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
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
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: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower