Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
All Hail the King U.S. Dollar - Trend Forecast - 24th Nov 14
Where Is China Economy On The Map Exactly? - 24th Nov 14
Most of The World Economies Panic - Is The US Next? - 24th Nov 14
Stock Market Exhaustion Gap? - 24th Nov 14
Gold Golden Gains Come After The Pain - 24th Nov 14
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14
Currency Wars, the Ruble and Keynes - 21st Nov 14
Stock Market Investor Sentiment in The Balance - 21st Nov 14
Two Biotech Stocks Set to Double on One Powerful Catalyst - 21st Nov 14
Swiss Gold Poll Likely Tighter Than Polls Suggest - 21st Nov 14
Gold's Volatility and Other Things to Watch - 21st Nov 14
Australia Stock Market and AUD Dollar Analysis (ASX200 and AUDUSD) - 21st Nov 14
New Algae Research May Have Uncovered an “Energy Forest” Under the Sea - 21st Nov 14
The Cultural and Political Consequences of Fiat Money - 20th Nov 14
United States Social Crisis - No One Told You When to Run, You Missed the Starting Gun! - 20th Nov 14
Euro-Zone Tooth Fairy Economics, Spain Needs to leave the Euro - 20th Nov 14
Ebola Threat Remains a Risk - New Deaths in Nebraska and New York - 20th Nov 14
Stock Market and the Jaws of Life or Death? - 20th Nov 14
Putin’s World: Why Russia’s Showdown with the West Will Worsen - 20th Nov 14
Making Money While The World Burns - 20th Nov 14
Why This "Quiet Zone" Is Now Tech Stocks Biggest Profit Sector - 20th Nov 14
My Favorite Stock McDonalds Just Got Kicked Off My “Buy” List - 19th Nov 14
European Economies in Perpetual State of Shock, What's Scarier Than Deflation? - 19th Nov 14
Breakfast with a Lord of War and Nuclear Weapons - 19th Nov 14
The U.S. Economy’s Ebb and Flow - 19th Nov 14
What You Need to Know Before Investing in Alibaba - 19th Nov 14
Forget About Crude Oil Price Testing 2009 Low - 19th Nov 14
What Blows Up First? Part 5: Shale Oil Junk Bonds - 19th Nov 14
Bitcoin Price Did We Just See an Important Slump? - 18th Nov 14
How to Profit From Oversold Crude Oil Price - 18th Nov 14
Stock Valuations Outrunning Profits Growth - And the Band Played On - 18th Nov 14
ECB Buy Gold Bullion? Japan's Monetary Policy Dubbed "Ponzi Scheme" - 18th Nov 14
Gold, Silver, Crude and S&P Ending Wedge Patterns - 18th Nov 14
How High Could USD/JPY Go? - 18th Nov 14
On Obama and the Nature of Failed Presidencies - 18th Nov 14
Globalism Free Trade Immigration Connection - 18th Nov 14
An Epiphany From Hell - Buy Gold and Silver - 18th Nov 14
Too Difficult to Get a U.S. Home Loan - 18th Nov 14
Has the Gold Bear Trap Been Set - 18th Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

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.


© 2005-2014 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

Free Report - Financial Markets 2014