Bond subsidies and transfers have allowed states to avoid making tough decisions. It won’t last.
By Meredith Whitney
The threat posed by the state fiscal crisis in the U.S. is vastly underestimated and under-appreciated—because even today too few people understand how states have been managing their finances.
A clear example of this took place in Manhattan last week at the Economist magazine’s Buttonwood Conference, where a panel role-played the federal government’s response to a near default of the hypothetical state of New Jefferson. After various deliberations and simulated threats from the Chinese government, the panel reluctantly voted to grant New Jefferson an emergency bailout of $1.5 billion to cover the state’s debt payment.
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