Chanos compared the municipal debt situation to the mortgage industry, when subprime loans given to high-risk borrowers were hit with waves of defaults that ultimately brought down the financial services industry and required a government bailout.
"Municipal bonds are basically special funding entities where we were setting up a stadium or a hospital or a water plant, whatever, and it's done under the rubric of tax-exempt law," he said. "They're set up specifically that if the project doesn't work it doesn't imperil everything else. You think people are reading the financials of that water plant? I doubt it. They're depending on ratings agencies just like they did in the good old days of mortgage financing."
While the government bailed out the banks, it may not be so forgiving when it comes to local governments, Chanos added.
Join us on our
Share this page with your friends
on your favorite social network: