Run into more customer service bots lately? Let Marketplace Tech know. More info

Analyst Whitney skips Congressional hearing on muni bonds

Jeremy Hobson Feb 9, 2011

Analyst Whitney skips Congressional hearing on muni bonds

Jeremy Hobson Feb 9, 2011


JEREMY HOBSON: On Capitol Hill today there will be a hearing on the potential for a crisis in the municipal bond market. But the hearing’s star witness, financial analyst Meredith Whitney, won’t be there. Whitney famously — and accurately — predicted the collapse of the banks in 2007. But late last year she sent the municipal bond market into a tizzy with another doomsday prediction that some are skeptical about.

For more on all of this let’s bring in Roben Farzad, senior writer at Bloomberg Business Week. Good morning.

ROBEN FARZAD: Good morning, sir.

HOBSON: So Meredith Whitney, this analyst that a lot of people on Wall Street know about. She was asked to testify in Washington, she’s not going to testify. What’s this all about?

FARZAD: The sleepy, gentlemen-like municipal bond market all of a sudden is this just bastion of controversy. Look, she made a name for herself correctly predicting the banking crisis in 2007 as an iconoclast. But now she’s trying to come out and double down and say that the municipal bond market is going to explode and we’re going to see 50 to 100 defaults and this is going to propose another systemic collapse.

HOBSON: And what’s wrong with that?

FARZAD: There’s been a sort of very public peer review where she’s been called out by professors and fellow credit analysts and saying that really there isn’t substance to this analysts. This is just for shock value.

HOBSON: Seems like there are a lot of people in this category that made one great prediction, and since then they’ve been predicting doom and it hasn’t come true. Is this just about trying to repeat success and make money for themselves?

FARZAD: This is an evergreen theme that we see in bull and bust cycles. I mean people who called the 1987 crash really were never heard from ever again correctly. And we’re seeing a lot of this also from Nicholas Nassim Taleb and Nouriel Roubini — two of the other big doom sayers who were correct.

HOBSON: Is there an advantage to being wrong most of the time if you get it right once when everyone else is wrong?

FARZAD: Well Nassim Taleb’s model, certainly I mean he’ll come out and tell you that he can get it just you know, modestly wrong or be par for 14 years and be spectacularly correct for one year with this, you know, outlandish prediction and make money for his investors.

HOBSON: As long as it doesn’t hurt the municipal bond market I guess everyone else is OK with it.

FARZAD: Spray and pray.

HOBSON: Roben Farzad, senior writer at Bloomberg Business Week. Thanks so much for your time.

FARZAD: Thank you Jeremy.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.