by Larry Levin
Just recently analyst Meredith Whitney issued a warning on state and municipal bonds. You may remember that she was the banking analyst that warned – loudly – that the housing and banking sector would cause a cataclysmic financial meltdown in 2007 that would bring Shitibank to it knees. Her peer analysts ridiculed her. She was correct and the other analyst’s lost their clients $trillions. With respect to her call on state and municipal debt, they are doing it again: claiming that she is wrong.
Well, the first bankruptcy of 2011 has hit in Vallejo California and is chump change compared to the real problems in this arena. Vallejo is settling debt through bankruptcy court for 5 to 20-cents on the dollar. Read the story here:
http://www.bondbuyer.com/news/vallejo_california_unsecured_creditors_bankruptcy-1022294-1.html?ET=bondbuyer:e2782:2060276a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=BB_intraday_011911
Here are a few problems in other cities and states that all analysts except Meredith Whitney are ignoring…
Clearly this is unsustainable and due to the legal contracts with public unions, these contracts cannot be broken. Bankruptcy, as Meredith Whitney says will happen and Vallejo just did, MUST happen.
The only other alternative is to continue business as usual: keep kicking that can down the road. Taxpayers are tapped out. Illinois’ 66% tax increase is madness and will solve nothing. Does anyone reading this right now believe that this so-called 4-year “temporary” tax hike will actually be temporary? Does anyone think that an Illinois politician – or national – is capable of slashing spending and living within it means? In four more years the losers that run Illinois politics, the Chicago machine, will make the tax hike permanent and be asking for more.
Perhaps Illinois should have been as creative as California and issued IOUs and then hoped that things got better. Better yet; Illinois, New York, New Jersey, Florida, etc should take Ireland’s lead and flat-out counterfeit currency for its own use. Just recently the Irish central bank counterfeited 51 billion Euros because it had already burned through its emergency loans. It was neither lent by the ECB nor printed by the ECB and, moreover, has absolutely no collateral to back it up. It is PURELY counterfeited money…and nobody has a problem with it.
So perhaps that’s the answer? All of the US states should just start printing US currency in their own capitals. The public unions can continue to extort their handpicked political stooges and at the same time no new taxes will be needed. Everyone will be happy.
Here’s a thought: weren’t unions created to protect workers from employers? So employees of the government need protection from the government, thus the need for public unions?
Here’s another thought: where is the union to protect taxpayers from profligate spending politicians and public sector unions?
Just recently analyst Meredith Whitney issued a warning on state and municipal bonds. You may remember that she was the banking analyst that warned – loudly – that the housing and banking sector would cause a cataclysmic financial meltdown in 2007 that would bring Shitibank to it knees. Her peer analysts ridiculed her. She was correct and the other analyst’s lost their clients $trillions. With respect to her call on state and municipal debt, they are doing it again: claiming that she is wrong.
Well, the first bankruptcy of 2011 has hit in Vallejo California and is chump change compared to the real problems in this arena. Vallejo is settling debt through bankruptcy court for 5 to 20-cents on the dollar. Read the story here:
http://www.bondbuyer.com/news/vallejo_california_unsecured_creditors_bankruptcy-1022294-1.html?ET=bondbuyer:e2782:2060276a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=BB_intraday_011911
Here are a few problems in other cities and states that all analysts except Meredith Whitney are ignoring…
- City of Chicago faces a $655 million budget deficit.
- State of Illinois has accumulated $4.4 billion of unpaid bills.
- City of New York faces a budget deficit of $2.4 billion and if it doesn’t receive $2 billion in state payments (which it probably won’t), the deficit will be $4.4 billion.
- City of Chicago pension is under funded by $20 BILLION according to a Chicago Tribune investigation. Even if all retirement benefits were cut off today, every man, woman and child in Chicago would owe more than $7,000 to cover obligations already incurred.
- State of Illinois pensions are under funded by $60 BILLION, which does not include the staggering hole in Chicago pensions.
- The Controller of Los Angeles recently warned on television that the City does not move money into the General Fund by April 19, there will not be enough cash on hand to pay bills. L.A. debt has been downgraded by two ratings firms.
- San Diego has a $2.2 billion unfunded pension hole and an additional $1.3 billion unfunded health fund for retirees.
Clearly this is unsustainable and due to the legal contracts with public unions, these contracts cannot be broken. Bankruptcy, as Meredith Whitney says will happen and Vallejo just did, MUST happen.
The only other alternative is to continue business as usual: keep kicking that can down the road. Taxpayers are tapped out. Illinois’ 66% tax increase is madness and will solve nothing. Does anyone reading this right now believe that this so-called 4-year “temporary” tax hike will actually be temporary? Does anyone think that an Illinois politician – or national – is capable of slashing spending and living within it means? In four more years the losers that run Illinois politics, the Chicago machine, will make the tax hike permanent and be asking for more.
Perhaps Illinois should have been as creative as California and issued IOUs and then hoped that things got better. Better yet; Illinois, New York, New Jersey, Florida, etc should take Ireland’s lead and flat-out counterfeit currency for its own use. Just recently the Irish central bank counterfeited 51 billion Euros because it had already burned through its emergency loans. It was neither lent by the ECB nor printed by the ECB and, moreover, has absolutely no collateral to back it up. It is PURELY counterfeited money…and nobody has a problem with it.
So perhaps that’s the answer? All of the US states should just start printing US currency in their own capitals. The public unions can continue to extort their handpicked political stooges and at the same time no new taxes will be needed. Everyone will be happy.
Here’s a thought: weren’t unions created to protect workers from employers? So employees of the government need protection from the government, thus the need for public unions?
Here’s another thought: where is the union to protect taxpayers from profligate spending politicians and public sector unions?
Trade Date: 1/19/11
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