Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17
These Two Articles Debunk The Biggest Financial Nonsense I See In The Media - 18th Sep 17
Bitcoin Price Crash 40% In 3 Days Underlining Gold’s Safe Haven Credentials - 18th Sep 17
The Sum of Risks – Global, Strategic, Political, and Financial - 18th Sep 17
The Netflix Of Canada’s Cannabis Boom - 18th Sep 17
Stock Market Sentiment Speaks: Either You Learn From The Events Of The Past Week, Or You Are Hopeless - 18th Sep 17
SPX 2500 … At Last! - 18th Sep 17
Inflation Lies, Lies and OMG More Lies - 18th Sep 17
How to Choose right Forex Trader? - 18th Sep 17
Who Has Shaped the World the Most? The Dozen Greatest Achievers - 17th Sep 17
Riding the ‘Slide’: Is This What the Next Stocks Bear Market Looks Like? - 17th Sep 17
Gold Up, Markets Fatigued As War Talk Boils Over - 17th Sep 17
Predicting the Future of the U.S. and the World - 16th Sep 17
Deceit in the Financial Food Chain - 16th Sep 17
Gold GLD ETF Investment Resuming - 16th Sep 17
Extreme Weather & Energy Markets: What's Next? - Video - 15th Sep 17
Trump’s Path to IP Wars - 15th Sep 17
GBP USD Approaches Fibonacci Target - 15th Sep 17
Higher US Interest Rates May Force Higher Inflation Rates - 15th Sep 17
Stock Market Investors: Taking the Road "Less Traveled" Has Its Perks - 15th Sep 17
The 3 Best P2P Lending Platforms For Investors In 2017—Detailed Analysis - 15th Sep 17
The US Debt Bubble Will Soon Warrant Serious Measures - 15th Sep 17
Why it is Often Difficult to Sell a House Fast - 15th Sep 17

Market Oracle FREE Newsletter

5 Markets Ready to Move Before Year-End. Eexpert Analysis and New Trading Opportunities

Muni Bonds: Matt Taibbi's Antidote to Meredith Whitney

Interest-Rates / US Bonds Feb 09, 2011 - 02:48 AM GMT

By: Janet_Tavakoli

Interest-Rates

The credit-worthiness of specific muni bonds, particularly non-general obligation project bonds, has become a hot topic since "AAA" bond insurers imploded, partly due to mispriced risk premiums on protection they wrote on value-destroying CDOs for Wall Street banks.


Meredith Whitney provided no research to back up her call on a recent 60 Minutes segment of coming defaults by large municipalities amounting to $50-$100 billion. Bloomberg News revealed that her muni report was on the state level and didn't cover large municipalities. That's a problem, since muni credit issues are granular and the severity of the problem -- or non-problem -- depends on the specific situation. Her unsupported claim gives muni-problem-deniers ammunition to claim there is no substance to the argument that there are serious problems with certain muni bonds.

The Columbia Journalism Review made a valid point when it called out 60 Minutes for not making sure Whitney could back up her claims. Max Abelson and Michael McDonald of Bloomberg News debunked her "untarnished" track record and Spaceballs-worthy jabberwocky:

Bloomberg News reported in October that about two-thirds of her stock picks since starting her company in 2009 had fared worse than market indexes. A 2008 Fortune cover story ranked Whitney 1,205th out of 1,919 equity analysts the previous year, based on stock picking.

"A lot of this is, you know it, but can you prove it? There are fifth-derivative dimensions that I don't think I need to spell out to my clients," [Whitney] said.

"Whitney Municipal-Bond Apocalypse Short on Specifics," Bloomberg News, Feb 1, 2011 (excerpted and condensed).

In contrast, Matt Taibbi's Rolling Stone expose of Jefferson County, Alabama's sewer project is a hair-raising account of financial corruption, bribes, cost padding, pay-to-go-away agreements between investment banks, and fee slamming that wildly inflated the cost of a sewer project from $250 million to $3 billion. It saddled Jefferson County's taxpayers with a too-onerous debt burden and broke the financial back of the county. JP Morgan agreed to pay a $25 million fine to the SEC and $50 million to aid Jerrson County's displaced workers for its role in the devastation (updated):

The county, it turned out, was more than $5 billion in debt -- meaning that courthouses, jails and sheriff's precincts had to be closed so that Wall Street banks could be paid...Homes stood empty, businesses were boarded up, and parts of already-blighted Birmingham began to take on the feel of a ghost town.

"Looting Main Street," by Matt Taibbi, Rolling Stone, March 21, 2010

Whitney might back up her claim by walking the media through at least one analysis -- if she has one -- of the specific problems of a large municipal bond issue, since it is beginning to look as if Whitney's claims are a series of PR stunts.

Whitney's claim-to-fame, a bearish bank call on Citi, was over-hyped. Her Citi call was late. Jim Rogers, a world famous investor with a provable track record, appeared with her in early 2007 on Cavuto on Business and explained why he was short (bearish on) Citi. Whitney refuted him and continued to rate Citi sector perform, yet Citi underperformed the sector during this time period. It wasn't until October 31, 2007, that she took Rogers' hint. Likewise her Bear Stearns call was late, and her Lehman call was tardy. I mentioned this in a commentary after either she or her PR people seemed to take credit for an apparently nonexistent early call on AIG. (See: "Reporting v. PR: Meredith Whitney and AIG," TSF, March 23, 2009 .)

Meredith Whitney's PR has more issues than Rolling Stone, but Matt Taibbi provided evidence that he researched the substance of the problems behind a muni bond issue.

By Janet Tavakoli

web site: www.tavakolistructuredfinance.com

Janet Tavakoli is the president of Tavakoli Structured Finance, a Chicago-based firm that provides consulting to financial institutions and institutional investors. Ms. Tavakoli has more than 20 years of experience in senior investment banking positions, trading, structuring and marketing structured financial products. She is a former adjunct associate professor of derivatives at the University of Chicago's Graduate School of Business. Author of: Credit Derivatives & Synthetic Structures (1998, 2001), Collateralized Debt Obligations & Structured Finance (2003), Structured Finance & Collateralized Debt Obligations (John Wiley & Sons, September 2008). Tavakoli’s book on the causes of the global financial meltdown and how to fix it is: Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street (Wiley, 2009).

© 2011 Copyright Janet Tavakoli- All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife