Analyst Meredith Whitney: “The crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout. Municipal debt has doubled since 2000, spending has grown way faster than revenues. 80,000 Jobs in the financial sector will be lost this year.”

She served as a valued banks analyst for Oppenheimer. Now she is comparing the impending collapse of the States to the financial collapse of 2008-2009. “The similarities between the states and the banks are extreme to the extent that states have been spending dramatically and are leveraged dramatically,” she said, and added, “Municipal debt has doubled since 2000, spending has grown way faster than revenues.”

Whitney also warned about the banking situation, saying “We think October, after the banks report, you’ll see a really ugly Case-Shiller number, which means the fourth quarter is going to be very tough for banks.” But her most severe criticism was reserved for the financial situation of the States in the US, information about whose spending was impossible to pin down because there were no reliable sources regarding their incomes and expenditures, much like Enron and Worldcom in the early 2000’s. “We couldn’t find anything that gave us a clear story, we couldn’t find any information that was transparent. So we did it ourselves,” she said.

The report had a few points of light. Texas, Virginia, and Nebraska, all conservative states, were commended for good work on keeping their financial balance throughout the years and their situation is not so dangerous. However, states like California and Michigan will weigh down on all of America to the point that the Federal government may have to intervene, yet again, to bail them out. Massive payments for required services will prevent most States from balancing their budgets, requiring the Federal government to intervene, Whitney claims.

“You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout,” Whitney said. “That has consequences on the dollar, that has consequences on just about everything. It certainly has consequences on the US recovery.”

How a potential third trillion dollar bailout may impact the Israeli economy remains to be seen. The last one had Israel teetering for a while, but ultimately recovering without much of an impact and even growth to market highs.