Saginaw County, which is more than an hour’s drive north of Detroit, and Genesee County, about the same distance away, cancelled bond offerings, supposedly because the collapse of Detroit and the fallout that crushed its bond holders may have extended far from the city. This should remind investors about how poorly experts vetted the risk of complex mortgage-backed securities six years ago. Some of these instruments were fairly safe. Others were toxic. Brilliant researchers at big financial firms should have been able to tell the difference, but they did not bother.

Not far from Detroit are some of the wealthiest suburbs in the nation — some proof that not all municipalities are the same, even if they nearly abut one another. Saginaw County may not be home to many millionaires, but the rating of its bonds is an excellent Aa3, according to Moody’s. That may not give much comfort, since Moody’s missed the risk of mortgage instruments. Maybe that lesson has made the agency more cautious now, and better able to access risk.

The flight from the debt of the cities around Detroit is an example of emotion over analysis. Credit experts know the difference between Detroit and Saginaw County very well. They might even advise investors that worry about Detroit makes the Saginaw County debt unexpectedly inexpensive, which makes owning it a particularly good deal.

According to the Detroit News, Michigan Governor Rick Snyder’s office released this statement:

We acknowledge there are concerns out there, though this kind of bond timing generally happens on a regular basis anyway and ultimately it should all work out. These are and should be separate issues. Detroit is an incredibly unique situation and we believe rating agencies should look at each entity individually and judge them on their own credit rating and history.

The statement is absolutely true. It is unfortunate that the credit rating agencies and research experts at institutional investors do not step up and say so. A successful sale of Saginaw County bonds would show people who are critical of the research prowess of real experts that they are wrong because these experts can separate the wheat from the chaff.

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