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Roubini Firm Sees Rising Muni Bond Defaults: Report

There could be about $100 billion of defaults in municipal bonds over the next five years, a report by Roubini Global Economics, the company founded by famous economist Nouriel Roubini, showed, according to the Wall Street Journal.

Nouriel Roubini
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Nouriel Roubini

Last year in September, financial analyst Meredith Whitney did an analysis warning about a wave of defaults in muni bonds totaling "hundreds of billions of dollars." She defended her call this year in January, after being confronted with intense criticism.

Roubini's report says that a "pessimistic calculation" puts losses from muni bond defaults at $35 billion, spread over several years, but in the $2.9 trillion muni-bond market, it would not be the deep crisis predicted by Whitney, the Journal said.

The report, released to RGE's clients Monday, said that state debt problems are not systemic and will not "infect the financial system," according to the newspaper.

Relying on the low default rate in municipal debt market in the past is "Pollyannaish," the report's authors also wrote.

"Avoiding a crisis will involve real austerity that has only partially been implemented thus far," the report also said, according to the paper.

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