Meredith Whitney’s Critics Are Conmen
by Mark R. Crovelli
Mark R. Crovelli
by Mark R. Crovelli: How
the Egyptian Revolution Will Eventually Be Betrayed
Imagine for a second that you are a financial analyst,
financial advisor, institutional investor, or trader who specializes
in municipal bonds. Your goal, presumably, is to determine which
municipalities in the United States are creditworthy enough to justify
lending money to them.
Ideally, you hope to be able to pick up bonds that are dirt cheap,
have a high rate of return, and that have very low chance of defaulting.
This goal is usually difficult to achieve, because bonds with the
lowest risk of default usually have the lowest rate of return, and
vice versa for those with the highest rate of default.
Under certain circumstances, however, it is sometimes possible
to pick up low-risk bonds at bargain-basement prices. If, for example,
thousands of banks are forced to sell off their bond portfolios
to cover losses they are suffering on other toxic assets on their
balance sheets (mortgage backed securities, for instance), bond
traders like yourself can take good bonds off their hands for a
As another example, if people become unreasonably bearish about
the creditworthiness of municipal governments and start liquidating
their bond portfolios, (because, say, a financial analyst that people
trust makes a completely idiotic call), you can pick up the bonds
they are stupidly selling at ridiculously low prices.
As a professional investor, you love it when these rare events
present themselves. Since you know the market, and you have an insider’s
view into the creditworthiness of municipal governments, you want
nothing more than to be able to buy up good, dirt-cheap bonds and
make a veritable killing off the interest. Early retirements are
secured in such ways.
Given that you stand to make a fortune by buying up bonds that
people stupidly sell under rare circumstances, is it conceivable
that you would go on television and try to talk people out of selling
their bonds cheaply to you? The answer, of course, is that you would
never do such a thing as a professional investor. That would be
like a homebuyer going out of his way to publicly talk sellers into
charging him higher prices, or an art dealer going on television
to tell his artists to charge him more. Bankruptcy and unemployment
are secured in such ways.
Yet this is precisely what we are being asked to believe about
bond traders, financial analysts, and other supposedly enlightened
personalities in New York and Washington, who have smeared Meredith
Whitney in droves in the wake of her bombshell call on the municipal
bond market. Whitney is predicting "50 to 100 sizable defaults"
in the municipal bond space this year alone.
The tamping down of Whitney’s call has been truly remarkable, given
that the majority of the people blasting Whitney stand to make an
absolute fortune if she is wrong. Indeed, the only groups who do
not stand to make money off of Whitney’s call, if she is wrong,
are the municipal governments themselves and investors who are too
dumb or slow to take advantage of it.
Think about it. If Whitney is right about this
call, smart investors will all get out of municipal bonds immediately,
if they are not out of them already. If she is wrong, however, and
people flee municipal bonds unreasonably just on the basis of her
reputation (she accurately predicted the collapse of Citigroup before
anyone), the smart investors will still get out of municipal
bonds immediately so that they can buy back the same bonds in eight
months for half the price. Either way, smart investors will get
out now, and they will not try to talk other people out of selling.
This is especially true if Whitney is wrong, because smart investors
will want other people to sell off massively so that they can buy
back the bonds as cheaply as possible.
Given this, the fact that so-called professional investors
are trying to smear Whitney and stop a sell-off reeks of a con.
At best, they are trying to prop up a collapsing market long enough
to get themselves out. In other words, they are public liars at
best. At worst, they realize that Whitney is right, are holding
massive amounts of this toxic paper, and are praying to God for
either a miracle or a bailout.
is not going to turn out well for the little guys who are taken
in by this con and hold onto their municipal bonds. Especially since
Meredith Whitney is right.
Crovelli [send him mail]
writes from Denver, Colorado.
© 2011 by LewRockwell.com. Permission to reprint in whole or in
part is gladly granted, provided full credit is given.
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