Meredith Whitney's Nightmare Scenario: Muni Defaults, Layoffs & Social Unrest

Meredith Whitney's Nightmare Scenario: Muni Defaults, Layoffs & Social Unrest (CNBC) "A wave of defaults by state and local governments in the coming months will spark a selloff in the municipal bond market, hurting US economic growth and stocks and causing social unrest as governments are forced lay off workers and cut back on services, Meredith Whitney, well known financial analyst famous for predicting the financial crisis, told CNBC Tuesday. Responding to the uproar over her "60 Minutes" interview broadcast on CBS Sunday night, Whitney defended her prediction that at least 50 to 100 cities and towns could default on their debt as states and the federal government cut back on financial support. "

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Attorney General Cuomo Files Suit against Lehman Auditor Ernst & Young (NY Times DealBook) "The New York attorney general on Tuesday sued Ernst & Young, accusing the accounting firm of helping its client Lehman Brothers “engage in a massive accounting fraud” by misleading investors about the investment bank’s financial health. The lawsuit, coming more than two years after Lehman collapsed and the global economy buckled, is the first major legal action stemming from the collapse of the investment bank."

"Madoff Aide Bongiorno Reports to Jail" (Wall Street Journal) "A longtime 'back office' employee of convicted Ponzi schemer Bernard Madoff reported to jail in Florida on Tuesday after a federal judge in New York revoked her bail." It further explains: "Ms. Bongiorno, who has been on home incarceration and subject to electronic monitoring in Florida, had difficulty meeting the conditions of a $5 million bail set last month. " And "Ms. Bongiorno is one of five former Madoff employees facing criminal charges in the case."

Republican States Make Census Gains (Wall Street Journal) "Republican-leaning states in the South and Southwest will add congressional seats in the next election, which could give the GOP a big advantage in its bid to retain control of the U.S. House. The population count released Tuesday by the U.S. Census Bureau showed the total U.S. population was 308,745,538 and confirmed long-held assumptions that the balance of power in the country is titling away from Democratic strongholds in the Northeast and Midwest to warmer states in the Sunbelt, from Florida to Arizona, where Republicans hold sway."

"Wall St rises as earnings, M&A heightens optimism" (Yahoo Finance via Reuters) "Stocks rose on Tuesday as solid earnings and a flurry of merger activity underpinned a steady upward trend that reinforced investor optimism for the coming year. The S&P 500's close is on the cusp of closing levels not seen since before Lehman Brothers collapsed in September 2008, an important psychological barrier for investors at 1,255.08. Financials led the way higher, continuing their December rally after underperforming the broader market for much of the year. The KBW bank index jumped 1.9 percent. Fund managers have been reallocating cash to equities from fixed income and reduced cash positions."