Meredith Whitney

[Tilted (Premo)]

Did anyone catch the piece on 60 Minutes last night (after the great Jets-Steelers game) wherein Meredith Whitney was interviewed regarding the likelihood of a large number of municipal bond defaults in the next year or so?

If you want to find someone to say that X is going to happen - where X is some startling and particularly worrisome event that is predicted to happen within a somewhat short time frame - there's a good chance you can find someone to say that it will. But, this was Meredith Whitney saying this - and that carries some real weight with me. She's probably one of the most respected analysts out there, and deservedly so I think. I think I'd credit what she has to say more readily than I would what Warren Buffet has to say. If she tells me there's a real, imminent, and widespread problem in the municipal bond market, I believe her.

[Tilted (Premo)]

Here's the piece I referred to.

[hvp05]

Originally Posted by Tilted

If she tells me there's a real, imminent, and widespread problem in the municipal bond market, I believe her.

Given that you are the Forum's analyst, you're saying we should be doing a lot more . It's a bit late for me this evening, but I will get on it tomorrow.

[Aerogal]

I'm surprised this is news to you, Tilted.

[Larry Gude (Premo)]

Originally Posted by Tilted

Did anyone catch the piece on 60 Minutes last night (after the great Jets-Steelers game) wherein Meredith Whitney was interviewed regarding the likelihood of a large number of municipal bond defaults in the next year or so?

If you want to find someone to say that X is going to happen - where X is some startling and particularly worrisome event that is predicted to happen within a somewhat short time frame - there's a good chance you can find someone to say that it will. But, this was Meredith Whitney saying this - and that carries some real weight with me. She's probably one of the most respected analysts out there, and deservedly so I think. I think I'd credit what she has to say more readily than I would what Warren Buffet has to say. If she tells me there's a real, imminent, and widespread problem in the municipal bond market, I believe her.

So, let's discuss the dynamics of why a municipal bond would fail and what should, or could, be done about it.

Housing is still a core problem because the owners of the houses, the banks, did not have to do what was necessary, re-value the properties, re-do mortgages, so, what are the dynamics behind the bonds?

[ImnoMensa]

Originally Posted by Aerogal

I'm surprised this is news to you, Tilted.

Maryland was fine until God took Louis Goldstein from us.

We havent had a Comptroller since.
Nor a Governor for that matter.


Wasn't it great when we could view Utube and videos of events on the net without advertisements?

[Tilted (Premo)]

Originally Posted by Aerogal

I'm surprised this is news to you, Tilted.

I'm aware of government bond market problems and worries in general. But, I don't follow the municipal bond market at all. The only thing I know about muni bonds (e.g. stuff issued by counties and cities) is that St. Mary's has an Aa2 rating on its bond issuances - good, but not quite as good as neighboring counties.

I must admit that hearing Ms. Whitney say that 50 - 100 municipalities would (or were likely to) default, starting within 12 months, surprised me a little.

[Tilted (Premo)]

Originally Posted by Larry Gude

So, let's discuss the dynamics of why a municipal bond would fail and what should, or could, be done about it.

Housing is still a core problem because the owners of the houses, the banks, did not have to do what was necessary, re-value the properties, re-do mortgages, so, what are the dynamics behind the bonds?

As a current matter, they'd default because they don't (and can't politically) generate enough tax income to pay all of their current obligations and thus have to decide between paying enough teachers to keep the schools functioning, paying enough police officers to keep the departments open, and paying those foolish saps that loaned them money assuming that it was safe to do so. You understood that, I know, but ...

Anyway, as far as the role housing plays in it - I suspect the housing bubble (and subsequent, unavoidable bursting there of) played a large role in bringing municipalities to their current conditions. Generally speaking, local governments probably spent over their heads and borrowed money based on unreasonable assumptions about future (property) tax revenues that were themselves based on delusional perceived home values (and even worse, delusional value growth expectations). When those home values crashed, or stopped increasing, the tax base wasn't big enough to cover the checks the governments had written. They need to raise rates to generate the income they need - but most of them probably can't do that, because a lot of people are struggling as it is and not in the mood to accept tax increases.

As to what can be done about it - at this point and as a general proposition, I would think not much, other than more bailouts. The damage has been done. What's left now is paying the price or finding some way to cover it up for a while to postpone the day of reckoning.

The next time President Obama has a press conference, I'd like to hear someone ask him if he is willing to pledge, right now, that he will not sign off on any future bailouts - specifically, ones that might be needed on the municipality level. I want to hear him say he can't do that - that we might still have to bail some people out - as a subtext that, because we started this bailout thing the reality is that it may never end, at least not until the day we decide we're ready to let things crash.

[Larry Gude (Premo)]

Originally Posted by Tilted

The next time President Obama has a press conference, I'd like to hear someone ask him if he is willing to pledge, right now, that he will not sign off on any future bailouts - specifically, ones that might be needed on the municipality level. I want to hear him say he can't do that - that we might still have to bail some people out - as a subtext that, because we started this bailout thing the reality is that it may never end, at least not until the day we decide we're ready to let things crash.

And there it is.

What I am wondering about is what makes that happen, the choice to let something actually crash. I mean, Paulson let Lehman die and I understand that; he is GS and Lehman is not so, too bad for them. Is that what will happen with bonds, it will depend on who holds them?

I do not see any benefit in getting Obama, or any pol for that matter, on record as committing to anything. Bush provided the context for ANY 'change' of position; "Well, I'm normally a free market kinda guy...but, we HAD to do this..."

I mean, the GOP just won an historic victory in the House based on one thing; stop the spending' and, what happens? Not even in power yet and the GOP throws away a tremendous lever, all the power practically available in the universe and...throws it away. Why? Well, they 'had' to.

We refuse to follow through and take something broken and fix it. We just keep propping things up. Housing, energy, entitlements, the auto industry, health care, now municipal bonds.

The last time we had a major problem, we, Bush 41, faced it; they set up the resolution trust corp and liquidated the problems, cleaned up and closed up shop. We took the hits. Loss was loss and, after that, things can then rebound and start to grow again.

It is just stunning how long these people, our elected leaders, can keep postponing the problems, even flat out in the face of the voters demands as we've just seen and, now, the GOP is patting themselves on the back, a job well done, the talking heads are noting Obama's stunning rebound and yet, there it is, debt, deficit, energy, entitlements, health, housing, the wars, all the same problems are getting worse, every day, and what is the mechanism to signal we've ht bottom?

Real unemployment is probably approaching 20%. Kids can't find jobs. The holy grail, education, has lead us to kids with all sorts of degrees with huge school debt and, maybe, a job at the book store. Mom and dad can't retire, can't sell the house for what they'd planned on. Stocks are propped up.

If you recall, maybe you were too young, during the S & L crisis, the Japanese lead the charge to buy up America. Who will do it now? The Chinese? Arabs? I've been seeing more and more Eastern European ownership of hotels from the Keys to NYC and what is that, mob, oil money?

Everything we've been doing is making things ever more complicated and any kind of hand hold to start actually fixing something becomes ever more problematic.

Bail outs. Bail outs.

So, who bails out uncle Sam? Are we on the verge of so much liquidity that no one wants that inflation, big time, something I thought improbable due to the new dynamics of markets, becomes reality? Food is skyrocketing as is energy. That kills the average family. Are bond failures going to start knocking out mid size corporations that can't sustain the blows?

WTF???

[Lugnut]

Originally Posted by Tilted

Here's the piece I referred to.

That's a hell of a piece. And appears to show things as MUCH worse than I understood them to be...