U.S. States Pose the Biggest Economic Risk - Meredith Whitney
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While she may not be ahead of the curve on this one, famous financial analyst Meredith Whitney is warning that economic health of the states poses a systematic risk to the overall U.S. economy.
Whitney, who famously predicted the downfall of the U.S. banking system before the credit crisis hit, sees damage to the economy coming from the over-stretched state budgets. She sees the states needing bailouts, but it would require conservatives to vote for funds for state like California and Michigan.
On Tuesday, Whitney released a 600-page report called “The Tragedy of the Commons," which rates the financial condition of the 15 largest states measured by their individual gross domestic product.
Whitney claims that the study is the most comprehensive analysis of the states’ patterns of spending, revenues and benefit programs that has ever been put together. She claims that the report came from the limited information on the states and their financial situations.
"The similarities between the states and the banks are to the extreme to the extent that, the states have been spending dramatically, growing leverage dramatically, muni debt has doubled since 2000, but spending has also grown way faster than revenue," Whitney said.
States such as California, Michigan and New York were among those that will burden the entire country according to Whitney if the government steps in with a bailout.
"You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout," Whitney said. "That has consequences on the dollar that has consequences on just about everything. It certainly has consequences on the US recovery."
Whitney did say that bright spots included Texas, Nebraska and Virginia, which have done a good job of controlling their finances and will not be threatened as much over the years.
Whitney also warned the banks will see a sharp dropoff in trading revenue during the fourth quarter and that a double-dip in the housing market will damage earnings in the final three months of the year.
Whitney, who famously predicted the downfall of the U.S. banking system before the credit crisis hit, sees damage to the economy coming from the over-stretched state budgets. She sees the states needing bailouts, but it would require conservatives to vote for funds for state like California and Michigan.
On Tuesday, Whitney released a 600-page report called “The Tragedy of the Commons," which rates the financial condition of the 15 largest states measured by their individual gross domestic product.
Whitney claims that the study is the most comprehensive analysis of the states’ patterns of spending, revenues and benefit programs that has ever been put together. She claims that the report came from the limited information on the states and their financial situations.
"The similarities between the states and the banks are to the extreme to the extent that, the states have been spending dramatically, growing leverage dramatically, muni debt has doubled since 2000, but spending has also grown way faster than revenue," Whitney said.
States such as California, Michigan and New York were among those that will burden the entire country according to Whitney if the government steps in with a bailout.
"You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout," Whitney said. "That has consequences on the dollar that has consequences on just about everything. It certainly has consequences on the US recovery."
Whitney did say that bright spots included Texas, Nebraska and Virginia, which have done a good job of controlling their finances and will not be threatened as much over the years.
Whitney also warned the banks will see a sharp dropoff in trading revenue during the fourth quarter and that a double-dip in the housing market will damage earnings in the final three months of the year.
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