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Thursday
Dec232010

Meredith Whitney, Chris Christie On 60 Minutes: Illinois & California Are Bankrupt, States Face Reckoning Day

60 Minutes Video - State Budgets Day of Reckoning - Aired tonight

Transcript is inside.  Illinois is so broke that vendors have stopped accepting the state's credit card, and it now borrows 50 cents of every state dollar spent.

Meredith Whitney's thoughts can be found in more detail here:

We covered another angle of this story last week:

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(CBS) - By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments. 

It has gotten much less attention because each state has a slightly different story. But in the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole in their public pension funds. 

The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about. 

"The most alarming thing about the state issue is the level of complacency," Meredith Whitney, one of the most respected financial analysts on Wall Street and one of the most influential women in American business, told correspondent Steve Kroft.

Whitney made her reputation by warning that the big banks were in big trouble long before the 2008 collapse. Now, she's warning about a financial meltdown in state and local governments. 

"It has tentacles as wide as anything I've seen. I think next to housing this is the single most important issue in the United States, and certainly the largest threat to the U.S. economy," she told Kroft. 

Asked why people aren't paying attention, Whitney said, "Cause they don't pay attention until they have to." 

Whitney says it's time to start. 

California, which faces a $19 billion budget deficit next year, has a credit rating approaching junk status. It now spends more money on public employee pensions than it does on the state university system, which had to increase its tuition by 32 percent. 

Arizona is so desperate it sold off the state capitol, Supreme Court building and legislative chambers to a group of investors and now leases the buildings from their new owner. The state also eliminated Medicaid funding for most organ transplants. 

Then there's New Jersey. It has the highest taxes in the country, a $10 billion deficit and a depressed economy when first-year Governor Chris Christie took office. But after looking at the books, he decided to walk away from a long-planned and much-needed project with New York and the federal government to build a rail tunnel into Manhattan. It would have helped the economy and given employment to 6,000 construction workers. 

Gov. Christie acknowledged that's a lot of jobs. "I canceled it. I mean, listen, the bottom line is I don't have the money. And you know what? I can't pay people for those jobs if I don't have the money to pay them. Where am I getting the money? I don't have it. I literally don't have it." 

Asked if this is going on all over the country, Christie told Kroft, "Yes. Of course it is. It's not like you can avoid it forever, 'cause it's here now. And we all know it's here. And the federal government doesn't have the money to paper over it anymore, either, for the states. The day of reckoning has arrived. That's it. And it's gonna arrive everywhere. Timing will vary a little bit, depending upon which state you're in, but it's comin'." 

And nowhere has the reckoning been as bad as it is in Illinois, a state that spends twice much as it collects in taxes and is unable to pay its bills.

Read the complete transcript at CBS...

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Related stories...

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Reader Comments (32)

Dec 19, 2010 at 10:46 PM | Registered CommenterDailyBail
NEW YORK (MarketWatch) — Treasury prices rose Friday, pushing yields down from near seven-month highs, as traders deemed the resolutions from a meeting of European leaders to be disappointing, leaving sovereign-debt fears around to spook investors in the new year.

http://www.marketwatch.com/story/treasurys-gain-on-european-worries-2010-12-17
Dec 19, 2010 at 10:47 PM | Registered CommenterDailyBail
« N.J. Pension Disaster: Gov. Christie Tells Story Of One Retiree -- $124K Put In, $3.3M Taken Out »

http://dailybail.com/headlines/nj-pension-disaster-gov-christie-tells-story-of-one-retiree.html
Dec 19, 2010 at 11:07 PM | Registered CommenterDailyBail
« Secret GOP Plan: Avoid A Massive Bailout By Pushing States To Declare Bankruptcy, Smashing Unions »

http://dailybail.com/home/secret-gop-plan-avoid-a-massive-bailout-by-pushing-states-to.html
Dec 19, 2010 at 11:08 PM | Registered CommenterDailyBail
THE FED'S STUPENDOUS CRIMES AGAINST THE AMERICAN TAXPAYERS EXPOSED

http://impactglassman.blogspot.com/2010/12/feds-stupendous-crimes-against-american.html
Dec 19, 2010 at 11:11 PM | Registered CommenterDailyBail
Gov. Christie is obviously a DB reader...he's not perfect, but at least he's honest...refreshing...

"And the federal government doesn't have the money to paper over it anymore..." Yeah, Gov, but we're givin' it our best shot! XOXO, Ben B.
Dec 19, 2010 at 11:24 PM | Unregistered Commenterjosie
@josie...christie actually mentioned the fed in this clip...it's worth the watch...pretty funny...

http://dailybail.com/home/nj-gov-christie-tells-complaining-teacher-unlike-the-fed-the.html
Dec 20, 2010 at 12:03 AM | Registered CommenterDailyBail
Dec 20, 2010 at 12:10 AM | Registered CommenterDailyBail
Very interesting. To get to the root cause instead of whacking at the branches, go to:

www.iamthewitness.com
Dec 20, 2010 at 8:24 AM | Unregistered CommenterConcrete man
Hot damn what an interesting clip!! Meredith calls it again, she does her homework! I wish more people would dig into the meat of the issue rather than just turn every new piece of info into an excuse to bawl "dirty socialists!!!" Not that I'm a socialist, I was but I'm not any more because I learned to take in the arguements of both sides and make up my own mind. Of course I'm not a conservative either lol.
Dec 20, 2010 at 8:43 AM | Unregistered CommenterCanuck
@canuck...glad you liked it...one of the best in recent memory for sure...
Dec 20, 2010 at 11:20 AM | Registered CommenterDailyBail
According to Whitney, "you could see 50 sizeable defaults. Fifty to 100 sizeable defaults" amounting to "hundreds of billions of dollars."

http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/12/20/benzinga714486.DTL#ixzz18fZxjHJV
Dec 20, 2010 at 11:21 AM | Registered CommenterDailyBail
60 Minutes: Day of Reckoning Arrives; Chris Christie "It's Not an Income Problem, It's a Benefits Problem"; Six Common Sense Solutions

http://globaleconomicanalysis.blogspot.com/2010/12/60-minutes-day-of-reckoning-arrives.html

excellent from mish...
Dec 20, 2010 at 11:22 AM | Registered CommenterDailyBail
Gosh and golly, if only the US gov had invested that $700 billion in paying off the odious debt of 46 states instead of allowing bankers to use it to line their pockets after losing everything at gambling, maybe things wouldn't be so bad. Now the loathsome Chris Christie also wants to torpedo high speed rail on the East Coast? How many jobs would that have created? I guess the only investments states can do anymore is with the same crooked financiers who put us in this degraded situation. Who let these troglodytes out of Hades?
And now the same crooked ratings agencies that gave Enron, Lehman Bros. and Bull Stearns AAA ratings wants you and yoru family to starve or freeze to death by downgrading states credit ratings and enforcing austerity.
How do we end this?
Plutocratic heads on pikes is one solution, but what's a solution that involves neither mass starvation or blood in the streets?
Dec 20, 2010 at 11:24 AM | Unregistered CommenterDoug Diggler
@ Doud D.

What makes Christie "loathsome?" Because he derailed (enjoy the double entendre) the tunnel/rail? Did u watch the clip? He does not have the money. What's he supposed to do? Borrow and pay the construction workers with the borrowed money? That's what got us here...Debt!...and governement/government-subsidized jobs is not the answer...
Dec 20, 2010 at 12:53 PM | Unregistered Commenterjosie
@doug...

what josie said...;-)
Dec 20, 2010 at 4:54 PM | Registered CommenterDailyBail
@canuck...glad you liked it...one of the best in recent memory for sure...

DB, the last one was E Warren telling us what is going to happen in the next two years becouse of the "Banksters"...! & this is what im talkin about when I say just wait till the last half of 2011 and 2012. We aint seen Nothin-Yeat ?
Dec 20, 2010 at 5:28 PM | Unregistered CommenterTexas Dar
@josie

Most of the money Christie claims he doesn't have was federal - and please note that he tried to keep that even after cancelling the tunnel.

As for "government/government-subsidiezed jobs is[sic] not the answer", says who? In a liquidity crisis like we face now it's actually the textbook one.
Dec 20, 2010 at 5:38 PM | Unregistered CommenterMathieson
@ Mathieson

Don't know if "most" of the $$$ was federal (or NY), or that he tried to "keep" it (please share your detailed knowledge), but so what. What's he gonna do? Give it back? You mean like the Banks and GM?

And if your position is that our government is going to save us with jobs and reduce unemployment, well then, how's it going so far? Explain. But, don't forget to include debt, deficits and the Fed liquifying the world when you argue that it's working...

...I smell a keynes "textbook"...and it smells like shite...
Dec 20, 2010 at 10:07 PM | Unregistered Commenterjosie
In a liquidity crisis like we face now it's actually the textbook one.

---

@mathieson...

then why hasn't any of it worked...this depression has proven that stimulus is futile...too much debt...give it up before you bankrupt us all...
Dec 21, 2010 at 2:59 AM | Registered CommenterDailyBail
@josie

Wow, you can curse! Your argument must be correct!

You want something that stinks, how about looking at the economy of Ireland right now. Then compare their GDP growth with that of Iceland, and please continue on about deficits being the only problem and how Keynesians are all stupidheads.

As for Christie - http://www.humanevents.com/article.php?id=39388, as well as a host of other articles you can find through the magic of google. And yeah, if you're not going to complete the project you're taking money for you don't get to keep it. Stealing money from the Port Authority isn't reducing spending, it's just stealing.
Dec 21, 2010 at 3:06 AM | Unregistered CommenterMathieson
@TheDailyBail

then why hasn't any of it worked...this depression has proven that stimulus is futile...too much debt...give it up before you bankrupt us all...

-------------------------
The stimulus from 2009 was far too small, and far too much tax cuts. The depression hasn't proved anything about stimulus - the supposed one done by the federal government was more than offset by cuts from the states, for one thing.

I agree that the amount of debt we're piling on is nuts - and most of it is being added for no benefit, through luxuries we cannot afford right now (regardless of your feelings on tax cuts, their lack of macroeconomic effect is pretty evident). However also realize that a large part of the reason we're seeing such high deficits right now is decrease in revenues and increases in non-discretionary spending, both from the recession. Trying to cut the debt first, before recovery, is self-defeating.

The reinflation of the asset bubbles, which at best is all that QE2 might do, might definitely bankrupt us though. It is amazing and disgusting how quickly the party picked right back up after 2008.
Dec 21, 2010 at 3:12 AM | Unregistered CommenterMathieson
@Mathieson

I said deficits AND debt. Re: Ireland v. Iceland. Both were debt-fuled and stink. Unlike Ireland, Iceland let the banks fail. But, Iceland is not out of the massive debt woods. Yes, Iceland increased GDP by 1.2% for Q3 2010--Wow! (vs. 0.5% for Ireland). But, their debt is scary. Gross public debt was just 29% in 2007, but will likely peak at 116% of GDP in 2010 (source: International Monetary Fund). Only a bit of this extra debt is due to the budget deficits run up in recession. The main reason why Iceland’s economy did not fall harder was a turnaround in the trade balance from deficit to surplus. But that owed more to a collapse in imports, caused by a 25 per cent fall in consumer spending, than to reviving exports. Firms and householders are overburdened with debts. House prices have plummeted, leaving many householders in negative equity. Icelanders life savings are essentially gone. Not many Icelanders believe in recovery.

If Iceland is your poster child, take a closer look...

And notwithstanding your snide remark to me, DB and I asked the same question: why isn't it working? I particularly asked you about how governement stimulus would spur employment. Still waiting...
Dec 21, 2010 at 10:56 AM | Unregistered Commenterjosie
@josie

Iceland isn't a 'poster child' - but compared to Ireland it does show pretty well how self-defeating the austerity measures in the midst of a recession work. Not at all.

--------Only a bit of this extra debt is due to the budget deficits run up in recession.

I was speaking about the US, where falling tax receipts as well as non-discretionary spending, like unemployment, rising due to the economy is making the deficit far worse.

As for stimulus, like I said before, what stimulus? The 1/4 of the Obama bill that was actually stimulus, woefully undersized, and more than offset by state spending cuts? Making a generalization from that is like taking penicillin for one day out of 10, then declaring it doesn't work.
Dec 21, 2010 at 12:18 PM | Unregistered CommenterMathieson
I particularly asked you about how governement stimulus would spur employment. Still waiting...

One thing the American People Dont Understand, is that all this Bail Out, governement stimulus , will do Nothing for the American People. We were lead to belive it will help us get back on our feet.

The Goverment Bail Out is only for Bailling out the Goverment and Big Bussines, thats all. All the Unions that put BHO in the white house.

We get Nothing. All the lost jobs are gone for good. It was planed that way. All the people that have lost everything are having to turn in their children to the state becouse they have no other choice. Its called the "99,ers" Group. On unemployment & food stamps for life.

This was all set up by the ones getting all this goverment money that is taking it from our childrens future. The planning was started way back in 1970 to take down America in 2008-2010. Sad, its working better than they planed it becouse the people cary so much debt.

So, "Wake Up People"...........this party is not for us. & becouse there is so many no longer working and paying into the system, that is why the local goverment and citys are going down right along with us, wile goverment & Big Buissnes take our money and go Christmas Shopping.
Dec 22, 2010 at 12:51 PM | Unregistered CommenterTexas Dar
@Texas Dar

I think you're arguing against something I'm not arguing for, and conflating the bank bailouts with general stimulus.

Conspiracy theories aside, the question is this - is it better to spend money for unemployment, or to spend money employing people to do something useful? Fixing an aging infrastructure seems a much better use of money than paying people to not to anything.

As for "how stimulus would spur employment" - if an unemployed person gets a job building infrastructure, they then spend the money they make. This provides employment to other people, who then spend the money they make, etc.
Dec 22, 2010 at 1:22 PM | Unregistered CommenterMathieson
@ Mathieson

is it better to spend money for unemployment, or to spend money employing people to do something useful? Fixing an aging infrastructure seems a much better use of money than paying people to not to anything.

You are very right. I to bought into the "F**ing BS" the goverment told all of us to get the bill passed. It sounded like we would re-build our country at last, and put Millions back to work. Dident happen "Did It".............

As for "how stimulus would spur employment" - if an unemployed person gets a job building infrastructure, they then spend the money they make. This provides employment to other people, who then spend the money they make, etc.

You are very right once again. I thought too this was going to happen like the rest of "The American People" did. Dident happen did it....? If it did, we would be well on our way out of this mess our goverment put apon us.

Like you say, it all starts on the bottom with people working with money to spend. Doing that will help the people of our country. BUT, Thats not how the goverment planed it. Your hoping, like the rest of us are that BHO would do what he told us he was going to do..................."He Dident"...? He Neaver Planed Too ? & he Neaver Will.

The goverment wants it just the way it is now. 1/3rd of the people sucking of the goverment money....... unemployment...! food stamps...! We can wish all we want, it aint gona happen.

BHO dose what George Soros tells him to do. For 35 years he planed this. Its going right as planed, to take down the middle class people. Its the "Shadow Goverment" running the show now. The American Dream, is Dead...! You have 2 more years to be ready to live a life you neaver thought could happen in the USA........!
Dec 22, 2010 at 3:28 PM | Unregistered CommenterTexas Dar
and conflating the bank bailouts with general stimulus.

And where did you think the money came from to bail out the banks. 80% is already in the banks. "Our Money", by the way. Thats why you only see a few things happening to shut up the American People. So the uninformed think our money is going to rebuild our country. To cover the fact that goverment took our money to bail out goverment. Not states or citys.

Hey, in 2 years have you seen anything going on....? In 2 years all you will see is more of the same. Empty words, from a empty president. Telling you what you want to hear. We just browed a Trillion more of our kids money so the goverment can live high on the hog.

And it wont stop untill were all home-less, living under the bridge, eatting garbage.
Dec 22, 2010 at 3:40 PM | Unregistered CommenterTexas Dar
@Texas Dar

Like I said, I'm not arguing what you are. The Obama administration has been a total fucking bullshit giveaway to Wall Street, while Main Street gets to deal with the consquences. It's totally bullshit. I actually was on Wall Street, in the street, the day the bailouts were announced, which was also the day the banks obviously took over.

The amount spent to rescue the banks, who slurped up profits creating the crisis dwarfs the amount spent to actually fix the economy that it's pathetic. It's also why calling Obama a Keynesian is just wrong, as almost NOTHING he's done, or compromised into doing, depending who you ask, fits with Keynes.
Dec 22, 2010 at 4:09 PM | Unregistered CommenterMathieson
OK, just as long as were on the same page. There are so many people that still think goverment is working for the American People, like they did back in 1865.

Not anymore.....? We that still have a job, home, car, need to work with the ones that dont anymore. Its not thAre fault, they are whAre they are. We came "Very Close" to being homeless after the hospital fired Ann in the down sizing 2 years ago.

We have taken in 4 familys that have nothing, plus one more unwanted kitty, Jamilla with 6 toes on her front paws. We bought a lot of toys for the kids, and pleanty of food to feed them all. You get back, what you give.

2 familys bought way more than they could aford. The kids dont understand that. They will have toys, & pleanty to eat. If you give $10.......you get back $100. We are all human, and make mistakes. "BUT" I have no Pitty, for thoes that brought this on for them self's.

But again, the kids dont under stand that, and a lot of people got caught up in the debit-trap. Reamber, its us aginst them. The home-less guy just may be the guy that has your back when they bust threw yr front door...............something to think about...?

I like yr style of thought...!
Dec 22, 2010 at 8:42 PM | Unregistered CommenterTexas Dar
Maybe the states should not have RAIDED the pension funds to pay for the illegals that have flooded this country and especially California the land of the liberal lunatics. My pension New York State Police and Fire seems to be in great shape in spite of two former govenors trying to unsucessfully raid it. If the Poilce and Fire didn't have attractive pensions, then there would be no police and fire, because the pay can't even support a family. We all had to work a second just just to stay afloat.What you receive when you retire is half pay, I get 16,000. per year. MAYBE we should look at the Seanators and Congress that have to serve only a term to get a pension that goes up everytime the present ones get a raise. They also get lifetime health benefits at no cost to them. LETS LOOK AT THE FEDERAL PENSIONS. And get real, lets get rid of the thousands and thousands that work fro the IRS and put in a flat tax so all the illegals even have to pay taxes. THE Politicos of today, have their heads buried in the sand because they don't, have the balls to address the real problem, ITS THE ILLEGALS YOU IDIOTS>
Dec 25, 2010 at 8:04 AM | Unregistered Commenterchris

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