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Detroit Bankruptcy a “Game-Changing Event,” Meredith Whitney Says

It’s been just over a week since Detroit filed for the largest municipal bankruptcy in U.S. history and, so far, there are more questions than answers about how this will all shake out. On Wednesday, a U.S. Bankruptcy judge ruled Detroit’s Chapter 9 filing can proceed but local unions, pension funds and other creditors will continue to try and stop the process.

Related: Detroit Will Get Worse Before It Gets Better

Regardless of how the legal proceedings unfold, Meredith Whitney thinks she knows what will happen as a result of Detroit’s bankruptcy filing: “staggering aftershocks” for the muni bond market and “important precedents” for other state and local governments.

“We know [Detroit’s bankruptcy] is a game-changing event for certain,” says Whitney, author of Fate of the States and founder of Meredith Whitney Advisory Group LLC. “It will galvanize other municipalities to either get their act together or follow Detroit’s lead.”

Asked what other municipalities might follow Detroit’s lead into bankruptcy, Whitney cited the five other Michigan cities currently under emergency management: Flint, Pontiac, Ecorse, Allen Park and Benton Harbor. She also reiterated her concerns about the states of New Jersey and Illinois.

Related: Bernanke Costs Illinois $130M: ‘Blue States’ in Peril, Meredith Whitney Says

The Wall Street Journal recently cited Oakland, Philadelphia and Chicago as other big cities with the potential to follow Detroit’s lead but Whitney declined to mention other cities.

“I’m not sure it’s constructive to name towns [and] sound the alarm,” she said. “But there are numerous others across the country. Detroit is hardly unique.”

Of course, Whitney gained increased attention – and considerable criticism – when she sounded the alarm on 60 Minutes in late 2010. At that time, she predicted “a spate of municipal bond defaults. You could see 50 sizeable defaults. Fifty to 100 sizeable defaults. More. This will amount to hundreds of billions of dollars' worth of defaults."

Nothing close to that level of muni bankruptcies has occurred, to date, but ask yourself: Was Whitney 'dead wrong' on 60 Minutes, as her critics continue to claim, or just early?

And check the accompanying video to hear specifics on why Whitney believes Detroit’s bankruptcy is such a “game changing event” and whether she believes the city of Detroit can be 'restructured' via bankruptcy as were automakers GM and Chrysler.

Related: Why We Should Care About Detroit’s Future

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

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