We, the naysayers, have argued:
A. that her report lacked specificity;
B. that the historical default rate of municipalities has been exceptionally low;
C. that there is a significant contrast between a "cash flow-driven" crisis leading to a default versus a "long term structural issue" that can be addressed over the years by raising revenues (taxes, fees, levies), reducing expenditures, raising retirement ages, lowering benefits packages, etc.;
D. that municipalities and their politicians have significant economic reasons, let alone career risk, that drive their decision-making processes toward avoiding defaults other than as acts of last resort; and
E. that the "contagion effect" of municipal defaults is so feared by other municipalities that state and federal resources may well come to bear, if needed, to prevent the default of a prominent municipality and the outright chaos in the municipal bond market that would result from such a high-profile event.
To be clear, I am confident that a holder of a diversified basket of high-quality general obligation and essential revenue municipal bonds will avoid being subjected to defaults.
In fact, I figured I'd leave this debate alone and attribute Whitney's comments to a more salutary cause: Basically, she rightfully wanted to advise complacent investors that not all municipal bonds are created equally. Caveat emptor.
But then I read this comment in Monday's "New York Times" from a fellow naysayer:
"I've seen a copy of the report, and frankly, I've seen better papers from graduate students in finance," said Richard P. Larkin, director of credit analysis at Herbert J. Sims & Co., a municipal bond broker and underwriter.
"It's ludicrous, reckless and irresponsible, and it's being done without any regard for the consequences."