen Morgenson of the Sunday business section of the New York Times -- is buyer beware.

Fair Game
Red Flags That Muni Investors Can’t See

HAMMERED by turbulent stock prices, investors have retreated in recent months to the relative safety of good old municipal bonds. Trading in this $2.7 trillion market rose 22 percent in 2008.

Unfortunately, investor protection in this arena is so spotty that there is potential for much mischief.

Full disclosure, that bedrock of fair securities markets, is the heart of the problem facing municipal investors. Indeed, municipal issuers often fail to file the most basic reports outlining their operating results or material changes in their financial conditions.

Even though hospitals, cities and states that borrow money are required by their bond covenants to make such filings, nondisclosure among the nearly 65,000 issuers is common, municipal market authorities say. One out of two issuers is more than a year late in its filings, according to DPC Data, a company in Fort Lee, N.J., that collects information on municipal securities transactions. One out of four is chronically delinquent, by three years or more.

You may not be surprised to learn why better disclosure falls through the cracks in the muni bond market: lax regulation. For example, legislation from the 1970s restricts the Securities and Exchange Commission from going after issuers that do not make required disclosures; the commission can spring into action only if fraud is suspected.

(Some fine print: The S.E.C. can take action against brokerage firms that underwrite muni bonds if the brokers let an issuer sell debt without being up to date on filings for the most recent five years. But such actions are unusual.)

With the S.E.C. largely on the sidelines, disclosure enforcement in the muni market is left to participants. And guess what? They don’t really want to police themselves very closely.

“Monitoring the disclosure requirements is left to individuals trading the securities, the investors and the dealers,” said Thomas Doe, chief executive and founder of Municipal Market Advisors, an independent strategy and data firm in Concord, Mass. “There is little penalty to be suffered for not complying.”

INVESTORS are the obvious losers in this setup. Especially at risk are individual investors, according to a recent study by DPC Data. The study has been supplied to Congress, which is considering whether the regulatory apparatus in the muni market should be changed.

DPC Data is one of four firms recognized by regulators as municipal securities information repositories. For the study, Peter J. Schmitt, DPC’s chief executive, examined trades that involved issuers that had recently filed so-called distress notices, indicating that they were experiencing financial problems.

Mr. Schmitt found that an alarming number of these beleaguered issuers’ securities were purchased by individual investors at nondistressed prices — 100 cents on the dollar (known as par value) or higher. This indicates that brokerage firms executing the trades may not have been aware of the issuers’ troubles or failed to give investors full disclosure about them, Mr. Schmitt said.

“The fact that these rules, which were meant to stimulate disclosure, have been swept under the rug and that the market has been allowed to go forward on poor and inconsistent information doesn’t say a lot about how assiduously regulators are pursuing investor protection,” Mr. Schmitt said.

It comes as no surprise that defaults and other stresses on municipal issuers rose significantly in 2008 as the credit crisis deepened. Some 348 distress notices were filed last year, up from 187 in 2007.

Although the economy was tanking, DPC data found that almost 28,000 trades took place in securities that issued a distress notice at some time during the year. Some 9,643 of those trades were sales to customers, both institutions and individuals; more than half of them — 5,798 — were bought at par value or higher.

Mr. Schmitt dug deeper, analyzing how many customer purchases were made after a distress notice was filed by the issuer. He found 1,782 such trades, of which 667 were sold at par or more.

Obviously, when evidence emerges that a debt issuer is under stress, one would expect the price of its bonds to fall. And yet hundreds of trades of exactly this kind of debt were priced at par or higher, which Mr. Schmitt finds troubling.

Other interesting details emerge in his study. For example, October was the biggest month for sales of distressed bonds to customers at par or premium prices. And 41 percent of the 667 purchases in distressed bonds appear to have been made by small investors, indicated by the size of each trade — $50,000 or less.

The issuers behind almost half of the 667 issues tracked by Mr. Schmitt had not filed financial statements in either 2008 or 2007, he said.

Failure to enforce disclosure rules in the municipal market “has created a no-penalty environment,” Mr. Schmitt said, “that leaves investors defenseless against questionable practices by dealers.”

Testifying before the Senate Banking Committee on March 10, Mr. Doe of Municipal Market Advisors said muni investors needed more protection. He recommended that Congress require the S.E.C. to oversee bond issuers’ compliance with disclosure requirements and identify those that are not following the rules.

Conceding that this would be an enormous task, Mr. Doe suggested that the S.E.C. take over the Municipal Securities Rulemaking Board, the entity established by Congress in 1975 to devise rules for brokerage firms and banks that sell and trade municipal bonds. The board is a self-regulatory organization and is already subject to S.E.C. oversight.

If the S.E.C. integrated the rulemaking board’s operations, its fees from bond transactions would offset the costs of increased oversight. Last year the board generated around $20 million, Mr. Doe said.

It could not be more basic: investors need up-to-date information in order to make astute decisions. The DPC Data study certainly seems to indicate that investors are often in the dark on distress notices and may be paying up when they buy bonds of troubled issuers.

“Investors need to know what is going on with an issue they are purchasing whether directly or through a managed fund,” Mr. Doe said. “Pointing out the flaws in these transactions highlights the problems with current regulation.”

Mary Schapiro, the new head of the S.E.C., already has a lengthy to-do list. Here’s hoping that disclosure enforcement in the crucial and increasingly popular municipal market ranks high on it.

Don't bother with Internet Explorer 8: I tested it. It was hard to install and took too long to install. And when it was finally done installing (and messing with my Windows XP operating system), I kept thinking "this is like Firefox, only less flexible." In short, stick with Firefox, which you can download for free from here.

Went to the Indian Wells tennis yesterday. Finals are never very interesting, since everyone is so exhausted from a two-week tournament. My trusty Canon G10 recorded some of the fans. Amazing to me how many of them ate their way through the matches.

Russian impressions. My friend Lucky Marr emails me, "Those of you who have visited Russia will no doubt agree there are no surprises in these photos. The only surprise to me was why in the hell we ever worried about them in the cold war!"

NPR weekend radio broadcast.
NPR Interviewer: Tell us some good news in the world of finance.


NPR interviewer: Where do you put your money?

Answer: Because I work for the New York Times, I have to put my money in a blind trust. Hence, the good news it that I don't know how much I've lost.

More bad financial jokes.

+ Did you hear about the Polish homeowner? He paid his mortgage!

+ This shipping market is so bad, the only guys taking ships are the Somalians.

+ Congress. Oh I am sorry you wanted a funny joke.

+ Resolving to surprise her husband, an investment banker's wife pops by his office. She finds him with his secretary sitting in his lap. Without hesitation, he starts dictating, "...and in conclusion, gentlemen, credit crunch or no credit crunch, I cannot continue to operate this office with just one chair!"

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.