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Thread: Killing The Messenger ? ( Proposed Fed Bailout of bankrupt US states )

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    Banned Eric Stoner's Avatar
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    Default Killing The Messenger ? ( Proposed Fed Bailout of bankrupt US states )

    Boy are the knives coming out for Meredith Whitney !

    Whitney is the analyst who predicted the bursting of the real estate bubble and that bank stocks would tank as a result. At the time she was making those predictions she was attacked on numerous grounds all of which proved to be baseless.

    In a story in today's N.Y. Times Business section, she is being attacked for her prediction made on "60 Minutes" that we could see " 50 to 100" municipal and state defaults.

    The criticism and attacks include charges that she was irresponsible in saying what she did. That she was responsible for investors pulling their money out of municipal funds when the story admits that they were doing so BEFORE she ever opened her mouth.

    That she was acting solely in her own self interest. That she is seeking to have her own company recognized as a rating agency for municipal debt. Well after the sterling performance of Moody's , Fitch's and S & P; how could she do any worse ?

    She is a "one hit wonder". Many analysts make one "big" prediction in their careers that comes true and she's had hers. Some quoted in the article liken her to Elaine Garzarelli who predicted the October, 1987 Stock Market Crash.

    The funniest one is that she is "unqualified" to opine about state and municipal debt. Well anyone up on current events who is familiar with the precarious state of many state and city budgets has come to the same conclusion that she did.

    Clearly, there is a lot of push back by municipal and state unions. Aided by their political and media friends. Which includes the Times.

    Those quoted in the story who actually READ her September, 2010 report all said it was well researched and documented and measured in its language.

    This "kill the messenger" approach follows weeks of stories about possible municipal and state bankruptcies i.e. "thinking the unthinkable". The story even tries to take a "What me worry" approach by mentioning that Vallejo's bondholders were paid off by its insurance company. It didn't bother mentioning that the insurer, MBIA, is generally considered to be insolvent. It also says that states can just raise taxes, unlike the banks. Well yeah, until they reach the point of diminishing returns where tax increases actually bring in LESS, not more revenue.


    On a related note, just today it was reported that Obama is proposing to lend states the money they are supposed to pay back to the Feds for the money they were lent to make Unemployment Insurance payments. I am NOT making this up !

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    Default Re: Killing The Messenger ?

    On a related note, just today it was reported that Obama is proposing to lend states the money they are supposed to pay back to the Feds for the money they were lent to make Unemployment Insurance payments. I am NOT making this up !
    This proposal for a US federal taxpayer 'bailout' of certain US states with very high unemployment fund deficits ( specifically, California, Illinois, New York, Michigan etc. ) , and by pure coincidence very high concentrations of Democratic voters , is becoming the topic of some very un-civil discussion ...

    from

    (snip)"WEST PALM BEACH, Fla. – Despite the resounding rejection of higher taxes by California voters yesterday, radio giant Rush Limbaugh is predicting President Obama will extend his "tentacles" to bail out the Golden State with federal dollars.

    Limbaugh made the prognostication based on the notion that like the U.S. auto industry, California is "too big to fail."

    "What Obama will do is simply bail out California and all of the debt and all of the overspending, all of the problems will be absorbed by all of us in the other 49 states," Limbaugh said today on his No. 1 rated program.

    "I have no doubt that this is what's going to happen with Obama reaching out from Washington with his tentacles to be as involved in every facet of American life as he can be, and with nobody to stop him and with California populated with majority Obama voters." (snip)


    The 'gold foil hat' crowd are of the opinion that the 'trigger event' that precipitated this new federal 'bailout' proposal was the rejection of yet another state income tax rate increase by the majority of California voters. With that voter rejection, California's state gov't would have had no choice but to actually cut spending ... which in turn would have impacted hundreds of thousands of unionized civil service workers and gov't contractors, would have impacted state 'green energy' subsidy payments, would have impacted grants to the arts, welfare / medicaid benefit levels, and a host of other programs.

    The proposed 'perpetually rolled over' zero interest loans of federal tax money to state unemployment funds mechanism essentially constitutes a federal 'bailout' in everything but name. This particular bailout mechanism can also be implemented without the need for congressional approval, which in the current political climate would be impossible to accomplish.


    In a story in today's N.Y. Times Business section, she is being attacked for her prediction made on "60 Minutes" that we could see " 50 to 100" municipal and state defaults.

    The criticism and attacks include charges that she was irresponsible in saying what she did. That she was responsible for investors pulling their money out of municipal funds when the story admits that they were doing so BEFORE she ever opened her mouth.
    Meredith Whitney is one smart lady ! She's also too 'forthright' for her own good. Her expose' on Citi two years ago ( although totally on the money, or lack thereof ! ) essentially forced her out of Oppenheimer. Since starting her own investment advisory firm, she has continued to be right on the money ( in more ways than one ). But where future muni bond risk is concerned, and particularly so for certain heavily indebted states, there isn't even wiggle room for an argument. There simply aren't enough state tax revenues available for these states to keep rolling over muni bond debt at the high interest rates that 'sane' bond buyers are now demanding, without the states having to make unrealistically deep cuts in public sector employment, 'green energy' subsidies, medicaid / social welfare programs etc. !

    The 'gold foil hat' crowd would also tell you that the major concerns here are the possibility that uber-rich 'limousine liberals', many of who legally avoid astronomical federal and state income tax rates by ownership of millions of dollars worth of tax free muni bonds, would be forced to take a major 'haircut' if a state actually defaulted. Similarly, civil service employee union contracts would be opened up to voiding / renegotiation, and would be forced to take pay and benefit cuts. These two groups will be the major economic beneficiary of this proposed 'infusion' of federal tax money collected from residents of other US states !

    ~
    Last edited by Melonie; 02-08-2011 at 03:15 PM.

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    Default Re: Killing The Messenger ? ( Proposed Fed Bailout of bankrupt US states )

    I'm glad to see and hear defenders of Whitney also being heard.

    These are some of things Meredith has said that have caused conniptions :

    "Next to housing, ( municipal debt ) is the single most important issue. It is the biggest threat to our economy."

    "We could see 50 to 100 sizable defaults."

    " Hundreds of billions in bonds are involved."

    We know there is anywhere from 1 to 4 TRILLION dollars in unfunded pensions. And there is 2.85 TRILLION dollars in outstanding municipal bonds.

    Btw, a whopping $14 billion was pulled out of Municipal bond funds after Whitney's "60 Minutes" appearance. Hardly a "run" on muni bond funds.

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    Default Re: Killing The Messenger ? ( Proposed Fed Bailout of bankrupt US states )

    ^^^ that of course is the 'dirty little secret' about municipal bond owners ... who are mostly uber-rich Americans who have the most to gain via federal / state / local tax free muni bond income versus progressive tax rates applying to other types of income. The doubly 'dirty little secret' is that muni bond defaults would cause these mostly uber-rich Americans to experience major losses in the value of their muni bond principal 'investment's. Thus, like the fat cat investors in Wall St. banks, they must also be protected against 'taking a haircut' by ( mostly middle class ) US taxpayers ! This is the arguable reason that Meredith Whitney is being 'attacked' ... to hopefully discredit her assessment of the muni bond situation and hopefully postpone a future 'day of reckoning' for uber-rich muni bond owners faced with huge losses versus ( mostly middle class ) US taxpayers faced with financing a bailout.

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    Default Re: Killing The Messenger ? ( Proposed Fed Bailout of bankrupt US states )

    ^^^ It's NOT just the buyers of the bonds. It's the Goldman Sachs and Morgan Stanley that buy the muni's and then sell them pocketing healthy fees. I laugh every time the Dems try to paint the Republicans as :"The Party of Wall Street".

    Who gets more Wall St. campaign donations ? The Dems

    Who gets hired by Wall st. after leaving government ? The Dems

    Who benefits from increased public debt ? Wall Street.

    Who supported Obama ? Wall Street.

    Who was the prime mover behind repealing Glass Steagall ? Bob Rubin. Where did he go to work after leaving Treasury ? Citigroup.

    On a related note, I have the latest numbers on unfunded retiree health care. Nationwide, state and local retiree health plans are unfunded by $555 billion. In N.J. it is $68.9 billion which is the largest for any state. California is second at $62.5 billion.

    Read Charlie Gasparino's latest book "Bought and Paid For" or Matt Taibi's "Griftopia" and THEN tell me that those evil Republicans created the current mess and are maintaining same.

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