Whitney's "60 Minutes" comments fanned mounting concerns that focused on municipal financial stress.

Six months earlier, Warren Buffett said Berkshire Hathaway Inc., where he is chairman and chief executive officer, had been trimming its investment in municipal debt. He told a hearing of the U.S. Financial Crisis Inquiry Commission in New York that a "terrible problem" was brewing in the market.

By November, Republicans including Newt Gingrich, the former speaker of the U.S. House of Representatives, were urging Congress to consider letting states go bankrupt as a way to break union contracts and restructure pensions.

States Excluded

A Depression-era law that lets municipalities reorganize their finances under Chapter 9 of the U.S. bankruptcy code excluded states.

Investors began an exodus from municipal-bond mutual funds last year, pulling out $30 billion. The weekly net withdrawals that began in November didn't end until last month, according to Lipper US Fund Flows in Denver.

In January, billionaire investor George Soros weighed in, telling CNBC that municipal finances would be the "drama" for the year while former President Bill Clinton said at the World Economic Forum in Davos, Switzerland, that local governments needed "some reform" in the way they handle their finances. Jamie Dimon, JPMorgan Chase & Co.'s CEO, said some cities would use bankruptcy courts to rewrite union contracts and pensions.

Market Roiled

Then in a February report, Roubini Global Economics LLC, started by New York University economist Nouriel Roubini, predicted $100 billion of municipal defaults during the next five years, which would require an annual pace that is more than twice the record reached in 2008. Roubini in 2005 predicted a bubble in U.S. housing prices and correctly forecast the global credit crisis.

Municipal bond prices plummeted, pushing yields higher. A Municipal Market Advisors index of yields on top-rated 20-year municipal debt climbed from about 3.6 percent at the end of August, the lowest since the index began, to almost 4.8 percent by Jan. 14, the highest in 22 months. The index yield stood at 4.2 percent this week.