Skip to comments.States Are Poised to Be Next Credit Crisis for US: Whitney
Posted on 09/28/2010 2:30:07 PM PDT by fightinJAG
Crippling debts and deficits are about to make individual states the next casualty of the credit crisis, analyst Meredith Whitney told CNBC.
Speaking as her firm, Meredith Whitney Advisory Group, just released a lengthy report on the state of the states, the noted financial analyst compared the looming explosion to the collapse of the financial system in 2008 and 2009.
"The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically," she said. "Municipal debt has doubled since 2000, spending has grown way faster than revenues."
(Excerpt) Read more at cnbc.com ...
But other states, such as California and Michigan, will burden the entire country should the federal government decide to step in with a bailout. States are required to balance their budgets, but massive debt-service payments could prevent that from happening in many states and necessitate the federal government to step in.
"You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout," Whitney said. "That has consequences on the dollar, that has consequences on just about everything. It certainly has consequences on the US recovery."
Those “bright spots” aren’t that much better off, because their in the same large boat as Kalipornia and other states.
“Imagine you’re conservative, fiscally sound Nebraska and you have to bail out California, or you’re fiscally conservative Texas and now you have to bail out Michigan.”
Too bad that states like Texas or Nebraska cannot sieze parts of California rather than giving billions of dollars for nothing in exchange. The people in the more conservative parts of California would prefer to be governed by Austin than by Sacramento.
sounds like grounds for civil war.
I like Walter Williams’ suggestion that we look for a way to have an amicable political divorce.
I say we can do that through a return to a robust interpretation of the Constitution, particularly the Tenth Amendment.
To wit, states can run themselves as they see fit, but they have to pay the piper. NO MORE TRANSFER PAYMENTS FROM THE FEDS. If a state wants to be socialist, AND can pay for its programs either by tax revenues it raises from its own citizens or by business it conducts as a state, FINE. But the days of everybody else paying for the loser states have to end.
Like those who bought securitized mortgage related instruments, the states operate with the assumption that if they really get into trouble, good old Uncle Sam — meaning you and me — will bail them out. At the least, they go to Washington begging for “loans” to meet their budget deficits, which end up just being a bailout with a different name.
Until we stop the wealth transfers, and the business “model” that perpetuates, we are all going to be on the hook for bailout after bailout.
The first and worst (probably CA and/or MI) will probably get help from Obama. After that, maybe another (BLUE) state or two, but no more.
Another transfer of wealth (or poverty, whichever way you want to look at it).
This will have to be resisted in the same way the Cornhusker Kickback and the Louisiana Purchase were. I know the analogy is not exact, but it’s close enough.
Once someone gets up the courage to say sorry, guys, figure out what your austerity measures are going to be, I think the dam of public opinion will open against bailing out these states. Look at CA just spending how much on a taj mahal school in LA?
However, this must be coupled with states tightening up and even cutting their own welfare programs because there will be people picking up and moving.
Our state and local governments have announced big layoffs for the next six months. Most non-federal governments will also, I suspect. Until now, they’ve been able to avoid much of it.
It’s going to put a temporary damper on everything for that time period, especially employment.
What would be the consequences of halting illegal immigration and sending those already in-country back home?
Hundreds of millions, if not billions, of dollars that the citizens of the non-broke States have to pay for illegals would be saved.
It’s ridiculous to talk of illegal immigration as helping the economy,as Progs do. The costs of Medicaid for these people is staggering, and that’s just for starters.
But do you think the Governors of those two states have maybe asked themselves this question?
For those of you who are not familiar with Ms. Whitney, in November of 2007, she first raised the specter that Citigroup might have to cut its dividend because of losses in mortgage backed securities. At the time, Citigroup stock was trading for around $50 a share, and everybody looked at her like she had two heads. Whitney never backed off that call in her many interviews in the months that followed. Citigroup, of course, did cut the dividend and almost went bankrupt. The stock now sells for less than 4 bucks a share.
In June of this year, when everybody in the mainstream media was still hyping Green Shoots and the so-called Recovery, Whitney predicted on CNBC, Unequivocally, I see a double-dip in housing. Theres no doubt about it . . . prices are going down again. Bang!another direct hit. I wrote about this in a post called Double Dips Coming Everywhere.
Yesterday, as I sat and listened in my car, Whitney predicted tough times coming for state governments. I wrote in February (America Has Its Own PIGS) that many states are basically bankrupt and, in an election year, will probably get a bailout. Fast forward to today. Whitney says underwater states will need a trillion dollar bailout. That is another thousand billion added to the taxpayer tab! Whitney said, You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout. That has consequences on the dollar that has consequences on just about everything. It certainly has consequences on the US recovery.
Whitney also predicts 80,000 financial sector layoffs coming for Wall Street. She also predicts puny profits and more real estate trouble coming in fourth quarter for the banks. There was one bright spot in Whitneys predictionsBonuses for Wall Street Bankers are going to be really, really bad at year end. If you want a road map of what is going to happen between now and the end of the year, you should listen to Meredith.
Thanks for the background on Whitney. Very enlightening.
They were already talking about Wall Street layoffs on the business channels today, particularly on Bloomberg.
We have to be ready for these states to come begging for bailouts — ready to say NO.
They won't be asking our permission.