Meredith Whitney: 2011- Year of Defaults

[Lore]

Re: Meredith Whitney: 2011- Year of Defaults

Responding to the uproar over her "60 Minutes" interview...

Muni experts, including an analyst from Standard & Poor's, dismissed her predictions, saying the numbers don't add up.

This is the most disgusting and disturbing part: the surprise and denial - some feigned, most genuine. The general public is about to achieve a critical mass of wakefulness, and then the reaction will be interesting to behold.

Last week I was personally attacked by a retired commercial banker for suggesting that recovery in the housing market could take twenty to thirty years, not "a year or two" as he suggested. He became enraged!

[jk]

Re: Meredith Whitney: 2011- Year of Defaults

This is the most disgusting and disturbing part: the surprise and denial - some feigned, most genuine. The general public is about to achieve a critical mass of wakefulness, and then the reaction will be interesting to behold.

Last week I was personally attacked by a retired commercial banker for suggesting that recovery in the housing market could take twenty to thirty years, not "a year or two" as he suggested. He became enraged!

whitney was attacked as unduly alarmist when she originally predicted a banking crisis. obviously you scared that retired commercial banker as well as questioning his expertise; it would be interesting to know how he is invested. it might have also been interesting to ask him if he had predicted the crash, and if not, why his current predictions should be given any credence.

[jk]

Re: Meredith Whitney: 2011- Year of Defaults

In Michigan, a City Pleads for a Bankruptcy Option

HAMTRAMCK, Mich. — Leaders of this city met for more than seven hours on a Saturday not long ago, searching for something to cut from a budget that has already been cut, over and over.

This time they slashed money for boarding up abandoned houses — aside from emergencies, like vagrants or obvious rats, said William J. Cooper, the city manager. They shrank funds for trimming trees and cutting grass on hundreds of lots that have been left to the city. And Mr. Cooper is hoping that predictions of a ferocious snow season prove false; once state road funds run out, the city has set nothing aside to plow streets.

“We can make it until March 1 — maybe,” Mr. Cooper said of Hamtramck’s ability to pay its bills. Beyond that? The political leaders of this old working-class city beside Detroit are pleading with the state to let them declare bankruptcy — a desperate move the state is not even willing to admit as an option under the current circumstances.

“The state is concerned that if they say yes to one, if that door is opened, they’ll have 30 more cities right behind us,” Mr. Cooper said, as flurries fell outside his City Hall window. “But anything else is just a stop gap. We’re going to continue to pursue bankruptcy until the door is shut, locked, barricaded, bolted.”

etc

http://www.nytimes.com/2010/12/28/us/28city.html?hp

[Slimprofits]

Re: Meredith Whitney: 2011- Year of Defaults

http://www.slate.com/toolbar.aspx?ac...int&id=2278795

What could the pension fund people and the public sector unions be so worried about? Right-leaning Reuters columnist James Pethokoukis laid it out for them. If the states aren't bailed out, they're going to have to start cutting budgets. If there's total transparency about pension funds—and voters are already in the mood to shave the benefits and numbers of public workers—then that's where you can cut. Republicans might even be able to pass legislation that would allow states to declare bankruptcy, which would move the pension debate from politics to court, zapping all of the unions' leverage. "From the Republican perspective," wrote Pethokoukis, "the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group."

How would that work, exactly? House Republicans aren't talking about it yet. But Newt Gingrich, who those Republicans take seriously, laid it out clearly in a Nov. 11 speech to the Institute for Policy Innovation.

"I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy," said Gingrich, "so that states like California and New York and Illinois that think they're going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and frankly if they don't want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states."

So: Patrick McHenry will run a key subcommittee with oversight over all bailouts, present and potential. He thinks Republicans have an opening to fix a "potentially explosive" situation with pension funds. Is he onboard with the state bankruptcy idea? He holds his cards close.

"It ain't easy," he says, "but we have to face reality."

[jk]

Re: Meredith Whitney: 2011- Year of Defaults

http://www.slate.com/toolbar.aspx?ac...int&id=2278795

What could the pension fund people and the public sector unions be so worried about? Right-leaning Reuters columnist James Pethokoukis laid it out for them. If the states aren't bailed out, they're going to have to start cutting budgets. If there's total transparency about pension funds—and voters are already in the mood to shave the benefits and numbers of public workers—then that's where you can cut. Republicans might even be able to pass legislation that would allow states to declare bankruptcy, which would move the pension debate from politics to court, zapping all of the unions' leverage. "From the Republican perspective," wrote Pethokoukis, "the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group."

How would that work, exactly? House Republicans aren't talking about it yet. But Newt Gingrich, who those Republicans take seriously, laid it out clearly in a Nov. 11 speech to the Institute for Policy Innovation.

"I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy," said Gingrich, "so that states like California and New York and Illinois that think they're going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and frankly if they don't want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states."

So: Patrick McHenry will run a key subcommittee with oversight over all bailouts, present and potential. He thinks Republicans have an opening to fix a "potentially explosive" situation with pension funds. Is he onboard with the state bankruptcy idea? He holds his cards close.

"It ain't easy," he says, "but we have to face reality."

it's hard to picture the bill that would pass both houses and get signed by obama.
and in the absence of such a bill, it's fascinating to imagine how the states' dilemmas get played out. california went many months without a budget because its legislature couldn't agree on anything. new york is perennially late, too. will a federal judge order tax increases to pay contractually obligated pension payments? and if the legislature won't enact it, will a judge have to decide which taxes get raised by how much? any lawyers here who can shed some light on this issue?

[doom&gloom]

Re: Meredith Whitney: 2011- Year of Defaults

it's hard to picture the bill that would pass both houses and get signed by obama.
and in the absence of such a bill, it's fascinating to imagine how the states' dilemmas get played out. california went many months without a budget because its legislature couldn't agree on anything. new york is perennially late, too. will a federal judge order tax increases to pay contractually obligated pension payments? and if the legislature won't enact it, will a judge have to decide which taxes get raised by how much? any lawyers here who can shed some light on this issue?

no need for a bill really, just make sure they know no bailout will ever come. any judge that saddles the people with more taxes unilaterally better get a bomb-proof car and a bomb-proof house.

[Serge_Tomiko]

Re: Meredith Whitney: 2011- Year of Defaults

Local government employment increased 10.7%
Population increased 9.7%

According to the BLS:
http://www.bls.gov/news.release/empsit.t17.htm



Most Local government employees are education related, with police and firefighters representing a good chunk also.

I'm not sure I like the world your suggesting FRED.

BLS statistics separate education from government payrolls for the reason you specify.

[jk]

Re: Meredith Whitney: 2011- Year of Defaults

the only bailout i can see for the states and local gov'ts would be having the fed buy their paper. that's because the fed doesn't require legislation to act. since our politics is broken, we rely increasingly on action by an agency outside the gov't proper, almost extra-legal, which acts by fiat, with fiat.

[BK]

Re: Meredith Whitney: 2011- Year of Defaults

What happens when - the judge imposes higher Taxes - and this leads to lower State Revenues - lower tax receipts, back to court to request more money (higher taxes), leading to lower State revenues and lower tax receipts, sending the case back to court to get more money, that will drive the State Revenues even lower......
Whats worked in the past - may not work in the future.

[DSpencer]

Re: Meredith Whitney: 2011- Year of Defaults

the only bailout i can see for the states and local gov'ts would be having the fed buy their paper. that's because the fed doesn't require legislation to act. since our politics is broken, we rely increasingly on action by an agency outside the gov't proper, almost extra-legal, which acts by fiat, with fiat.

Interesting thought. I wonder if anyone saw this coming...

Give me control of a nation's money supply, and I care not who makes its laws.

[vinoveri]

Re: Meredith Whitney: 2011- Year of Defaults

the only bailout i can see for the states and local gov'ts would be having the fed buy their paper. that's because the fed doesn't require legislation to act. since our politics is broken, we rely increasingly on action by an agency outside the gov't proper, almost extra-legal, which acts by fiat, with fiat.

As Hudson says "debt that can't be paid won't be paid". These debts will be "swept under the rug" in large measure, either by a Fed bailout or structured bankruptcy or as you say the Fed buying their paper. The fed buy their paper and voila all the states have clean balance sheets, and can start over their accumulation of debt. Hey, it's only a couple of hundred billion after all....

This is all acounting gimmickry. The Fed can buy as much bad paper as it wants until $ repudiation occurs, but I still don't see that anytime soon (if ever). The Fed is the ultimate "backstop" to everything. They went from a stable balance sheet of $800 billion to $2200B in a matter of weeks, and will be going to $3000B over the coming months. Where are the effects? When (if ever) will we see the consequences and ramifications?

What I can't understand is why it's actions are tolerated by the investor class (perhaps b/c I am not one of that class) ... I suppose the investor class wants stability and the ponzi-fiat scheme to continue, and are happy to have some currency debasement as long as they can maintain their purchasing power by "frontrunning" and increase their wealth through speculation in "guaranteed/backstopped" investments.

As I opined 2 years ago, the game will continue, and the population will be cooked slowly via currency debasement, as the Fed balance sheet balloons, the US gov Deficit continues in excess of $1T and the debt exceeds 100% of GDP. It will go on and on until it doesn't, and that could be in 2013 or 2033, while we all watch with angst (approaching hopelessness) trying to hang on to some sense of normalcy, as the global plutocrats continue to plunder and act as puppet masters of sovereign govenrments.

[dcarrigg]

Re: Meredith Whitney: 2011- Year of Defaults

Thanks for this.

From the fed data, it looks like resetting the govt employment level as a pct of population back to 2000 levels would be a small increase in govt employment. Govt employment by this measure has been trending down for years, which seems to agree with how school funding feels to us parents.

Precisely the point, jneal. ITulip tends to use ratio of government employees to total employed or ration of public to private employees. If one looks at the ratio of public and private employees to total population, it becomes clear that public employment has hovered around 7.1 to 7.8% of population for 30 years. Private employment has gone from about 38% to 34% of total population in the last three years. Just because one drops, does not mean the other is 'exploding,' which is what it looks like when you compare ratios of public to private employees.

The picture over the last three years:
Private employment is imploding. Government employment is decreasing marginally. If one assumes that employment is good, this news is not good on either front.

[DSpencer]

Re: Meredith Whitney: 2011- Year of Defaults

As Hudson says "debt that can't be paid won't be paid". These debts will be "swept under the rug" in large measure, either by a Fed bailout or structured bankruptcy or as you say the Fed buying their paper.

But doesn't a Fed bailout or the Fed buying their paper imply that the debts will be paid? The question is who will pay the price? The bondholders? The people in the states/cities who actually used up the money? The taxpayers from other states/cities? Or anyone who has value in US dollars?

What I can't understand is why it's actions are tolerated by the investor class.

Who is the investor class? "Rich People"? Anyone who has a 401k? Anyone who uses dollars? Regardless, what other option do they have? Stop investing? Burn down the FED? Scream out their window that "they're mad as hell and they're not going to take it anymore"? The only thing that seems like it might work would be to move all their assets to gold, silver, etc. But they have to hope that the FED GOV lets them keep their privilege of owning these items which it doesn't always do.

[vinoveri]

Re: Meredith Whitney: 2011- Year of Defaults

But doesn't a Fed bailout or the Fed buying their paper imply that the debts will be paid? The question is who will pay the price? The bondholders? The people in the states/cities who actually used up the money? The taxpayers from other states/cities? Or anyone who has value in US dollars?

The point is that the debts will not be paid by those who incurred them (and benefited from them). The bond holders will be paid, the liabilities being transferred to the "taxpayer" and anyone holding dollars. This is rank injustice. The creditors who made the loans should take the hit.

Who is the investor class? "Rich People"? Anyone who has a 401k? Anyone who uses dollars? Regardless, what other option do they have? Stop investing? Burn down the FED? Scream out their window that "they're mad as hell and they're not going to take it anymore"? The only thing that seems like it might work would be to move all their assets to gold, silver, etc. But they have to hope that the FED GOV lets them keep their privilege of owning these items which it doesn't always do.

Perhaps "ruling class" would have been a more appropriate term, but anyone with a 401k will do.
Those who say, "do anything you want FEDs, as long as my lifestyle doesn't change and my account balance keeps going up" are, perhaps, in for a rude awakening down the road. For someone who fears the real possibility of the Gov confiscating your gold/silver, who obviously recognizes that the gov can change the rules anytime it wants, as it has done over history and notably in the past 2 years, is it not a bit risky to wait and "hope for the best"?
There are always other options, but they may not be easy. Leaving the gilded cage never is. You appear to be willing to accept that the FED GOV controls your life and to resigning yourself to cede to its control.
The fact that we are all too comfortable with the status quo and are crossing our fingers that the FEd's policies allow us to keep increasing our paper wealth does not bode well for reform. Apparently, the bullhorn of the past 2 years on the necessity of the bailouts has osmotically been absorbed by the nation.

[DSpencer]

Re: Meredith Whitney: 2011- Year of Defaults

The point is that the debts will not be paid by those who incurred them (and benefited from them). The bond holders will be paid, the liabilities being transferred to the "taxpayer" and anyone holding dollars. This is rank injustice. The creditors who made the loans should take the hit.

Agreed.

There are always other options, but they may not be easy. Leaving the gilded cage never is. You appear to be willing to accept that the FED GOV controls your life and to resigning yourself to cede to its control.

I either don't know what the other options are or don't know how to achieve them. I can't fix the system on my own. Nobody can agree on what the problem is or what the solution is. How do we move forward?