Waiting for 60 Minutes to Own Up

It is just about two years since the infamous Meredith Whitney’s 60 Minutes declaration that we “could see fifty to a hundred sizable (municipal) defaults” that would result in billions of dollars’ in losses for municipal bond holders. Neither 60 Minutes nor Ms. Whitman have apologized, and now Ms. Whitman apparently wants to double down. Trying to profit again on the backs of state and local leaders, she has a new book, Downgraded, scheduled for publication this spring. Ms. Whitney, whose, Joe Mysak notes, “prognostications about local leaders and governments have bordered on the outrageous, despite the egregious sums she has charged,” is now expanding her efforts for profit, having told attendees of a Grant’s Interest Rate Observer conference last April (“The Municipal Finance Crisis – Just Wait,” and subtitled, “The bifurcation of states will dictate contraction and expansion of regional economies over the next two decades,” that by her calculations, the Coasts, especially California and New York, lose. The Dakotas, Kansas, Nebraska, Iowa, Oklahoma, and Texas will win. Mr. Mysak, a long-time, tell-it-as-it-is, astute observer, does not buy either theory of the wealthy “the sky is falling” author: “I don’t buy it, for two reasons. On the one hand, the conclusion that a “crisis’’ is either at hand (Forbes) or in the cards (Ms. Whitney) presumes that state and local officials are feckless, and won’t or can’t change course when faced with challenging situations. The only thing these officials can do, according to what might be termed the demographic determinists, is to raise taxes and, at some point, cut services to the bare-bones level and so make their locales unappealing and so spur more people to move out….I think that with some of the more hysterical headliners who choose to write about this asset class, you have to say not, ‘That hasn’t happened,’ but ‘That doesn’t happen.’ The municipal market isn’t a movie. There’s no climax car chase and big explosion at the end. What happens is that things muddle along.” What you won’t hear from Ms. Whitney or 60 Minutes: Adding in yields, the total return for the iShares Muni ETF is more than 25% over that that past two years, compared to 12% for the Vanguard Total Bond market ETF. Given the depth of the Great Recession, and the near bankruptcy of the federal government, it is a remarkable testament to how extraordinary sta5te and local leaders have managed—especially compared to Ms. Whitman’s predictions.