the missing muni meltdown

Meredith Whitney Thinks You Should Move to Flyover Country

Photo: Bloomberg/2010 Bloomberg

For someone selling doom and gloom, Meredith Whitney is feeling pretty good.

The Wall Street celebri-analyst, who made her name with a prescient bearish call on Citigroup in 2007 (then spent the next few years making TV appearances, pontificating on the markets, and featuring prominently in Michael Lewis’s The Big Short), is back in the news again, this time for her new book arguing that many of America’s cities and states are on the brink of financial ruin.

Whitney’s book, Fate of the States, came out of an appearance she did on 60 Minutes in 2010, when she predicted a large spate of municipal defaults as cities struggled to pay back their debts. Those defaults haven’t exactly materialized — and that fact, combined with some unfortunately timed recoveries that have dated some of the book’s gloomy claims, has given plenty of ammo to her critics. (Bloomberg’s nasty review was titled “Meredith Whitney Offers Barrage of Numbers, Errors”; Reuters muni bond guru Cate Long said it “felt like the book had been written over a year ago and was not in tune with current fiscal realities.”)

But Fate of the States isn’t really about the 60 Minutes call or the state of municipal finance. It’s an accessible beginner’s guide to muni-land, hung on Whitney’s thesis that the financial mismanagement of cities and states all over the country has created a new geography of opportunity — one that favors the central states, where goods are made, tax burdens are lower, and municipal finances are less screwed up, over the coasts.

When we spoke to Whitney yesterday, she was in midtown, headed back to the office from a lunch with a bunch of female tech executives. She directed the cab she was getting into to 50th and Madison and spoke to us along the drive.

How’s the book tour going?
It’s good! I’ve enjoyed it. I haven’t done media in a long time, and that’s nice. It’s fun to talk about the book and the issues this book addresses, but sound bites don’t really capture what the book is about. It’s hard to give the perfect elevator speech for this book.

It’s about muni bonds, right?
No, not entirely. It’s a history book about the United States. Every 50 to 60 years, the U.S. economy re-creates itself, and from that you have regional expansion. Regional expansion is different every time. And this time, the next super-cycle is energy manufacturing. Household formation will be faster in the center part of the country than on the coasts. There will be lower tax burdens in the middle and higher economic opportunity.

Do you get frustrated that people often boil down your thoughts on this issue to the things you said on 60 Minutes? The call for 50 to 100 muni bond defaults in a short time frame?
Everyone who thinks my sole focus is municipal bonds should know that I wouldn’t make a big call on a TV show where you don’t control the timing. And with the book: I was a history major. Had it just been wonky and affected just one area, I wouldn’t have written the book.

So, 60 Minutes edited you in a misleading way?
They took a 90-minute interview and boiled it down to 5 minutes. What I said was clear, but how it was interpreted wasn’t up to me.

What did you mean to say?
What I expected back in 2010 was that we are in absolutely uncharted territory. No one group is going to take the full hit. Everyone’s going to take the hit. Taxpayers are going to pay higher taxes, people in cities are going to see crime rates go through the roof, and see the values of their homes fall. I don’t think anyone appreciates the magnitude and breadth of this whole issue. It’s not that they’re misunderstanding me. But you can’t educate if you’re taking in sound bites.

Some have characterized the message of your book as “We’re all moving to North Dakota.” Is that fair?
Look, I’m not telling people what decisions to make. Americans ultimately follow the jobs. If you have a job and you can afford to live on the Pacific Coast, that’s great. But you have a high structural unemployment rate in California, and people need employment opportunities to be able to pay the mortgage. 
Think about the people who will be required to build factories that are coming onshore now. Do you want to go to a place where your services are lower and the taxes are higher?

Tell me about your writing process. You write long reports as an analyst — was a book different?
It’s exhausting. I wrote on the weekends. I did outlines, proposals — you just put a ton of stuff down, and you see what sounds good, what works. I knew the story I wanted to tell, but when you’re writing a book, you need a common thread to tie it together. The common thread came to me when I was going out running. I really like it now. But really, is it ever good enough? No.

Did you have any help with it?
Well, you know, one of the women I sat next to at lunch today is [Vanity Fair scribe] Bethany McLean. I have a lot of friends who are writers. I got great advice from someone — I’d rather not say who — who said not to put blurbs on the back of the cover. It’s awkward to ask for blurbs, and there are conflicts of interest. I don’t want to do that with people.

I was going to work with ghostwriters, but that didn’t work the way I expected.

Why not?
I thought it was going to be as simple as, I turn my research over, they do a book, done. But it wasn’t a fit. So I had to write the book myself. At the end, I brought in Jon Birger, a writer I met through Fortune. He was a sounding board, but also he helped me organize it. I didn’t want to alienate certain readers by having it be overly wonky.

Isn’t your subject matter inherently wonky?
It sounds as wonky as any corporate P&L, but at the end of the day, it becomes very personal
. This is something that’s going to be really important, incredibly important for at least five or ten years. I’ve always worked with institutional investors. I don’t work with Main Street. And this was an ability to reach out to Main Street.

Speaking of Main Street, since much of your book predicts the rise of the middle states, are you going to be promoting your book there?
That’ll happen in the fall at universities. Before that, I’ll be the first woman to present to the Princeton Economic Club.

Does it frustrate you that the trends you say are unfolding — in the labor market, in municipal bonds, in migration patterns — aren’t happening more quickly?
Look, things are happening. Businesses are moving. I don’t snap my fingers and have things happen overnight. These are long-term trends.

Sure, that’s fair. So, is there a second book on the way?
If I’m as motivated by another issue as I was and am about this issue, then I will.
But it’s expensive, right? It eats up your weekends. It’s solitary. It takes a toll. But this is important.

This interview has been edited and condensed.

Meredith Whitney: Move to Flyover Country