In the “Fail Race,” California is Tops

I didn’t know that in the world of financial prognosticating, successfully predicting a bank’s dividend cut in 2008 would remain a salient kudo in 2010, but that’s the way it is, at least at Fortune, Bloomberg and Business Week, which used that as the sole qualifier for one Meredith Whitney’s credibility.  Be that as it may, I think the gal’s spot-on with her latest future-gazing:

Meredith Whitney, the analyst who correctly predicted Citigroup Inc.’s dividend cut in 2008, will release a report rating California’s financial condition as the worst among the 15 largest U.S. states, Fortune said.

The report rates the states by four criteria: economy, fiscal health, housing and taxes, Fortune said, citing Whitney. Texas and Virginia are the only two states to receive overall positive ratings, the magazine reported yesterday. An official at Meredith Whitney Advisory Group LLC in New York confirmed the document’s existence and said it wasn’t immediately available.

Crippling debts and deficits are about to make individual states the next casualty of the credit crisis, Whitney said, according to an article on the CNBC website.

“The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically,” Whitney said. “Municipal debt has doubled since 2000. Spending has grown way faster than revenues.”

It comes as no surprise that California would top Whitney’s list of fiscal bottom-dwellers.  I’ve got about 200 pages of notes for Crazifornia, including at least 50 pages on budget- and spending-related issues that support Whitney’s findings. I also think her analogy to banks is on the mark.  There have been 127 bank failures nationally so far this year (nine of them in California), and that doesn’t include the spectacular failures that triggered the recession.

California is the coming spectacular failure that could well trigger the much-anticipated double dip recession.

Crazifornia will cover this thoroughly, especially in its chapter on how California taught the rest of America the art of government over-spending.  The state has continuously increased its spending on welfare, the environment, pensions, education and thousands of questionable pet projects while systematically destroying its business and industrial base, which it needs for revenues.  Last year, business and industrial tax receipts in California dropped 40 percent from the previous year!  Interestingly, Texas is taking the opposite route and remains in good financial standing, according to Whitney.

Image:  New York Times

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