Inside Financial Services


Print Friendly, PDF & Email

Whoa. What happened to Meredith Whitney’s fawning press coverage? First, that hit job from Bloomberg, and now this:

Ms. Whitney’s choice to make the public finances of states and cities the focus of her study is roughly analogous to that of a college student changing his major from electrical engineering to 16th-century Japanese art in the middle of the second semester of senior year (if such a decision could be somehow worth tens of millions of dollars). In interviews, Ms. Whitney has repeatedly attributed fateful life decisions-majoring in German history, working on Wall Street, surely most aspects of her workout regimen-to an abiding desire to involve herself in what she believes to be the most “competitive” fields. Which makes this shift in focus all the more puzzling, since judging the credit risk of the Mendocino sewer system vs. the state of Oregon vs. the legion Montgomery counties has historically proven time and again a relatively lonely (and thankless) way to spend one’s working hours. After all, virtually none of the 89,000 or so separate issuers of American state or municipal bonds has ever exhibited an even remote danger of defaulting. [Emph. added]

Proviso! This level of snark does not automatically mean Meredith Whitney does not know what she’s talking about regarding municipal finance. I’ve read about all those public-sector union contracts and municipal pension obligations. You’ve read about them, too. The numbers sound big. Watch enough Chris Christie videos, and you get the sense that sooner or later, any number of states and municipalities will no longer be able to pay them. I’m just struck at how quickly the media seems to be switching from hanging on Whitney’s every word to, apparently, dismissing out of hand whatever it is she has to say. That’s what you get for getting into a spitting contest with Bill Gross. . . When Maria Bartiromo stops calling, she’ll know there’s a problem. . .


  1. Mr Bill

    A drop in realestate values did affect banks and a natural extension of that is the effect they are having on state and local tax coffers. This is not going from engineering to Japanese art. People who have a vested interest in managing muni portfolios are seeing investors head for the exits and are trying to jawbone them to stay. As mortgage investments used to be considered AAA not all investors either in or near retirement feel the risk of sticking with muni debt when corporate debt and even equities offer more transparency and an ever increasing level of credit quality. The smart thing to do is to be flexible, avoid muni paper from states in denial and get back in after the finances begin to improve.

Comments are closed.