Muni Defaults Still Coming, But Timing Unclear: Whitney
With the clock ticking on her prediction that scores of municipalities would default on their bonds, analyst Meredith Whitney both amped up the rhetoric and backed off on the timing for her highly controversial call.
Since her forecast last December on "60 Minutes" that 50 to 100 muni bond defaults were coming with a price tag that would run in the hundreds of billions, Whitney has been a favorite target for detractors who say she has vastly overstated the problems with local government finances.
But in a CNBC interview, Whitney stuck to her prediction even if she said the debt crash may not happen overnight.
"It's going to be big," she said. "What was troublesome is people took (the call) that it would have to be this year. I never said that. But that's the size we're looking at."
Whitney, head of the Meredith Whitney Advisory Group in New York, recalled some of her previous forecasts that housing prices would double-dip, and that state and local governments would enact huge layoffs.
While those developments didn't happen immediately, she said the accuracy was merely "a question of timing (over) the exact month or the exact quarter."
She said the muni bond call may follow the same path, with governments able to forestall defaults in the near term but ultimately must pay the price of taking on more debt than their revenue can cover.
"This is the sad reality of stuff that's going on, the sad reality of consequences of reckless spending," Whitney said.
Still, Whitney faces her legion of doubters.
David Kotok at Cumberland Advisors recently opined that increased tax revenues on the state level combined with the tepid but consistent recovery will show that the problems in muni debt are far smaller than Whitney believes.
"This combination portends better economic outlooks for various state and local government units," Kotok wrote. "We hold to our forecast that defaults in 2011 will be much, much lower than Whitney's $100 billion estimate."
Whitney's comments Wednesday seemed to make room at least somewhat for timing but not for scale.
Seemingly for good measure, she piled another call on her muni prediction, saying that slumping housing prices will continue to burden the economy on both a state and national level, with another double-digit drop in sight.
That will further constrain government coffers and add to the muni problem, she said.
"I can't believe I'm the only person talking about it," she said. "That doesn't make any sense to me that we're (the only ones) shedding light on this. If people want to attack me, OK, I'm kind of used to it at this point."