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Will Meredith Whitney Be Proven Right In The End?
We noted, in September, that corporate bond downgrades were outpacing upgrades very notably and today we get the other side of that with Moody's noting that in Q3, Muni downgrades outweighed upgrades by the most since the financial crisis began. At 5.3 to 1, the third quarter of 2011 had the highest downgrade-to-upgrade ratio of any quarter for the U.S. public finance sector since the onset of the financial crisis in 2008. "A rapid deterioration in credit metrics led to a higher-than-average 14 multi-notch downgrades."
While the number of defaults (and size) has hardly been what Ms. Whitney expected, and the overall performance of Muni bonds has been strong - especially relative to corporates - the volumes of downgrades from S&P and Moody's is definitely 'unusual' from a cyclical perspective and we note the rather systemic decompression between General Purpose Revenue bonds vs high-quality G.O.s.
Moody's 'government' upgrade/downgrades over past few years from Bloomberg's RATT screen.
S&P's upgrade/downgrades over the past few years.
And from Moody's:
At 5.3 to 1, the third quarter of 2011 had the highest downgrade-to-upgrade ratio of any quarter for the U.S. public finance sector since the onset of the financial crisis in 2008, says Moody's Investors Service in its quarterly report on rating activity in the sector. The previous high of 4.6 to 1 was registered in the fourth quarter of 2010.
"Downgrades dominated rating revisions across all public finance sectors except for healthcare," said Assistant Vice President-Analyst Dan Steed, author of the report. "A rapid deterioration in credit metrics led to a higher-than-average 14 multi-notch downgrades."
The impact of deficit-cutting measures by the federal and state governments will be a key driver of rating changes across public finance sectors as the strains on core operating expenses and revenue sources of the last three years will likely persist over the next year, according to Moody's.
"This will be mostly due to economic stagnation, high unemployment, declining home values, and low consumer confidence," said Steed. "We expect downgrades to continue exceeding upgrades in upcoming quarters."
--State ratings: Downgrades outpaced upgrades by 10 to 1, as transit and highway revenue bonds accounted for 60% of the downgrades. We expect the trend to continue against a backdrop of federal budget cuts, and lackluster revenue growth exacerbated by increased reliance on personal income taxes.
--Local governments: At 9 to 1, the ratio of downgrades to upgrades significantly exceeded totals (3 to 1)of the prior quarter. Similar to the first half of 2011, school districts were challenged by declining property tax revenues, as well as reduced state funding. A total of 26 local government issuers were downgraded by multiple notches given the sharp deterioration in their financial metrics.
--Not-for-profit hospitals: Upgrades outpaced downgrades for only the second quarter in the last two years. We do not expect this positive trend to continue, especially for smaller-sized hospitals, given continued pressures on major revenue sources such as Medicare.
-- Higher education and other not-for-profits: Ongoing operating pressures and strained liquidity drove the elevated level of downgrades. Unlike the previous two quarters, there were no multi-notch downgrades of higher education or not-for-profit credits. Over the near term, the number of downgrades will likely continue to exceed upgrades due to operating challenges and strained liquidity.
--Infrastructure: The third quarter's single upgrade was significantly overshadowed by 18 downgrades. Downgrade activity might stabilize as operating conditions for infrastructure credits are likely to stabilize over the next year unless economic growth declines precipitously.
--Housing: Continued challenges in the housing and mortgage market led to another quarter in which downgrades exceeded upgrades by a material 3-to-1 margin. The outlook remains negative due to high delinquency and foreclosure rates, low reinvestment rates, and the deterioration of counterparty credit quality.
It is worth bearing in mind that if downgrades continue and Munis underperform then the MtM changes may well be enough to drive significant negative pro-cyclical behavior as the typical investor (in a similar way to Italy bond holders perhaps) is not used to seeing capital depreciation while they earn their modest yield. Perhaps that is the catalyst - further downgrades, fund outflows on price depreciation, and exaggerated liquidity dry ups - as opposed to simple fiscal concerns?
Charts: Bloomberg
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I think she already has, at least in part
Does ZH really want to align themselves with these losers and misfits from OWS New York Chapter?
This is what I saw in Zuccotti park
http://s2.photobucket.com/albums/y33/PARSES6/OWS%20NYC/
Oh-Sorrry, are they not "1%" enough for you?
National Review article. More spin, but shows status quo freaking out
November 3, 2011 4:00 A.M.
Ron Paul Fever at Zuccotti Park
Not quite birds of a feather
I hear many names bandied about in Zuccotti Park, and not just at the fringes. Among the most popular are Karl Marx, Hugo Chávez, Michael Moore, Paul Ehrlich, and Dennis Kucinich. But today I heard a less predictable one spoken more widely: Ron Paul.
There are three key reasons for this, I think. The first is a good old marriage of convenience, the same sort of unholy alliance as arose in the early 20th century when Baptists and bootleggers came together to argue for the prohibition of alcohol in America. You see, Ron Paul is angry, too, and he wants to “restore” America to its old ways. The majority of Paul’s policy positions may be radically different, but much of his rhetoric is in line with Occupy Wall Street’s, particularly his anti-Hamiltonian conviction that the banks have callously denatured the United States. For many, this alone is enough to make him an ally.
-1 You already said that
-1 Replying to the first comment to get your shit at the top, instead posting a new comment.
-1 OT
Yes, I dont know any bankers, must be cool to be you.
He's upset about new article in National Journal that Ron Paul supporters taking over OWS. Too bad for you clueless.
Now that is good news if true. I saw 1 Ron Paul sign at OWS...and I believe it was sarc "Ron Paul/Barney Frand 2012"
I am a Ron Paul Libertarian and I loathe the GOVT
Well be happy then, lazy running by OWS to take their water, mother fucker.
posting this on every blog entry today?
"Clueless Economist"... HUSH YOUR MOUTH!
HOW DARE YOU QUESTION "ZH"...Now go stand in the corner!...
Now face the wall and keep that (DUNCE) hat on!!
I don't know if you are an economist but you are certainly fucking clueless.
Stumbled on this this gem from an earlier post of his:
"I predict it will peter out when it becomes colder rather than devolve into violence." - Clueless Economist Sun, 10/23/2011 - 12:25
I just smile when I see people attacking OWS for being stoners, derelicts, or esentially uncouth, this only shows a shortage of effectual ammunition.
Have you spoken to these people like I have?
You are a Soros controlled idiot.
So really what did you expect, Rolls-Royces parked at side streets, men in business suits and waitreses and bus boys runing around serving drinks and cleaning? And what ZH has to do with it?
Why don't you ask your governments to roll them over? Your big piece of shit motherfucka.
OWS seems to be starting with the fringe for sure. No argument there. But, the heart is the right place - and the lack of clear leadership makes it difficult to co-opt. Infiltration is another story though - potentially serving to shape public opinion towards the movement (negatively of course).
My real fear actually is that OWS morphs into the exact weapon of our destruction. That is, there are more people beholden to the system via paycheck, pension, medical care, welfare, etc. than not in our current society. But, I am also a skeptic here because I don't believe that there is any viable solution that will make good on all the promises... let alone allow us to continue with parabolic population growth in face of peak oil, water shortages, etc.
she was right, but her timing was off, and she underestimated the amount of printing. Supercomittee cuts will be a huge drag on state & local government. States will rebalance by making further cuts to muni. US growth is from financialization, and not real economy, its only a matter of time, before it collapse.
How can economist talk about growth (non-real) when there's 40M+ Americans on food stamps. That indicates there's something seriously wrong with the real economy. The phantom economy can mask the problems in the real economy, for only a lil while
boiling frog syndrome
Is this the same Meredith Whitney that was in" Last Action Hero"munis will go as property values go...down.
At the rate things are going, she will be right..
right after the printing presses disslove into a puddle of molten metal and ink.
And it seem to me that the presses are probably running at warp speed right now.
Where is all the money that is propping up this market coming from anyway?
Anybody you know?
gold should so be at $2100 right now...and silver at $84.
Right now: the dollar should be worthless, gold should be $10,000 in real terms, silver should be $1,000, and housing should be down 70%-80%
not possible YET with the world of money scurrying into the dollar for safety (perceived)...that time will come, but not now. $2100 on the way to $10,000....but good luck spending it on things that matter (food).
I said in real terms. I'll likely be able to buy thousands of loaves of bread with one oz. of gold and I'll likely be able to buy hundreds of loaves of bread with one oz. of silver and I'll likely be able to sell my house for 70%-80% less of loaves of bread than I'm able to now. Is that better?
This farmer will accept nothing less than PM's for my produce when things get ugly....gl finding a farm that'll take paper.
since most people don't own PMs what will you do when the mob comes for your crops? take paper or lead?
Exactly, PMs and an escape plan is what's in order.
Yeah and the next Mega Millions drawing SHOULD come up with all my numbers...
Last night this conversation between Obama, Geitner and Bernanke was recorded in the Oval Office:
Obama: What seems to be the problem gentlemen? And it had better be important because Sports Center is about to give my pre-season basketball picks.
Geitner: Mr. President the global credit markets are seizing up again. All liquidity is being drained from the system because those greedy European peasants are demanding what was promised to them.
Obama: No problem Timmy. I'll give a speech in the morning with soothing words and caring faces. I'll put just the right emphasis on selected words and phrases. The press will fall all over themselves thanking me, and the markets will heal.
Bernanke: (Looking at Geitner with dumbfounded glare) Mr. President I think we may need to do more than that. I think we need to inject a significant amount of capital into the markets immediately. We can call it The American Re-Investment Act Phase 9. I'll print the living shit out of money, and create a lot electronically, then the system will free up. (A devilish grin appears.) Of course we will have to tax some one for the additional debt.
Obama: Is there any way we can exempt minorities, Muslims, single mothers and White Sox fans from the tax?
Geitner: I think that is called Obamacare.
Obama: Hmm... (scratching his chin) This is another hardship on the American people, and more importantly, it will hurt my poll numbers. Do you think we could blame Bush?
Bernanke: (Trying to keep a straight face.) Mr. President you will be viewed as a hero to thousands on Wall Street, which means big campaign dollars, and we can even blame it on the banks. They don't care...
Geitner: (Laughing out loud) Yeah... like they have souls anyway.
obama: hey timmy, before you leave put some air in by basketball
timmah: yes sir
Obama: ,... and you there ben, hang around, your going to be going one-on-one with me doing some lay-ups
benny: how high do i have to jump
obama: the skies the limit
ps. just couldn't resist myself, Chief KnocAHoma
made my day :-)) tx
+1
I think at last tally there have been over 60 munipal bankrupt/wiped-out since she made the big announcement.
Its all going down slowly in the night with a whisper of a gurgle....
Got God.
Got Silver.
(not questions...only answers)
Not really. Whitney claimed there would be "hundreds of billions (presumably she meant millions with an 'm') of dollars in municipal defaults". These aren't even defaults, they are downgrades, so she's not even remotely close.
So when will the municipal markets man up and destroy all the bankrupt cities out there?
Like Compton...
http://www.latimes.com/news/local/la-me-compton-20111101,0,7089212.story
Compton finds itself in full financial meltdown
Yet the sheeple and plantation workhands still vote for those corrupt malcontents in charge...or refuse to vote, or refuse to vote with their feet...
http://ctj.org/ctjreports/2011/11/corporate_taxpayers_corporate_tax_dodgers_2008-2010.php
http://www.ctj.org/pdf/12corps060111.pdf
NEW REPORT: 280 Most Profitable U.S. Corporations Shelter Half Their Profits from Taxes.
“These 280 corporations received a total of nearly $224 billion in tax subsidies,” said Robert McIntyre, Director at Citizens for Tax Justice and the report’s lead author. “This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”
· 30 Companies average less than zero tax bill in the last three Years, 78 had at least one no-tax year.
· Financial services received the largest share of all federal tax subsidies over the last three years. More than half the tax subsidies for companies in the study went to four industries: financial services, utilities, telecommunications, and oil, gas & pipelines.
· U.S. corporations with significant foreign profits paid tax rates to foreign countries that were almost a third higher than they paid to the IRS on their domestic profits.
Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association
http://www.treasury.gov/press-center/press-releases/Pages/tg1350.aspx
http://www.treasury.gov/press-center/press-releases/Documents/TBAC_Fin_Table_Q4_2011.pdf
http://www.treasury.gov/press-center/press-releases/Documents/TBAC_Fin_Table_Q1_2012.pdf
http://www.opensecrets.org/
And Brown is giving illegals free tuition. lol!!
Reciting from memory:
Average costs to house a prisoner in USA: $22k per year
Average cost in Fed pens: $28k per year
Average costs in California per prisoner: $58k per year.
No wonder they are busted
Prison is good money for the ones running the show.
A little clockwork orange wouldn't hurt--but there's no money in 'fixing' peoples, is there?
I read (must be true) that in Japan seniors are committing violent crimes to get put in jail to be provided for in old age...now that's a penal pension system to die for.
Compare that to tuitions and Brown almost looks like a genius.
California says : do the crime - do no time
Who knows. But I will speculate it will hit like a tidal wave. Why? Because it is all about cash flow, not cash. It is amazing how operations can be run, even in the most brutal of times, as long as there is cash flow. But, when the cash flow stops (is suddenly insufficient to a great enough degree) it is game over in a hurry. Same as we witness with the likes of MF Global.
the local news today is that detroit will be bankrupt by febuary,
the mayor is already calling in a financial manager to swing the wrecking ball.
this news has not hit the major press yet.
curious,... could it be the guy that just left fannie?
http://www.reuters.com/article/2011/11/03/us-detroit-financial-manager-i...
News starting to roll on it now it seems. Thanks for the tip.
Meredith will be proven correct... in time. Just early to the party.
Early calls often cause financial catastrophy.......the naz bubble crushed many short sellers, the muni market has been rallying all year-----but yes she is right, just not rich anymore (if she invested in her call).
It is said that being early is the same as being wrong.
It depends how quickly they can raise property, sales, and other taxes.
You know it's coming.
Meredith was right at that point in time but if THEY change her input variables over time then she will only be partially correct.
It's coming for sure. Pushing on a rope though. The average consumer will continue to retract in terms of consumer spending as the local governments demand more in property taxes, fees, etc. Net result is a negative feedback loop... diminishing returns in the face of increasing costs to service obligations and debts. This is what will guarantee the end will come with a bang. Most munis will appear to run smoothly right up until they implode.
claro amigo. got some kettle popcorn and a supersize lemonade.
It's hard to raise property taxes when property values are falling.
It's hard to raise any taxes when 15% of America is on food stamps and there are no jobs.
When taxes are already high during the good times, and your city experiences financial shortfalls during the bad times, they've left themselves no wiggle room. In other words, these taxing entities were running a deficit during the good times because of debt, as were their taxpayers, so there is no way in Hell raising taxes is going to get them through this.
They use a slush fund to get them by as they raise taxes and fees. It's called City, County and State CAFR's. They maintain 2 sets of books.
At one point they were even dumb enough to put it online:
http://web.archive.org/web/20011004210431/http://www.financenet.gov/stat...
http://www.criminalgovernment.com/docs/rel/BurienPost1.html
Here are details about it from:
Gerald R. Klatt
Lieutenant Colonel, USAF (Ret.)
Former:
Auditor/Commander, Air Force Audit Agency
Federal Accountant
http://www.cafrman.com
They got fat, dumb and happy during the boom. Made lots of commitments and promises they now can't keep. But, they can't simply delever the same as the private sector. Too much union and political push-back. And they haven't really got anywhere to run in terms of revenue. So, they are forced into risky investments at yield requirements that are insanely high (i.e. credit markets). A good portion of what is going here with the Fed a la market manipulation is life support for the muni's.
What you also have to take into consideration is that Moodys/S&P/Fitch are now quicker to pull a downgrade trigger as to not be held accountable for lack of oversight. In some cases, probably a little too trigger happy.
" In some cases, probably a little too trigger happy. "
- doubtful IMO
All things considered, she will be proven right.....to an extent. But not to the number of defaults and hundreds of billions that she initially stated. Municipalities are in trouble, that's a given.
As far as the muni market, it's a sloppy shit-show.
I kind of agree. Not sure about numbers affected, magnitude.
I certainly don't think you can be 'too quick' with downgrades if you've been playing over-zealous booster for YEARS. Especially entering what is clearly a massively DEflationary cycle-era-epoch.
KY works well whenever illiquidity becomes a problem.
Eros works great too; you can shove a marshmallow into a piggy bank with that stuff.
When CNBC ask her to return. She should.
Then she should tell Joe Kernen and Michelle, "Fuck You Assholes". Right on the air.
If she does, I'll make it my ringtone
Miche, Meridith and a lot of mud
Fuck you, you simple assholes.
If she came on and set them on fire with a blowtorch would be more betterer.
A couple burning cunts would light up my day, for sure.
Of course she will be proven right. Anyone that can do 5th grade math knows she is right (which of course excludes CNBC)
bdc63
(which of course excludes CNBC)
You KNOW CNBC is the Clinton N Barack Channel right?
Oh yeah? So GW Bush, our prior president - his last name was really either Clinton or Obama?
There was never any cheerleading for the markets to GO GO GO UP UP UP when Bush was our Cheerleader-in-Chief?
Twit.
Exactly. There are real differences between the two parties, just not on any of the issues that really count.
In fact, I would go a step further and say that the core function of those parties is to remove the important issues from the public debate and manufacture those lesser issues.
Most Americans are politically illiterate. Political parties have one and only one priority: To win elections.
Hence, politicians only have one true priority: To win elections.
Neither political parties nor politicians care a wit about governing for the people.
Just win baby. By any means necessary. That's all that counts.
Yep, two parties which are the mirror image of a huge, steamin, stinkin, pile of shit.
The Fed will set up and send instant bankwires to any 'big' muni that's in trouble...Somehow the money will be found...Can't have troubles like this looming on the horizon...To much bad publicity...
No. You're missing the key point here ... see, all they have to do is call it a "voluntary haircut", and then its not a credit event. Which of course would make Meredith WRONG
Too many government workers and too many paychecks are at stake...Not to mention that it undermines the plan for a socialist/big government...All that hard work for nothing...Even if M.W. is right, they'll spin it around, count on it...
Michale Lewis recently wrote an extensive article about the current crisis with government debt. In the article he explained that Meredith Whitney's declaration regarding muni defaults was misunderstood with respect to the timing. When she made the forecast (back in 2008) she apparently said that events which would force the defaults would begin in the next 12 months...not that the defaults themselves would begin enmasse in the next 12 months. TPTB who feared her words were quick to spin the statement and discredit her, hoping to contain the damage. In the end, she was correct with her forecast and going foreward in time it is hard to imagine things will get better before we have massive defaults. It always helps to clean the pus out of a wound to help speed the healing...
The toughest part about making calls is the timing. Look at housing, dot.com, LTCM, Greece and the EZ and yes, Munis.
Its even tougher when you have people going to great lengths to maintain the facade through "any means necessary"
"Everybody is breaking the rules.. Blah Blah Blah.. get over it" - US Bank Pres Richard Davis (http://blogs.citypages.com/blotter/2011/11/us_bank_president_richard_davis_get_over_it.php)
Tyler,
How's PrimeX?
PrimeX,WTF is that? THe premium porn channel?
It's porn with your steak dinner.
Early, but right... Maybe more right than we can handle...
Smartest blond in the room, smartest guy in the room...
WTF, it's only money.
She is really smart, and very professional. I wish she would post some articles here instead of clown acts like Reggie filling up the pipelines.
I'd much rather see her in a dominatrix outfit/bad librarian than a dude with a spear and loincloth
I'd pay to watch a good show with Reggie and Whitney. It would be better than all the other mumbo jumbo out there.
They could tag-team the crap out of the daily news...she could setup Reggie all day and night long, and he would be running the stage.
Maybe bring in Art Cashin for some fermentation discussions...Doug Casey, James Puplava, Eric King.
It would be box office boffo.
Maybe have Erin Burnett come in to keep a lid on things and kick some balls around (a la her sporting background). Get the show all whipped up into shape.
Then bring in some for "debate"...like Cramer, Krugman, Greenspan...
I see a Reggie-Whitney tag-team forming soon.
Much better than Spitzer-Parker on CNN.
The Federal Government is nearing default, so I'd say she's being a bit too kind to the situation.
Her analysis might have been a bit linear, whereas these deals tend to go exponential- light in the beginning, then catch fire.
Far as I know, she hasn't backed off her bet, which impresses me.
All aboard... Dive! Dive! Dive!
and the occupiers will move in to the vacated housing above-ground.
Maybe the underground world of THX-1138 is the only "safe" way out of this mess.
Backup America anyone ?
Maybe we can convince China to build USA a backup...like Japan's Backup Tokyo.
I think she'll be proved right in time.
There are several things affecting municipalities, and states.
Declining revenue is most obvious and effects day to day operations as well as interest payments on bonds.
Revenue bonds, like sewer plants that pay for themselves, are said to be immune. Yeah, but foreclosed houses don't pay their bill, and they can't shut you off for simple non-payment. In places that saw a lot of new contruction that has foreclosed at a high rate or never sold in the first place, the new sewers and other infrastructure may never pay for themselves.
Perhaps the biggest issue is unions, where very lucrative contracts were signed and are now unsupportable. The bad solution is to start laying off police and firemen so you can pay the pensions of people who aren't working. The good solution is declare bankruptcy and renegotiate the union contract so adequate services can be maintained with affordable pension payments. Cities and towns with reduced protection will start a death sprial where people are forced to move to safer towns.
All this takes a very long time to reach critical mass. In some really mis-managed townships, they have already been forced into bankruptcy. But debt overhangs can be swept under the rug as long a new bond issues aren't needed. Bonds can blow out on the market, but that doesn't affect the town until they need to go back for more.
Over time I think Merideth will be proved correct. If the only way to renegotiate union contracts is bankruptcy, she may be way too conservative.
They will pull from the pension funds to keep operations running. Once those funds are depleted, and there is nowhere left to run, the plug will get pulled in a hurry. USPS is going to show them the way!
edit:
Examples abound. No different really than MF Global.
And it is has been postulated here and elsewhere that future labor will not pay for this mess. Rather, it will past and present labor. The vaporizing of retirement funds (including private accounts) is how it will be done.
Immune sewer? You mean like Jefferson Cnty., AL? Look it up
They'll never let her be right twice (even if she is right, which she is)...Citigroup was plenty enough for the banksters...Can't have 'boat rockers' worry the masses over silly things like state and muni defaults...
I don't know about her Muni call. But somebody(s) is giving her a big FU after her Jefferies call. Look at this nice $1 walkdown since the pop
Was there anybody that wasn't thinking the same thing? Isn't this part of the plan that was historically inevitable one way or another. FED shakesdown state.
That slavery thing was a real pain in the butt, slaves cost too much, and the upkeep, if you don't feed them or keep them healthy you loose your investment. Indentured servitude through income and property taxes works much better. That is until the citizens no longer own their properties and are tenants, just like in England under King George.
What a babe, you know she's right.
I'll take either end on Meredith... oh, it's not that kind of party? Coises, foiled again.
When's the end? 20 years from now, 5 years from now? Despite what others have posted, she has been completely wrong, as I said she was more than a year ago when she made her absurd call. It doesn't matter if your right and your timing is off 5 years. That gets your broke. Ask Whitney "I heart Goldman Sachs" Tilson.
http://finance.yahoo.com/echarts?s=MUB+Interactive#chart2:symbol=mub;ran...(17,50)+volume;charttype=line;crosshair=on;ohlcvalues=1;logscale=off;source=undefined
its better to be very early, than a day late
As long as the federal govt can run massive deficits, and banks are allowed to mark their loan portfolios to model, then munis are safe....the Feds will bail them out with cash transfers. If one piece of this ponzi breaks - game over.
There probably was a story here on Banks "accounting Adjustments" that made them look profitable. As I understand it, especially BOA, marked their bonds to market which paradoxically makes a credit downgrade, bonus ready profitable. So they get to pick and choose; "on debt we mark to market as we feel that is a better gauge of what type of leverage we have instead of putting a value on the debt equal to what's been borrowed less debt that was paid down (o). Based on this we showed 3 Billion in in extra profits when mixed with mark-to-fantasy on our assets. See we were almost out of reserves we could strip away to show non-existent profits, then Herman , the geek accountant from BOA, who is now the CFO, found a loophole where downgrades means more profit once we marked the bonds to market. The dicks at FASB complained "You can't have it both ways". Where we will respond with a large middle finger float in the Macy's parade.
"There was a general feeling of relief mixed with raw anticipation of more credit downgrades as that would make the bond values drop which in turn allows us to take depositors money and give us Big Swinging Dick bonuses. God, owning the govt gets us aroused".
TD, you will have to pardon me if I found the headline to be a bit of a dirty double entendre.
"
Will Meredith Whitney Be Proven Right In The End?"YES,