Wednesday, June 29, 2011

Meredith Whitney: Real Pain Coming to Municipal Bond Level After July 1

Financial analyst Meredith Whitney discussed on CNBC, this morning, what New Jersey's move to take out a short-term $2.25 billion loan means and warned about the problems that will develop after July 1, when many states will be forced to cut financial aid to their municipalities.

"What you'll see now is as the states are submitting final budgets, you'll see the real pain at the municipal level start happening July 1. That will intensify and that's where you'll see the fallout."

"When I come up with numbers of the defaults, I can think of dozens of large ones off the top of my head," she said. "This is just the sad reality of where we are."

Of further note, when Whitney is modeling the interest rate that states and  municipalities will have to pay, she is likely using rates that are near the current market rates. But, to the degree states and municipalities have borrowed short-term and will need to roll over debt in the near future, they are likely to face by the end of this year  much higher rates, which will increase their financial problems more dramatically.

It's not going to be pretty.

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