Whitney Makes a Bearish Call on the States

Brian Hicks

Updated September 29, 2010


When this one blows up, don’t let anybody tell you that they didn’t see it coming.

It’s as obvious as the housing bubble that started it all.

From CNBC by Jeff Cox entitled: States Are Poised to Be Next Credit Crisis for US: Whitney

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.”

Whitney also offered another warning about banks, saying a sharp dropoff in trading revenue and a double-dip in housing would hammer at fourth-quarter earnings.

But she reserved her harshest words for the states. She said the paper released Tuesday was the culmination of two years’ work by her firm and was made even more difficult by the lack of reliable data on state spending and debt.

“It reminded me so much of the banks pre-crisis that we just kept working at it,” she said. “We couldn’t find anything that gave us a clear story, we couldn’t find any information that was transparent. So we did it ourselves.”


But that is only part of the story in Whitney’s overall forecast. To get the details of the call, Whitney appeared this morning on the floor in an interview with Maria Bartiromo.

In it she also makes a bearish call on the banks….


By the way, according to a report released by the PEW Center in February, there is a now $1 trillion dollar gap between what states have promised their workers and what they’ve actually set aside to pay those bills.

Behind the spin, States have set aside only $2.35 trillion of the $3.35 trillion they’ve promised their current and retired workers in pension, health care, and other retirement benefits.

Want to know how your state stacks up?… You can read the full PEW Report click here.

Related Articles:

The $1 Trillion Pension Gap

California’s $500 Billion Hole

The Brewing Pension Funding Crisis

Public Pension Funds Head to Vegas

Chanos: The “cracking of state and local municipalities is coming”

The Pension Gap

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