There's dumb, and then there's idiotic. How does this guy keep a job?
High-profile Wall Street analyst Meredith Whitney's doomsday prediction that hundreds of billions of dollars in municipal bonds will evaporate in default over the next year has been condemned as improbable to irresponsible by just about anyone who knows anything about municipal finance.
Oh really? You mean anyone who has a vested interest in ignoring 2 + 2 = 4, right?
Cities and states rarely default on their debt, and for her prediction to be accurate, the economy would have to be getting much worse rather than somewhat better, as most data show. It's hard to imagine even places like California, New York and New Jersey somehow deciding not to pay back bondholders this year; governors in each state want to issue more debt, and such a default would bar them from doing so for years.
How are you going to continue to issue more debt when you're unable to pay on your current obligations?
Now don't get me wrong - the Merideth "request" to testify is more akin to a witch hunt than anything else. But Charlie then goes completely off the rails with this:
....bankruptcy is a legislative cop out. It would relieve profligate state governments of the consequences of their actions, namely the difficulty of telling municipal workers and others living off the public trough that there isn't enough money to give them everything they want, and of making the unpopular choices of cutting budgets drastically or raising taxes.
It's also pretty dumb. What investor would buy a bond of a bankrupt state that will at least postpone paying off its debt? And if a state can't issue debt, how will it build roads, bridges and schools?
Ah, now we're getting to it.
See, the entire point of bankruptcy as a procedure is that it forces people to think before they invest. That is, you don't give someone a loan (which is what a bond is) unless you're reasonably certain they'll pay it back. This analysis requires some time and effort, which many people claim we shouldn't bother with.
Including, it appears, Charlie Gasparino.Of course this is how we got into the mess in the first place. We made loans to people to buy houses without giving a damn if they could pay. We made loans to build shopping centers without any sort of analysis as to whether the actual consumer presence would materialize and make the rents charged reasonable. And, in our local area here, we are building a road extension as a "bypass" for the local toll bridge which just issued bonds that will require an interest payment alone that equals, approximately, the entire toll revenue on an annual basis.
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