Meredith Whitney Responds To Muni Bond Criticism

Meredith Whitney came under fire recently when she predicted that 50 to 100 municipal bonds could default. This morning, she responded to her critics on CNBC.

First and foremost, Whitney pointed out that many congressmen are saying the same thing. Michigan, in particularly, has said that many municipalities will declare bankruptcy.

“The people that are contesting this are the municipal bond brokers,” she said. Across the board, “[states] are spending more than they're bringing in.”

Right now, she said that states get money from the federal government, and that states give that money to municipalities. “That's $500 million the government is funneling to the municipalities,” she said.

“The most disturbing part of all of this analysis is the long-term effect… You have a flight-risk to states. If you're in a state that's less bearable to businesses, businesses are going to move. Then you have very strong states that attract the corporate investment.”

But don't expect another bailout. “To bail out the states would be the third trillion-dollar package, which would be very difficult politically.”

Earlier this morning, Whitney discussed the topic of dividends and how banks like J.P. Morgan (NYSE: JPM) should spend their money.