Meredith Whitney On Municipal Bankruptcies (Ch. 9), State Arbitrage (CNBC Video)

Meredith Whitney was back on CNBC talking about municipalities. She doesn't see states defaulting on their debt, or Federal bailouts, but she still sees local municipalities declaring bankruptcy (not all of them). "It's not a severity issue, it's a frequency issue" she said. State governments are confirming her thesis. See the articles below.

She also mentioned state flight risk (state arbitrage), where companies or people leave for more favorable business conditions. Imagine if people left a city in mass exodus. What would happen to the tax base? Would defectors be treated like short sellers? Detroit is going through a similar event, but it was years in the making. They are shrinking the city, shutting down services and offering incentives for people to move. FYI: Illinois increased business taxes by 46 percent and the individual income tax by 66% (Fox Video). Watch the CNBC interview after the jump.


1. Bloomberg: "JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he expects more U.S. municipalities to declare bankruptcy and urged caution when investing in the $2.9 trillion public-debt market." (see his interview on CNBC)

2. Bloomberg: "About 20 minutes after Christie, 48, told a town-hall meeting in Paramus today that health-care costs “will bankrupt” the state, the New Jersey Economic Development Authority cut its tax-exempt school-related bond offering by more than half to $712.3 million."

3. WestLaw News and Insight"CHICAGO, Dec 29 (Reuters) - Indiana lawmakers next year will take up a bill that would establish a process to aid financially struggling local governments, ultimately allowing them to file for municipal bankruptcy (Chapter 9).

4. Bond Buyer"Daniels this week called the measure — Senate Bill 105 — a "useful mechanism" for helping fiscally stressed cities that would help provide clarity on the topic of municipal bankruptcy."

5. Bloomberg.com“Hundreds of jurisdictions” in the state may face financial collapse in the next three to five years, Rick Snyder, Michigan’s newly elected Republican governor, said Nov. 19.


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