Dollar Dominatrix who saw the credit crunch coming

You have to believe Meredith Whitney when she says scheduling conflicts have kept her from agreeing to appear at today's House of Representatives hearing into state and local government finances. The woman they call the Dollar Dominatrix does not normally turn down an opportunity to espouse her apocalyptic views.

Her critics may caricature her bearish outlook, dismiss her as a self-publicist and sneer that it is her good looks that get her on TV, but she has earned her platform. People have been taking notice ever since October 2007, when she predicted that Citigroup, the most significant bank in the US, would run out of money to pay its dividend. She was pilloried for that call, but it turned out to be right – and then some.

Then, she was banking sector analyst at Oppenheimer & Co, a middling investment bank, where she had learnt her craft at the knee of Steve Eisman. He wasn't famous before the crisis either, but he is one of the heroes of the Michael Lewis book The Big Short, about the Wall Street misfits who saw the credit crisis coming and made a fortune betting against the banks.

Ms Whitney struck out on her own in 2009, creating the Meredith Whitney Advisory Group, and her ambitions have only grown since then. Her report on state and local government finances, The Tragedy of the Commons, is the first step in the firm's campaign to establish itself as a major rating agency of bonds and to dislodge the hold on that business by the tarnished trio of Standard & Poor's, Moody's and Fitch.

Profilers of Ms Whitney never fail to mention her husband. These days John Layfield is a Fox News commentator, but he is better known as a champion wrestler. These days, it's hard to say which of the pair is the tougher cookie.

Gambling on municipal bonds

The US federal government's $13trillion debt has been the No 1 political issue since November's midterm elections, but it is the $2.8trillion of debt raised at the other levels of government that has the financial markets and their close observers really concerned right now.

The 50 states are divided into counties, with towns, townships and individual cities below those, and – together with school districts, redevelopment agencies, public utilities, airport authorities and other agencies – all have been able to tap the municipal bond market for cheap funds. Municipal bonds, pr "munis", enjoy favoured status in the financial markets. Because they might be used to fund infrastructure or development projects, they are viewed as worthy of public support, so the income investors get from them is often exempt from tax. That is not something that can be said of corporate bonds, so investors tend not to demand high interest payments from munis.

As well as the tax breaks, munis have found favour because of their perceived safety. Most of the authorities that issue them have tax-raising powers, and could therefore tap citizens if necessary to avoid defaults. Other munis are secured on revenues from things like road tolls or airport fees. Investors took comfort from the likelihood that, should a city or county get into trouble, the state was likely to step in and help out, rather than risk a default that could raise interest rates for all state muni bonds.

That isn't to say that munis don't default. Last year saw one of the largest defaults ever, when the Las Vegas Monorail Co filed for bankruptcy. The four-mile train line, which links hotels on the Las Vegas Strip, never came close to the revenues projected in 2000.

The city of Las Vegas's own bonds were downgraded last month by Fitch, which cited the ongoing recession affecting the area. And it is a picture that is common across many of the worst hit parts of the US. The question is how severe the crisis becomes.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
science
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
News
Comedian Ted Robbins collapsed on stage during a performance of Phoenix Nights Live at Manchester Arena (Rex)
people
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links