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News Link • Economy - Economics USA

Meredith Whitney: States Are Poised to Be Next Credit Crisis for US

But she reserved her harshest words for the states. She said the paper released Tuesday was the culmination of two years' work by her firm and was made even more difficult by the lack of reliable data on state spending and debt. "It reminded me so much of the banks pre-crisis that we just kept working at it," she said. "We couldn't find anything that gave us a clear story, we couldn't find any information that was transparent. So we did it ourselves." There were some bright spots: Texas, Virginia and Nebraska were among states that have done a good job of controlling their finances over the years and aren't threatened as much. But other states, such as California and Michigan, will burden the entire country should the federal government decide to step in with a bailout. States are required to balance their budgets, but massive debt-service payments could prevent that from happening in many states and necessitate the federal government to step in. "You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout," Whitney said. "That has consequences on the dollar, that has consequences on just about everything. It certainly has consequences on the US recovery."

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