"In an interview with Meredith Whitney of Meredith Whitney Advisory Group on Bloomberg last week, she stated, some states are a ticking time bomb. She published a detailed report rating the finances of the 15 largest U.S. states. California has one of the largest deficits that exists relative to their budget gap by size, but it has a real estate problem as well with a large amount of foreclosures. Florida has a bigger issue relative to foreclosures and real estate. The drain on tax receipts in Florida due to the foreclosure issue could cripple the states budget similar to California’s in the coming year. The bottom line of the report is the U.S. government may face a bailout for states within the next 12 months. This is not good news for taxpayers.
The municipal bond market is more than $3 trillion in size and it is owned by individuals and institutions. If there is a bailout from the Federal Government, it could dwarf that of the bailed out banking system in 2008. The bad news is the owners can’t take stock or preferred stock as collateral on the loans to the states. The primary concern near term is the rating on the state and municipal bonds. If these start to erode, the values will decline and investors will once again pay the price..."
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