Two of the brightest people in the financial industry are John Mauldin (great economic insights) and Meredith Whitney (she called the banking industry crisis well before it happened in 2008). And they couldn’t disagree more on how severe the budget crisis is for state and local governments – and what that ultimately means for municipal bond holders.
Whitney appeared in a recent “60 Minutes” segment called “The Day of Reckoning,” which took a look at the financial condition of states budgets. She thinks the state governments will be ok but not so for city and county governments. She predicts a spate of 50 to 100 sizable government defaults – and was predicting that coud amount to hundreds of billions of dollars. She believes the defaults will begin within a year. (Click here to see the “60 Minutes” segment.)
Mauldin agrees there will be some municipal defaults – there have been five this year and there were ten last year. But he doesn’t believe defaults will approach the level Whitney is predicting. (Click here to see Mauldin’s comments.) One of the main people interviewed for the TV segment was New Jersey Gov. Chris Christie. He appears to be be closer to the Whitney viewpoint and he blames bloated pension funding requirements.