Janet Tavakoli: 2011: The Year 60 Minutes Misled Americans About Municipal Bonds

Janet Tavakoli: 2011: The Year 60 Minutes Misled Americans About Municipal Bonds
Way back in December 2010, 60 Minutes did a story on the supposed crisis that was going to hit state and local governments and cause massive muni bond defaults in 2011. They featured a banking analyst named Meredeth Whitney who is regarded by some as a prognosticator. She predicted fifty to one hundred "sizeable defaults" totaling hundreds of billions of dollars. What actually happened was that muni bonds outperformed most other asset classes. Janet Tavakoli says they "beat the S&P, treasuries, corporate bonds and most commodities."

Tavakoli isn't saying that state and local governments are in good shape financially, but her takedown of Whitney and 60 Minutes for their exaggeration is instructive. Real governments have lots of institutional support that let them get through horrible economic times. Private quasi-governments, by contrast, are almost entirely left to get by using their own limited resources. If anybody at 60 Minutes had asked me about local government fiscal crisis I would have told them to pay attention to homeowner and condo associations. There has been some major carnage in neighborhoods all over the nation. While 60 Minutes and Whitney were focusing on Nevada's supposed impending default, what really happened? According to the State Treasurer, "The economy was still tough, but Nevada managed in anticipation of the ongoing crunch. Property tax revenues dropped, but sales tax revenues were up, gambling revenue was up, and business modified tax revenues were up. Her cash position in June 2011 was much better than 2010." And what happened to the condo and HOA projects in Clark County? What little coverage you can find shows a privately-managed housing sector in ruin.