Mier: Whitney is wrong on the need for State Government bailout

Christopher Mier, municipal strategist and managing director at Loop Capital Markets LLC, talked to Bloomberg’s Betty Liu this past Friday about Meredith Whitney’s report stating that the U.S. federal government may have to bail out some states within the next 12 months. Mier believes the odds of a bailout are "very, very low" because of the taxing power of states. He says "states are strong financial entities, inherently."  He considers this a "non-productive discussion." Mier’s view is that “the problem in the municipal market is much more on the level of local units of government. They have less resources, they have smaller economies, and they have limited abilities to tax.”

If the U.S. economy does not double dip, the bailout scenario will likely not come to pass. However, if the U.S. economy double dips, the loss of taxes due to a fall in house prices and the loss of employment will severely damage state and municipal balance sheets. Moreover, given recent reports of shortfalls in state and municipal pension funds, a fall in the stock market would add additional downside risk.