The meltdown that wasn't.

• Position: Perspectives - Evaluation of municipal bonds

The Muni Meltdown That Wasn't, a Bloomberg Brief, discusses the glut of "inexpert testimony" that started in 2010, and it questions why the opinion of non-experts was taken so seriously--especially given that none of their dire predictions about an imminent municipal bond market collapse came to pass.

First, the brief looks at what actually happened, including "the year of hysteria, culminating in Meredith Whitney's '60 Minutes' prediction. In 2011, 133 issuers defaulted on $6.56 billion in municipal bonds, according to Municipal Market Advisors." This count includes "tobacco bonds and the munis backed by American Airlines," quite a few entities such as sanitation and irrigation districts, and issues in both actual and technical default. The payment default figure was $6.56 billion in 2011, $1.94 billion in 2012, and $8.54 billion in 2013. High-profile municipal bankruptcies are not ignored, including Detroit, which set a new record.

Flow-of-funds statistics indicate that none of the predicted muni meltdowns happened, leading to the question, what did happen? The brief's answer: "States and municipalities, with a few exceptions, muddled along. Federal assistance in varying degrees and interest-rates held near zero by the Fed eased the way."

After analyzing predictions, hyperbole, and facts, the brief provides five major lessons learned:

1. The municipal market is particular and specific to a remarkable degree. Hysteria proponents either ignore or didn't know about the incredible variety of securities and credits sold generically as "municipal bonds." They generalized.

2. Beware inexpert testimony; not all points of view are legitimate and credible.

3. Many of the dire predictions about the market were politically informed.

4. Municipalities...