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Municipality Defaults in 2012 or the Near Future?
In 2010, Meredith Whitney came on 60 minutes predicting a full-scale municipal bond defaults that would take place. She predicted that the defaults would happen in 2010 and her predictions did not come about. However, Whitney’s overall point is spot on. When you look at the fundamentals the municipalities they are in horrible shape.
While municipalities did not do as bad in 2010 as Whitney predicted Municipal defaults did rise 5.5 per year in 2010 and 2011, from 2.7 in the previous 39 years, Moody’s Investors Service says in a report.
When Whitney was asked about her failed predictions she responded by saying “They’re not called technical defaults. It took how long for Greece to become a technical default, so they’re insolvent, they’re not paying their bills,”
“So there’s been every effort on the part of the states to prevent this tidal wave of defaults, which is going to happen sooner or later. It’s happening at an accelerating pace.”
When asked which cities do you think will get hit the hardest Whitney responded, “You have Stockton that is on the brink of bankruptcy. You have five cities, including Detroit, which is on the brink of insolvency. It’s fascinating, because there’s been so much back-room political maneuvering to keep these cities from going bust,”
At the end of the day Whitney said it best, “You’re either willing to see it or you’ll shut your eyes, and if people want to tell me, ‘Oh, I was wrong,’ because this hasn’t played out, stay tuned.” In the future, we will see the effect of frivolous spending by state and local governments and their ability to pay.
