It was appropriate for Meredith Whitney to title her latest 600-page report for her investment clients The Tragedy of the Commons. That title was borrowed from an article written in 1968 by Garrett Hardin and published in Science magazine, illustrating the ultimate failure of people hoping to live off the incomes of others eternally.
Unable to obtain clear financial data from many of the states for her firm’s routine client newsletter, Whitney instead invested two years in this massive study. She said, “It reminded me so much of the banks [prior to the recession] that we just kept working at it. 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.” She added,
The states represent a new systemic risk to financial markets. I see a lack of transparency and an abundance of complacency on the part of investors and politicians, just as we saw before the banks imploded….
It’s not that my clients requested it. I was just so shocked by what I was seeing that I couldn’t stop. Any long-term strategic plan needs to take account of the dangerous, mostly over-looked problems in state finances….
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 … for a third near-trillion-dollar bailout.... [Emphasis added.] That has consequences on the dollar, that has consequences on just about everything. It certainly has consequences on the US recovery.
