Meredith Whitney may have had the timing wrong, but I think her overall thesis was correct. We will see plenty of public entities default on outstanding debt, and much of will no doubt be in California.
So much of the "pain" was pushed into the future by the massive amounts of stimulus money that went to the states. Politicians had their fingers crossed that given that breathing room, the economy would come roaring back and things would take of themselves. They failed to recognize that this recession isn't simply a cyclical recession. Our economy has "structural problems" and they aren't going away quickly.
California is the poster child for a hard core drug addict. The only way they will get clean is to first hit rock bottom.
The leaders in this battle against the overhang of debt is Wisconsin (Gov. Scott Walker) and to a limited degree New Jersey (Gov. Chris Christie). Mitch Daniels of Indiana is also doing some great things. I heard him on a radio interview several weeks ago and he just pushed an education bill through their legislature. Obviously, the school teachers didn't like it, but it shows what can be done when people really think outside the box. The rule change allowed bright and motivated high school students who were able to finish their high school requirements in 3 years take the state FTE money for their senior year and use it against their first year of college tuition. Great idea!
Anyway, the screws continue to tighten many of the states, and they continue to tighten on BB.