Wednesday, December 22, 2010

Meredith Whitney: Muni Defaults, Social Unrest Ahead

A wave of defaults by state and local governments in the coming months will spark a selloff in the municipal bond market, hurting US economic growth and stocks and causing social unrest as governments are forced to lay off workers and cut back on services, well known financial analyst Meredith Whitney told CNBC Tuesday.

Responding to the uproar over her "60 Minutes" interview broadcast on CBS Sunday night, Whitney defended her prediction that at least 50 to 100 cities and towns could default on their debt as states and the federal government cut back on financial support.

Muni experts, including an analyst from Standard & Poor's, dismissed her predictions, saying the numbers don't add up.

"I appreciate that the reaction is so violent," she said in a live interview with CNBC. "I didn't put the debt on these states. We're looking at the numbers. This is how it plays out."

The big problem is that cash-strapped states will no longer be able to provide the financial support to municipalities as they have in the past, said Whitney, who is CEO and founder of Meredith Whitney Advisory Group.

"States clearly have been funding municipal governments—for now up to 40 percent of their total expenditures," she explained. "As the states become more compromised from a fiscal standpoint, that funding is going to end."

Wave of Muni Defaults to Spur Layoffs, Social Unrest: Whitney


At 12/23/2010 7:49 PM, Blogger 45north said...

Meredith Whitney - my heroine. Municipal defaults are very serious. I like Governor of NJ Chris Christie. A person in such a job has a hard time just staying sane. He seems to be doing a good job.

At 12/25/2010 4:24 PM, Anonymous Michael said...

The Fed has 2 options -

a)Let the states collapse or

b)Print money to bail them out. This will result in collapse, too, as the value of the currency will be debased thru monetization.

America is becoming a banana republic.

At 12/25/2010 8:48 PM, Blogger 45north said...

so Michael not being thoroughly familiar with the US here's my question:

can the Federal Reserve give money to the states? maybe it can in the form of loans?

I'm guessing that it needs Congress?

At 12/26/2010 8:26 PM, Anonymous Michael said...


The Fed can lend money to anyone it wishes. It is a private bank, not part of the US gov't, and is run by and un-elected, unaccountable body. It can lend money to states or counties, and it can buy the junk debt that many banks are holding. With the last QE2, it created 600 bil. to purchase Treasury debt, and 300 bil. to buy toxic assets, which are junk investments like mortgage backed securites and collateralized debt obligations, that banks were holding.

The problem is that when it prints trillions of dollars, it devaules the currency. This is reflected in the increase in the prices of gold, silver, oil, corn, grains, and other commodities.

Here is a good article on the Federal Reserve.

The fed prints 9 trillion to buy "toxic assets".

At 12/26/2010 8:52 PM, Blogger 45north said...

I suppose the Federal Reserve figures there is no God

it's in for a surprise!

Happy New Year!

At 12/28/2010 3:13 PM, Anonymous T Z said...


How many other central banks are just like the US Federal Reserve in the entire world?

Answer: Zero

All central banks in the world (about 1 per country), the issuer of currency and originator of monetary policy, are owned and operated by the government. Using different degrees of control. But only the US Fed is run completely independently, by law, where even Congress is not allowed to supervise it, not to monitor it, not to see its books or actions.

The ownership shares of the Fed is 100% owned by a few big member banks, where their CEOs sits on the governing boards. The biggest of the regional Feds, the NY Fed, is so powerful that only it can perform 'open market operations', i.e. execute the policies and decisions of Benanke. And who are the actual people/banks doing these trillion-dollar open market operations? Yes, the big NY banks, who of course will take in their share of fantastic profits doing the work on behalf of the Fed. Some calls it the ultimate corruption.

A few huge banks, mostly in the Manhattan, control the Fed. The Fed has been given by Congress the mandate, power, and complete independence to bail out its employer - the member banks.

The entire world has rejected this kind of central bank setup, yet it is alive and well in the USA. Why? Because it was setup during the first decade of the 20th century under the situation and politics of the time. (And that was even before the Russian revolution.) Under the powerful arms of JP Morgan and the oil tycoons of the time, they gave Congress an ultimatum: Give us complete powers of central banking or we will crash the economy. Once given dictatorial powers, nobody dare to take it away from this de facto fourth arm of the 'government'.

But, as we now see, the private banking system used its vast unchecked powers to crash the economy anyway. And still got bailout! Not even Soviet dictator Josef Stalin enjoyed this kind of treatment.

At 12/28/2010 4:48 PM, Blogger 45north said...

T Z: A few huge banks, mostly in the Manhattan, control the Fed.

Intentions are important - what are the intentions of the Fed?

I have followed Danielle Dimartino for a good while now - here's an article she wrote:

She has always given me the impression that she has the welfare of the American people at heart.

At 12/30/2010 5:32 PM, Anonymous Anonymous said...


Post a Comment

Links to this post:

Create a Link

<< Home