Meredith Whitney has made a reputation for herself in muniland as an analyst that came from the equity markets to predict an impending municipal bond cataclysm. Municipal bond experts were flabbergasted at the enormity of Whitney’s call, as well as the lack of data she had to back it up. Her bark ended up being many times worse than her bite, and now my antennae are on high alert for analysts who come out of nowhere and make big, unfounded calls.
While working this afternoon I noticed John McDermott, a Financial Times blogger, tweet the following:
@johnpmcdermott MF global write that Moody’s underestimates vulnerability of school districts to a US downgrade — http://cot.ag/odqdwL
Since when was MF Global writing about muniland? MF Global is an institutional firm headed by Jon Corzine, the former Goldman Sachs chairman, U.S. Senator and New Jersey governor. When I went to their website they didn’t seem to be making markets in or providing research on municipal bonds.
For muniland, there are many knock-on effects of Moody’s placing the credit rating of the United States on review. The federal government distributes tax dollars to states, who in turn deliver them to county and local governments. But this report focuses on a third-order risk of a U.S. downgrade. The tone was overheated and a tad shrill, and the premise seemed deeply overstated: