Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.
Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.
I would like to place this seminar’s topic, ‘Global Governance,’in the context of global control, which is what ‘governance’ is mainly about. The word (from Latin gubernari, cognate to the Greek root kyber) means ‘steering’. The question is, toward what goal is the world economy steering?
That obviously depends on who is doing the steering. It almost always has been the most powerful nations that organize the world in ways that transfer income and property to themselves. From the Roman Empire through modern Europe such transfers took mainly the form of military seizure and tribute. The Norman conquerors endowed themselves as a landed aristocracy extracting rent from the populace, as did the Nordic conquerors of France and other countries. Europe later took resources by colonial conquest, increasingly via local client oligarchies.
The post-1945 mode of global integration has outlived its early promise. It has become exploitative rather than supportive of capital investment, public infrastructure and living standards.
In the sphere of trade, countries need to rebuild their self-sufficiency in food grains and other basic needs. In the financial sphere, the ability of banks to create credit (loans) at almost no cost on their computer keyboards has led North America and Europe to become debt ridden, and now seeks to move into Brazil and other BRIC countries by financing buyouts or lending against their natural resources, real estate, basic infrastructure and industry. Speculators, arbitrageurs and financial institutions using “free money” see these economies as easy pickings. But by obliging countries to defend themselves financially, their predatory credit creation is ending the era of free capital movements.
Does Brazil really need inflows of foreign credit for domestic spending when it can create this at home? Foreign lending ends up in its central bank, which invests its reserves in US Treasury and Euro bonds that yield low returns and whose international value is likely to decline against the BRIC currencies. So accepting credit and buyout “capital inflows” from the North provides a “free lunch” for key-currency issuers of dollars and Euros, but does not help local economies much.
The natural history of debt and financialization
Today, financial maneuvering and debt leverage play the role that military conquest did in times past. Its aim is still…
So I’m sitting here trying to turn a pile of (mostly terrifying) data on muni bonds into a post that explains why this is the next domino to fall, and here comes Time Magazine with a feature on that subject:
Municipal Bonds: The Next Financial Land Mine?
As Wall Street nervously watches the sovereign debt crisis unfold in Greece, another potential landmine is looming closer to home, one that could bring U.S. cities and towns to their knees, force the federal government to cough up another bailout package, and potentially send the unemployment rate much higher. The danger this time? Municipal debt.
State and local governments are frantically scrambling to meet budget shortfalls as high unemployment and shaky consumer confidence mean less income tax and smaller sales tax revenue for government coffers. At the same time, falling home prices and rising foreclosures will start to hit municipalities hard this year as all those property reassessments done over the past 18 months kick in.
A couple of municipalities, such as Los Angeles and Detroit, have even whispered the “B” word. Former Los Angeles Mayor Richard Riordan argued in an editorial in the Wall Street Journal earlier this month that the city will likely have little choice but to declare bankruptcy between now and 2014. Also, several smaller markets, such as Harrisburg, Pa., and Jefferson County, Ala., have openly talked about filing for Chapter 9 bankruptcy — a reorganization available only to municipalities.
In general, municipalities try to avoid Chapter 9 filings. Although such filings make it easier for a city to break onerous labor contracts or make other politically tough cost cuts, they can have hidden costs, such as distracting politicians, alienating business and making it more difficult for a city to raise cash in the capital markets going forward. The city of Vallejo, Calif., for example, has been in Chapter 9 since spring 2008, and observers say the process has been costly and hurt the city’s ability to attract new business. “It’s been two years and the case is still going on and there’s still significant disputes with the unions,” says Eric Schaffer, a partner at Reed Smith LLP. “Ultimately you hope to bring everybody to the table and share the pain, but that can be a messy
This what the end will look like, at least the beginning of the end.
Let’s use the suburban sprawl-community of Colorado Springs as an example…
From the Denver Post:
COLORADO SPRINGS — This tax-averse city is about to learn what it looks and feels like when budget cuts slash services most Americans consider part of the urban fabric.
More than a third of the streetlights in Colorado Springs will go dark Monday. The police helicopters are for sale on the Internet. The city is dumping firefighting jobs, a vice team, burglary investigators, beat cops — dozens of police and fire positions will go unfilled.
The parks department removed trash cans last week, replacing them with signs urging users to pack out their own litter.
Neighbors are encouraged to bring their own lawn mowers to local green spaces, because parks workers will mow them only once every two weeks. If that.
Water cutbacks mean most parks will be dead, brown turf by July; the flower and fertilizer budget is zero.
City recreation centers, indoor and outdoor pools, and a handful of museums will close for good March 31 unless they find private funding to stay open. Buses no longer run on evenings and weekends. The city won’t pay for any street paving, relying instead on a regional authority that can meet only about 10 percent of the need.
"I guess we’re going to find out what the tolerance level is for people," said businessman Chuck Fowler.
By all means, keep trading stocks and flipping real estate and eating Chipotle and watching 24. Everything is fine.
The pension crisis is affecting budgets in city after city and in ever increasing amounts. Please consider the latest in San Diego: Millions needed for city pensions.
Just when San Diego city officials thought they had closed a $179 million budget gap, another has opened up because more money will be needed to pay for employee pensions.
The city will have to contribute $231.7 million to the retirement fund in the fiscal year that starts in July. That’s up $19 million from the forecast used when the last budget gap was closed in December.
The increase is a result of the fund’s investment losses and more employees signing up for pension benefits because of fears they will be cut.
The higher payment most likely will be funded by cutting more services in the next few months, as opposed to the 18-month balanced budget promised when a deal was reached to reduce library hours, lay off 200 workers and end public-safety programs such as horse-mounted patrols.
“This cutting and reducing is going to go on until somebody takes seriously the solutions for solving the city’s pension mess,” Councilwoman Donna Frye said yesterday.
A new report from the city’s pension system indicates that the city has 66.5 percent of the money it needs to cover promised pensions — the lowest level since 2004. The amount the city lacks to meet its long-term pension liability is $2.1 billion as of June 30, up from $1.3 billion in June 2008.
Frye said she sees a trend of pension obligations gobbling up more of the city’s general fund, which pays for fire, police, parks, libraries and recreation centers. Unless labor unions and the city come together to find solutions, “I believe the city will someday go into bankruptcy,” she said.
Mayor Jerry Sanders has resisted any such suggestion.
San Diego Already Bankrupt
San Diego is already bankrupt, they just don’t know it yet. There is no way it can fund its pension liabilities.
I commend Councilwoman Donna Frye. She should run for mayor.
Tax hikes and fees are not the answer. The core issue is unsustainable pension benefits. The system is broke. Toying around with little cuts here and there will not help. And as bad as…
Las Vegas’ firefighters union has taken a hard stance against the city’s budget cuts, alleging that reductions will hurt emergency responses along with fire insurance rating for homes and businesses.
City officials, meanwhile, said the union is engaging in irresponsible “scare tactics” at a time when the city is facing economic difficulties.
The back-and-forth comes as the city readies for a series of town hall meetings scheduled from January to March to hear resident feedback on what city services are most important.
It also comes as the city is considering back-to-back 8 percent salary rollbacks and freezes for all employees, including firefighters, although a union official declined to comment today on the union’s positions on these wage proposals.
The union has created a Web site as well as a radio advertisement warning that cuts could increase response times, result in fewer people on duty, reduce the city’s ability to respond to disasters and hurt the city’s fire insurance rating, which is at the highest level.
This discussion is just one part of the ongoing wrangling over the city’s budget, which has seen an ever-widening deficit since the economic downturn began.
The city has already cut operating costs, eliminated vacant positions and announced some layoffs. City management has also proposed an 8 percent wage rollback in each of the next two budget years to avoid layoffs, a proposal being evaluated by the unions that represent city workers.
My recommendation to Las Vegas is to declare bankruptcy and let the unions see what they can get in court.
The Simi Valley City Council on Wednesday approved a new agreement with the Simi Valley Police Officers’ Association for an 18-month employee contract that includes a 3 percent salary decrease for sworn police officers and sergeants.
The unanimous approval came after the council went into a closed session meeting late Wednesday afternoon with attorneys and representatives from both the city and police association.
Significant provisions of the MOU approved Wednesday include:
California is the poster child for dysfunctional state finance. A week past the legal deadline for passing a budget, the state has yet to close a $26 billion hole. State workers are — yet again — being told to stay home. The National Park Service is threatening to take back parks it gave to California should the state try to save money by closing them. Taxpayers are getting IOUs in the mail instead of refund checks since there’s no cash to pay them what they’re owed. You can now buy the IOUs on eBay.
California’s crazy budget laws make it an extreme case, but that doesn’t mean it’s alone in financial duress — there are plenty of other states in serious hot water. (See how Americans are spending now.)
All but a handful of states with fiscal years ending on June 30 have taken wrenching steps needed to pass new budgets: mainly, a raft of tax hikes and service cuts. Vermont is shutting down highway rest stops and decimating its Agency of Natural Resources. In Washington, 40,000 people are losing their state-subsidized health care, and public-college tuition could be going up as much as 14%. New Jersey is hiking taxes on high-income earners, cigarette smokers (an extra 12.5 cents a pack) and drinkers (a 25% increase on wine and liquor).
And there could be plenty more pain ahead. Revenues — from income, sales and property taxes — continue to fall. True, states have already plowed through a lot of tough decisions to close the $102 billion shortfall they collectively faced during the last budget cycle. But already it looks like this year’s gap will be $121 billion, according to a report from the National Conference of State Legislatures.
Two of the worst-off states by that count are Alaska and Nevada. Each of them will need to spend 30% more than what state tax officers think they’ll be collecting. And neither has a state income tax, relying on oil and tourism taxes, respectively, for most of their revenues.
In other states, however, it’s the extra volatility that comes from dependence on personal-income tax that is exacerbating the problem. Research by economists at the Chicago Fed…
We are updating our suite of sentiment data again, mainly because it is so fascinating that a historically rarely seen bullish consensus has emerged – after a rally that has taken the SPXup by slightly over 210% from its low. Admittedly, a slew of such records has occurred in the course of the past year or so, and so far has not managed to derail the market in the slightest– in fact, since 2012, only a single correction has occurred that even deserves the designation “correction” (a...
While not hyperinflating, the slow and insidious diminishment of the fiat US Dollar's purchasing power (and thus the living standards of lower- and middle-class Americans - who are not balls deep invested in the US stock 'market') is nowhere more evident than in the soaring costs of Thanksgiving Day dinner during the Fed's 100 year reign...
The Final University of Michigan Consumer Sentiment for November came in at 88.8, a bit off the 89.4 preliminary reading but up from from the October Final of 86.9. As finaly readings go, this is a post-recession high and the highest level since July 2007, over seven years ago. Today's number came in below the Investing.com forecast of 90.2.
See the chart below for a long-term perspective on this widely watched indicator. I've highlighted recessions and included real GDP to help evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Nimble Storage Inc (NYSE: NMBL) reported its third quarter results on Tuesday after market close. The company reported a loss of $0.15 per share, slightly better than the $0.16 per share loss analysts were expecting, while revenue of $59.10 million was higher than the $57.75 million analysts were expecting.
In a note to clients on Wednesday, Katy Huberty of Morgan Stanley noted that the company “continues to disrupt the storage market” as new customer adoption doubled year-over-year, increasing its installed base to more than 4,300 customers.
The analyst also notes that international investments are “beginning to pay off” as revenue grew 135 percent from a year ago, contributing 20 percent of total revenue in the quarter.
However, Huberty singles out the addition of the Fibre Channel (FC) protocol. The analyst states that the company has now ex...
With warmer weather arriving to melt the early snowfall across much of the country, investors seem to be catching a severe case of holiday fever and positioning themselves for the seasonally bullish time of the year. And to give an added boost, both Europe and Asia provided more fuel for the bull’s fire last week with stimulus announcements, particularly China’s interest rate cut. Yes, all systems are go for U.S. equities as there really is no other game in town. But nothing goes up in a straight line, not even during the holidays, so a near-term market pullback would be a healthy way to prevent a steeper correction in January.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based Sector...
By Rod Garratt and Rosa Hayes - Liberty Street Economics, Federal Reserve Bank of New York
In June 2014, the mining pool Ghash.IO briefly controlled more than half of all mining power in the Bitcoin network, awakening fears that it might attempt to manipulate the blockchain, the public record of all Bitcoin transactions. Alarming headlines splattered the blogosphere. But should members of the Bitcoin community be worried?
Miners are members of the Bitcoin community who engage in a proce...
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I officially bought 250 shares of EZCH at $18.76 and sold 300 shares of IGT at $17.09 in Market Shadows' Virtual Portfolio yesterday (Fri. 11-21).
Click here for Thursday's post where I was thinking about buying EZCH. After further reading, I decided to add it to the virtual portfolio and to sell IGT and several other stocks, which we'll be saying goodbye to next week.
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract o...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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