Meredith Whitney: States May Need Federal Bailout in Next 12 Months

The U.S. government will face pressure to bail out struggling states in the next 12 months, says Meredith Whitney, the banking analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008, Bloomberg writes.

“It’s going to be an incredibly divisive issue.”

Meredith Whitney


While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable, according to Bloomberg.

“People will think the federal government will bail these states out,” Whitney,  the founder of Meredith Whitney Advisory Group Inc., says in an interview on Bloomberg Television.

“It’s going to be an incredibly divisive issue.”

Whitney’s comments coincide with her release of a report rating the financial health of the 15 largest U.S. states measured by gross domestic product, according to Fortune magazine.

The report, which Whitney said took two years to complete and hasn’t been released publicly, ranks California’s finances the worst, with New Jersey, Illinois and Ohio tied for second-worst.

Read the story here.

Watch the video.

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