Of Words and Waterfalls

She’s baaaack.

Not content to listen to the commentary that suggests that she doesn’t know what she’s talking about, Meredith Whitney is on the interview circuit again defending her assertion that there will be hundreds of muni defaults this year totaling hundreds of billions of dollars.

Only this time she’s redefining what the word "default" means. Usually it means that a party to a contract doesn’t pay what is owed. But Meredith is using the word in a more elastic manner. In a Wall Street Journal op-ed, she notes that state taxpayers have seen "defaults" through higher taxes and lower benefits. Municipal employees will see "defaults" when their contracts are renegotiated. And these will precede cash defaults to bondholders.

Obviously she has a different understanding of what the word "is" is. Her argument is reminiscent of Humpty Dumpty, who declares in "Through the Looking Glass" that a word means whatever he wants it to mean. But Humpty Dumpty analysis is sloppy analysis. You can’t change a word’s meaning just because you got careless on TV.

Meredith’s basic thesis is that cutbacks on the Federal level will stress State finances which will waterfall down to put pressure on local communities. It’s not a bad thesis, but she takes it too far. States and towns have lots of options, and we’re not facing Armageddon. Too bad Meredith can’t just say she goofed.

Douglas R. Tengdin, CFA
Chief Investment Officer
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