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2024
December 12th, 2010 at 10:59 am
http://online.wsj.com/article/SB10001424052748703727804576011644076639916.html?mod=WSJ_hp_LEFTWhatsNewsCollection
Illinois Seeks Wall Street Cash
"Times have gotten so tough for the Illinois state government that it has begun turning to Wall Street trading houses and hedge funds to help pay its bills.
The state owes more than $4.5 billion to vendors large and small, ranging from prison-cleaning crews to schools for the disabled. Tax shortfalls and pension obligations continue to leave the state light on cash.
The Illinois approach works like this: Investors take over the delinquent bills owed by the state to its vendors. Those vendors are due a 1% penalty each month after the state falls behind by 60 days. The financial investors make the vendors whole and are entitled to 1% monthly penalties until the state pays the investors back.
With Illinois currently five months behind on its bills, investors who participate in the program today could collect 3%, which state officials say works out to an about 12% annualized return. The rate is double that of many long-term Illinois state bonds, which pay roughly 6% annually.
State officials said they expect to pay back investors in less than six months, but won’t guarantee that."
So, pick your metaphor- digging the hole deeper or adding a story to the house of cards. This in a devious scam to add more state borrowing ‘under the radar" and paying the equivalent of 12%. It likely will simply add to existing debt levels as the "new" lenders are stonewalled and the "old" vendors are sucked in again.
We are likely to see a doubling of income tax rates here in Illinois next year which will allow the excesses in pensions, patronage/cronyism and public sector union control to continue. Meanwhile, people and jobs are voting with their feet.
Other states in trouble are sure to follow this lead and presto, the state budgets crises are solved-ain’t high finance grand?