Published: Wednesday, 12 Jan 2011 | 9:10 AM ET

By: Jeff Cox
CNBC.com Staff Writer

Financial analyst Meredith Whitney is sticking by her call that the nation’s municipalities face a wave of defaults, despite a wave of criticism over her prediction that hundreds of local governments would not meet their obligations.

In fact, she took the forecast a step further and said when the defaults begin in earnest, it will mark an exodus from the muni bond market.

“When you have the first group of defaults you will see indiscriminate selling that would be a buying opportunity for some,” the president of Meredith Whitney Advisory Group said in a CNBC interview. “Because there has been such complacency in the market and muni investors have been talked down to for so long—’There’s nothing to worry about, there’s nothing to worry about’—they’ll just fly.”

Whitney is most known for her call, before the financial system collapsed, that Citigroup [C  5.08  0.14  (+2.83%)   ] was facing intense pressure from risky mortgage investments that would severely hamper the company as the subprime mortgage industry was collapsing.

Since then, she has garnered headlines for various dire predictions about the state of the banking industry and its inability to recovery because of pressures from the struggling housing market.

But her foray into the municipal bond area has provoked some of the most intense criticism of her calls. Experts from Pimco’s Bill Gross to the leader of the National League of Cities have doubted whether the problem with local and state government debt is as bad as Whitney is predicting.

“We did this analysis in September,” Whitney said. “I was scared to death to publish the analysis, understanding that this was a massive deal, probably the biggest call I ever made. We put thousands of man hours into this project. It took over two years to do.”

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