"So what's the scariest state?" I asked her.
She only had to think for about two seconds.
"California." (pg 178).
I really enjoyed Lewis' final chapter on the state of California.
This summer, I followed California politics closely for my internship, and I wrote a tutorial paper on San Bernardino's municipal bankruptcy. As many of you may know, three California cities declared bankruptcy this summer: (in chronological order) Stockton, Mammoth Lakes, and San Bernardino. The above passage comes from the final chapter of Boomerang, when Lewis is interviewing analyst Meredith Whitney about her controversial comments on 60 Minutes. Whitney predicted the collapse of municipal bonds because, as Lewis reports “states had the ability to push their problems down to counties and cities” (173). During her interview, filmed in December of 2010, Whitney estimated there would be 50 to 100 municipal bankruptcies (173).
About four pages into the final chapter, I had to flip back to the title page to figure out when Boomerang was published. I was pleased, or at least interested, to see it was in 2011, prior to the series of bankruptcies this summer. Impressively, Whitney was calling California about two years in advance.
With the three municipal bankruptcies in 2012, the state of California cities has become on the rage, especially in the press. Here are a few pieces in the last six months on exactly what Lewis is talking about:
· “Not California’s last bankrupt city” – New York Post, June 27
· “California bankruptcies are only the beginning” – CNN, July 12
· “Bankruptcy in California Isn’t Seen as a Trend” – New York Times, July 12
· “Three California Cities Bankrupt: ‘This Is The Tip of the Iceberg, Says Fmr. Statesman” – Yahoo! Finance, July 13
· “Moody’s: More Calif. Cities could go bankrupt” – CBS Money Watch, August 17
· “California Muni Bankruptcies a Growing ‘Disease,’ Kotok Says” – Bloomberg, October 3
As evidenced by the above headlines, there is still considerable debate about whether or not this is an ongoing trend.
Reuters reported in August of 2011 that there have only been 624 municipal bankruptcies since 1937. So Whitney’s prediction that there would be ’50 to 100’ within a couple years is a bit extreme.
Still, Whitney stood by her comments. The following clip provides an update on the "Whitney debate":
California cities are definitely the cities to watch in the next six months. Whether or not we will see 100 cities default is a larger question, but there's at least something to Whitney's point.