After bank analyst Meredith Whitney prophesied a wave of defaults by U.S. cities two years ago, many investors mocked her when her prediction failed to come true.

But Whitney may have been on to something. It turns out that U.S. cities have defaulted on municipal bonds much more often than credit ratings agencies have acknowledged, according to research by the Federal Reserve Bank of New York released on Wednesday.

Economists at the New York Fed found between 35 and 50 times more municipal defaults over the past few decades than ratings agencies have reported: Cities have defaulted on municipal bonds 2,521 times between 1970 and 2011, while Moody's has listed only 71 municipal defaults during that time period. And while S&P lists only 47 municipal defaults between 1986 and 2011, the New York Fed found 2,366 municipal defaults over that time period.

Ratings agencies have come under fire for helping enable the financial crisis. During the housing bubble, they stamped AAA ratings on mortgage-backed securities and other collateralized debt obligations (CDOs) that were essentially junk, allowing those dangerous liabilities to proliferate.

Yet according to the New York Fed's analysis, many of municipal bond defaults went underreported because the ratings agencies only announce defaults on bonds that they themselves have rated, and those bonds are much more likely to be safe.

Credit ratings agencies officials told the New York Times that only cities that are confident about their creditworthiness ask to have their municipal bonds rated. As a result, they said, the New York Fed's report did not surprise them.

(Hat tip: the Washington Post.)

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