July 15, 2011

Bloomberg to Meredith Whitney: Where Are the Defaults?

Number of municipal defaults actually fell 60% in first half of the year

Meredith Whitney made her default predictions in December. (Photo: AP) Meredith Whitney made her default predictions in December. (Photo: AP)

The predictin’ business ain’t easy. Star analyst Meredith Whitney made the bold call eight months ago that a record number of defaults would occur in the municipal space, as state and locals governments struggled to shore up their balance sheets.

Since the prediction, made Dec. 19 on a segment of CBS’ “60 Minutes,” much has happened, but not in the way Whitney said.

Bloomberg reports defaults fell 60% in the first half of 2011 compared with the same period last year, citing the Distressed Debt Securities Newsletter.

“Time is running out on the credibility of Meredith Whitney, who has yet to acknowledge that her eight-month-old prediction of widespread defaults this year in the market for state and local government debt is proving unfounded,” the news service taunts.

Bloomberg notes Whitney rose to prominence by predicting Citigroup Inc.’s 2008 dividend cut. She said “hundreds of billions of dollars” of municipal defaults would occur within 12 months broadcast’s airdate, fueling a multi-trillion market sell-off. Instead, the number of defaults has fallen as cities cut spending and made protecting against insolvency and bankruptcies a priority.

“The data is not helping Meredith,” Matt Fabian, a managing director at Municipal Market Advisors, told Bloomberg. “It’s always been a possibility there would be a wave of defaults. You can’t say that it’s zero but it’s given no sign of starting.”

Bloomberg says that from January through June, “defaults fell to 24 totaling $746 million, according to the newsletter from Miami Lakes, Fla.-based Income Securities Advisor. That compares with 60 in the first half of last year, totaling $2.29 billion, and 144 in the first six months of 2009, at $4.89 billion.”

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