Wednesday, December 22, 2010
Meridith Whitney: Wave of Muni Defaults to Spur Layoffs and Social Unrest
Responding to the uproar over her "60 Minutes" interview broadcast on CBS Sunday night and highlighted earlier this week on this blog, 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.
Many experts tied to the Muni Bond industry dispute her claims.
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 expounded. "As the states become more compromised from a fiscal standpoint, that funding is going to end."
The federal government is unlikely to bail out the states either, added Whitney, because the cost—which she put at $1 trillion—would cause a political backlash. "Who in Nebraska's going to want to bail out someone in Florida?" she said.
She also sees parallels with the turmoil in Europe over austerity measures imposed there. Is she correct that European style riots are headed to the US as benefits are cut and state workers laid off?