Meredith Whitney: Muni Defaults, Social Unrest Ahead

By Greg Brown|Money News

More hard times ahead? "We haven't really focused on the weakened state of municipalities and state budgets. So I think we're in for many, many job losses…" says Whitney.

Meredith Whitney, the former Oppenheimer analyst whose dead-on predictions on the banking crisis vaulted her to fame, stands by her controversial new call: Massive unrest across the country as the municipal-bond market sells off.

Whitney appeared Sunday on “60 Minutes” to predict defaults in as many as 100 cities and towns, followed by European-style public demonstrations as cities slash budgets in response.

“States clearly have been funding municipal governments — for now up to 40 percent of their total expenditures,” she tells CNBC

“As the states become more compromised from a fiscal standpoint, that funding is going to end.”

She defended the reaction of ratings agencies and others, who called her predictions overblown.

“I didn’t put the debt on these states. We’re looking at the numbers. This is how it plays out,” she said, adding that the federal government is also unlikely to bail out broke states.

Hoping to get ahead of a ballooning public spending problem, Republican New Jersey Gov. Chris Christie has signed into law a cap on pay increases for firefighters and police in that state when contract negotiations break down.

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Dick Larkin Tells FBN that Meredith Whitney’s Muni Bond Prediction is Ludicrous

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Larkin is betting his career that Whitney is wrong.

Director of Credit Analysis at HJ Sims & Co. Richard Larkin spoke with Fox Business Network (FBN) Senior Correspondent Charlie Gasparino about Meredith Whitney’s prediction that there will be “hundreds of billions of defaults of municipal bonds.”

Larkin said the prediction was “ludicrous” and he was “spitting mad” about her comments. He assured Gasparino “that aint going to happen.”

Here is an excerpt:

On whether he believes there will be more municipal bond defaults:

“There will be more defaults. But nothing coming close to hundreds of billions of dollars. I am putting my career on the line by saying that aint going to happen. If she’s right she will be a hero and I will be out of business. I’ll put my career on it.”

On Meredith Whitney’s prediction of municipal bond default on 60 Minutes:

“When I saw 60 Minutes I was spitting mad. To predict hundreds of billions of defaults of municipal bonds would be to make an assumption we are going to have something worse than the Great Depression of the 1930’s. Her prediction is ludicrous. I think it’s irresponsible. It’s damaging a lot of peoples portfolios.  I know cities and states are having problems but I have seen them perform through six recessions and this recession is clearly the strongest and the worst since the Great Depression and yet  I don’t believe there are going to be wholesale defaults.”

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