Is Meredith Whitney Flip-Flopping or Stalling?

In nine months, when defaults are less than half of what Meredith Whitney suggested, she will be taking credit for sounding the alarm bells, and forcing public officials to make the hard choices and avoid default.
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Meredith Whitney's doomsday prediction back in December that there would be 50 to 100 sizable municipal bond defaults totaling hundreds of billions of dollars over the next year sparked a panic that hurt average investors who hold munis for their retirement, and municipalities trying to raise much needed cash during a time of strained budgets.

And yet, even as it become clearer by the day that what Whitney said was both irresponsible and wrong (do the math; just $12 million of munis have defaulted since December and we're already ¼ of the way through her timetable) she continues to mesmerize certain members of the press with her nonsensical meanderings about a market she obviously knows nothing about.

Witness today's USA Today snoozer titled "Maria Bartiromo interviews Meredith Whitney." The banking analyst turned fortune teller has been studiously avoiding much of the media after reporters like myself began questioning her prediction, and demanding that she produce the actual research backing up her claim that muni defaults not even seen during the Great Depression were supposed to happen over the next year.

But if you're expecting Bartiromo to do the same, you're going to be disappointed. In fact, the interview reads like a press release that allows Whitney to spin another absurd tale, leaving readers questioning whether the analyst who adroitly called the banking crisis in 2007 has since been lobotomized along with the interview's author.

All of which wouldn't be so bad if Bartiromo didn't serve as a conduit for Whitney's initial absurd claim. In late December, after Whitney told 60 Minutes that municipal governments in 2011 were going to be no different than the banks were in 2008, she was promptly "interviewed" by Bartiromo on CNBC without even having to produce a shred of actual research to support her claims.

With that, the market for municipal bonds imploded. Because of the panic selling, small investors (the primary holders of munis because of their tax advantages) got hit the hardest, unless of course you count the nation's taxpayers who are now forced to pay higher interest rates when the cities and states they live in need issue debt.

This all seemed to fly over the head of Bartiromo, who lets Whitney off the hook once again, namely by failing to get Whitney to admit that she was wrong, and make her concede that her prediction was devoid of any real analysis (I have seen the research and it makes no mention of all those defaults).

And make no mistake about it, what Whitney predicted is wrong; so wrong that now she's even admitting to it, though her mea culpa once again seemed to go over the author's head. In the interview, Whitney now says her 50 to 100 sizable defaults prediction isn't going to occur over the next year. Rather, it's "an extended, multi-year issue." It would have been nice to know this three months ago.

Even so, Whitney doesn't say how extended the default scenario is. Will it occur over 5, 50 or 100 years? We don't know, not just because Whitney isn't used to providing such details, but because as far as I can tell, Bartiromo didn't ask.

Or check out this little gem. "You have been the voice for concern regarding the finances of states and municipalities," Bartiromo intones. "How do things stand today?" I hate to break it to you Maria, but Meredith Whitney is far from "the voice of concern" regarding the dismal state of municipal budgets. Just about every mayor and governor, journalist, taxpayer and investor I know has weighed in on the issue of governments spending too much, as tax revenues fall and budgets fall out of balance. I put New Jersey governor Chris Christie above Whitney on this issue any day of the week.

Nonetheless, Whitney is now admitting that public officials are doing what she said they couldn't or wouldn't do just three months ago by cutting their budgets, raising taxes, or a combination of both, so they don't default on their debt. "Every day things get better because politicians are addressing the fiscal challenges more aggressively," she now says. "Since November, you've had more governors take strong austerity measures...everyday the situation gets more focused and that means its closer to a fix."

Keep in mind, Whitney's 60 Minutes and CNBC appearances occurred in late December, which renders this statement about as dopey as the others.

The real story, I believe, isn't whether this reporter is kissing up to a source (we all do it from time to time) but whether an analyst who has the stroke to tank the market, is now fully backing away from her claim and what that means for investors and taxpayers.

"Time will tell," whether her prediction will be right or wrong, she says in the interview. Okay, so here's my prediction: In nine months, when defaults are less than half of what Whitney suggested, she will be taking credit for sounding the alarm bells, and forcing public officials to make the hard choices and avoid default.

How do I know this? Well, time will tell.

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