Meredith Whitney: Federal Gov’t Will Bail Out States

The recent report released by Meredith Whitney regarding the dire financial conditions of states across is long overdue. Readers will recall an article we wrote last July regarding the possibility that the federal government may step in at some point to bail out struggling states.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

One Response to Meredith Whitney: Federal Gov’t Will Bail Out States

  1. The other article you linked to covered pension funds and the concept of pension funds has always bothered me. I don’t think pension funds make sense – it just really complicates things. Give the money to the person and let them invest it however they would like – they can then determine how much to save, what kind of risk they want to tolerate, how much to save, etc. All those make an impact on when you’ll be able to retire – maybe I want to save 60% of my paycheck and retire by 45, that should be my choice.

    Pension funds also open the company up to accounting troubles. Yeah, you’ve hired some amazing actuarial analyst, but if you want to get an expected return of 9%, you’ll shop around till you get one who can give you that percentage so you can overstate earnings in the relatively shorter term (till the pension fund shows significant underfunding).

    All else equal, there’s no doubt in my mind that I’d rather invest in a company without a pension fund than one that has a pension fund. That doesn’t mean I won’t dig into companies with pension funds though – there could be opportunities if it’s overfunded or underfunded and the market’s valuations are not factoring it in.

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