That’s because it takes years to cure some of these things. And by doing it that way, by counting bonds that are already in default, you can come up with many more billions of dollars in defaulted municipals every year. Some analysts, scanning the daily material event notices at the Municipal Securities Rulemaking Board’s EMMA web site, count all notices of default that are posted by issuers. How are you counting? The people at Distressed Debt Securities, who have been doing it for decades now and who are the only ones with a historical database over that time, and who use a consistent methodology in their approach, count new defaults only in their calculations, which I think is the correct way to do it. The $100 billion over the next five years isn’t outside the realm of possibility. In 2010, 82 deals failed to pay on $2.7 billion in bonds. In 2009, more municipal bonds defaulted, 207, on a lower dollar amount, $7.3 billion. The record year for municipal bond defaults was 2008, when 167 issues totaling $8.5 billion went bust, according to the Distressed Debt Securities Newsletter. What’s more, it may not be so outrageous, depending upon how you count defaults. That $100 billion estimate from the Roubini firm isn’t in the same league as the Whitney call. “And so noted doomsayer Nouriel Roubini joins the numerous commentators who have opined about the municipal bond market, the most famous, of course, being Meredith Whitney, who in December on the CBS show ‘60 Minutes’’ blurted out the prediction that there would be ‘hundreds of billions’’ of municipal bond defaults in 2011. Nouriel reminds us that “governments cannot be liquidated” like corporations.īloomberg’s Joe Mysak observed the following about Roubini: His base-case estimate of defaults over five years for the investment-grade sector was under $30 billion, with “ultimate recovery” of nearly all the losses. He noted that most of the bonds he expected to default were in the high-yield or junk-bond category. Nouriel Roubini suggested that there may be “close to $100 billion of defaults over five years, but typical 80% recoveries are far higher than on corporate bonds.” Nouriel outlined his view of trouble in the Muni world and attempted to measure the exposure in a very thoughtful way. In our view, there is nearly zero chance that there will be 50 to 100 sizeable Muni defaults amounting to $100 billion in the calendar year of 2011.
While the current MENA turmoil is a serious new development, the resulting oil price shock will not help her be right in her forecast. Meredith did not know about any oil shock when she made this forecast.
The year in which the economy is in some sort of recovery and when the interest rate is held near zero by the Fed. With great media fanfare, she predicted “50 to 100” sizeable muni defaults, totaling about $100 billion, in 2011. Let’s talk about Whitney’s forecast first. He, therefore, used modifiers to adhere to it. This now haunts her to the point that she declined to appear before a Congressional committee that wanted to discuss Muni default issues.
–Jane Bryant Quinn, Reader’s Digest, 1 Dec. “The rule on staying alive as a forecaster is to give ’em a number or give ’em a date, but never give ’em both at once.”
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