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And -- respiratory hazards were to have the top of the stack in October of 2007 Meredith Whitney was the first to point out the big banks were in trouble.
Defenders -- Wall Street called her every day when the book.
But she was right.
She then told fortune magazine it felt like she was at the epicenter of the biggest financial crisis in history.
That was one month before the financial markets collapsed.
She is also predicted there would be a large number of local government cities and counties that would default.
Some have but not to the level of her prediction but at least not yet.
So what does she see now joining me now CEO -- Whitney advisory group and author of fate of the states the new geography of American prosperity Meredith Whitney and so.
Let's get right to those Muni bonds because I sold a lot of Muni bonds of my day and I was very picky about them -- But you said at one point fifty I think he told sixty minutes -- -- fifty to a hundred.
Yeah but they haven't but is it do you -- -- -- what -- yet on there or.
Haven't yet and he's seen as steady.
Of not only municipalities.
And trouble but municipalities.
You know -- seeking.
Seeking help right to hand track in Michigan was the -- near the fifth.
-- this city to go into emergency management.
And we'll see you later in the month whether it -- -- -- BK.
Said this isn't anything I want it to happen.
But this is how the chips fall so.
You know what was what I thought it would July I think I you really underestimated.
I thought their reaction was going to first -- from -- -- the pitcher I was gonna come from.
The leaders think that the Johnson's gonna come from the elected officials and that's not what happened -- -- -- -- came from.
Initial bond community and I think then lost the message because my point and that thrust of this is not just about the -- bond world.
It's about America and about tax payers and pensioner and children and and people want -- -- -- issues.
And alienate people wander the value of the -- to go out and so this isn't negative focused on amusement bonds and it was narron and intended to focus on municipal bonds but.
My experience in dealing with municipal.
Bond issue worse.
Is that there are some that are very sophisticated in some that are -- -- and they're just lands waiting to be eaten up by firms.
Well I think that he had the one of the risks that that the big banks face right now.
And that sadly JPMorgan and -- this week was.
That that he -- blame goes to the guy who has the the money and so in that case -- Jefferson County.
Did -- -- takes head and it's almost a billion dollars 800 million dollars to it to be exact.
There's gonna -- there's gonna pick any problems and they're gonna problems for a long time and it's going to be painful and it's going to be painful for everybody.
And an end to make him to do the to the viewer.
This means that if you're running this city -- in the city -- -- somewhere or county treasurer or a school district or an airport district whatever it might be.
You're either going to have to cut services or raise taxes.
Yes and as do and many cases they're doing both so what that happened what happens that it.
It makes people say why -- paying more and getting last.
And and I paying so much more that I could save so much you know money by just moving.
And show you what states really need to be aware wary of that is are they losing businesses are they losing job creators -- they losing the bulk of their tax base.
And I know that I know that's a ball to her book before we get to death -- I'd that I do -- to come back to that point let me bring you back to October 2007 you -- -- about you were.
Raising the alarm bells about Citigroup.
You know gave you a hard time then you turned out to be right what did you see then that nobody else saw.
What did you see -- compared to what you see today is it better or worse -- the same.
Well what I saw that and I can't I can't just talk about this city -- but because what I was so early on for a year and a half was what was gonna happen with all the financial plays it started -- city.
But two weeks two weeks after it was clear there was gonna happen to sell -- -- financials city was just in the worst shape so.
What I saw that nobody outside was.
Strangely something that everybody else should have seen because the only thing I was looking -- was publicly available data and it was an issue that they're.
-- capital base was about half what everybody else -- capital base was relative to the amount of assets that had.
They'd been on an -- -- a moratorium where they couldn't buy anything once that was -- they -- basically everything in sight without raising their capital base they were really teetering -- -- very fragile capital position.
And they weren't making enough money to pay their dividend.
So and they had a bunch had outstanding.
Write downs associated with mortgages so.
That was nothing that somebody else in the scene and I don't think that with.
Everybody can't see if they actually look at the numbers I I didn't create numbers are or are fine numbers didn't anybody else can't get it's just doing little work and looking at it and I think.
-- what I -- city that was so powerful was.
I I explain the story explain the situation.
In a simple narrative and I hope to do the same thing with this deep tissue and that is incredibly powerful and when you explain things -- that people can understand it.
There's no debate and that's why did -- all from the defenders was so intense.
A right as an analyst.
You know you have no life he -- spend and you do you know diving and a number.
Have a Larry yeah I don't whatever you really have to read financials the problem is it's not the financials -- what's off the books.
Yap yap so -- haven't.
Look I had the advantage because.
And yeah I know the financials very well but in -- and showed that my job was actually to eliminate.
Everybody else to see what was what was greater what was really -- was really scary.
And I did that for 20072008.
And done that ever say -- dad -- that my whole career.
Yeah I think that it's so important for people like me to keep a level of and and level us as standards by which you're really giving people the truth and -- sadly it doesn't happen as often as it shed right.
It in this book fate of the states.
You're making the assumption.
That people will move.
I'm not sure you're right I don't think I've seen places -- people have been faced with all kinds of dismal financial futures and they still don't move.
OK so -- seven let me -- debated issue like Detroit.
So Detroit was one and still is an iconic city.
And and historically iconic city -- incredible success right the manufacturing -- Revolution in this -- lose another really in Cleveland a really extraordinary.
In the past decade Detroit has lost half its population and yeah -- people still ended -- But those people can't afford to move the people that can afford to move that could afford to the -- party laughed so what is to try left -- Not enough taxpayer tax dollars to pay for the services they need so recently they announced the citizens watch committee -- -- can't afford police there.
There's barely a grocery store they can go in and operating in Detroit decision not to critical mass and demand right there -- -- -- -- paring down houses because it's just been.
Urban neglect in urban flight to Meredith Whitney thank you for joining us thank you so I'm you know.
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