Former LA Mayor Richard Riordan: "90 percent of cities and states are going to go bankrupt within the next five years"

  • Posted by a hidden member.
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    Jan 14, 2011 7:04 PM GMT
    Personally I don't know if it's that dire, but the defined pension benefit plans are going to be a huge issue:

    http://reason.com/blog/2011/01/13/former-la-mayor-richard-riorda
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    Jan 14, 2011 7:53 PM GMT
    I have wondered for decades when this would happen. I wondered how long it would take for our perennial trade deficits to drain our country's wealth and we would go broke.
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    Jan 14, 2011 8:18 PM GMT
    State and local Governments are tied to the Federal Gov. like a hand in a glove, so Guess the Repubs and the Dems better be doing some bipartisan work and soon, we already learned from the last Decade that certain methods of income transfers upwards to the top 5% doesn't create jobs, we learned that unecessary wars costing trillions of dollars barrowed from China doesn't help our economy. We learned that letting the banks and wallstreet go without regulation to gamble on bad loans (plenty of blame between the party's for those loans).

    Now can we just stop one party from only saying no and missinforming the public for the benefit of their pay masters, while convincing the public through "false News" (its right hand mouthpiece) to vote against their own interests. Maybe then we can work on the other party to get over thinking government involvement in every aspect of life is always the answer and work more for the benefit of main street as apposed to trillions in bailouts for the banks and wall street.

    Dems and Repubs worked together through years of being bought and paid for by big business and other big money interests, so maybe now they'll work together to ward off further regression of our economy. Actually the Government has had plenty of our money to work with and they've missmanaged it terribly. I suggest cutting the Pentagon spending by half, and we'd still be spending more than most of the rest of the world put together. And you Repubs don't even suggest cutting Social Security because the TBAGGERS won't hear of it !!!
  • rnch

    Posts: 11524

    Jan 14, 2011 9:05 PM GMT
    [quote][cite]realifedad said...I suggest cutting the Pentagon spending by half, and we'd still be spending more than most of the rest of the world put together. And you Repubs don't even suggest cutting Social Security..../quote]

    1. agree that the defense dept should be slashed. can anyone tell me truthfully why we are STILL in the sand dunes, fighting a "war" we can't pay for?

    2. GOP may make a lot of noise about cutting social security...but they know who is the most loyal vloting block out there past the beltway...Senior Citizens, the recipients of social security!

    can you image the mess the social security system would be in if dubja's stock market suggestion happened?
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    Jan 15, 2011 6:01 AM GMT
    I find it bizarre that while there are some so willing to point the finger, there is the lack of recognition that the spending has got to slow considerably. Discretionary spending is up dramatically in the last decade and much of it isn't defense. Rnch/reallifedad - you obviously haven't been paying attention to Republican calls to reform social security.

    Perhaps I spoke too soon when I thought that things weren't as bad what was being described by the former mayor of LA:


    http://www.businessinsider.com/munis-crashing-for-third-straight-day-and-this-is-the-worst-yet-2011-1

    "It's hard to look at this chart, and not have your heart skip a bit of a beat.
    For three days now, munis have tanked, and this is the worst one yet."

    chart.png
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    Jan 17, 2011 3:45 PM GMT
    More here:
    Investors have been fleeing municipal bonds
    http://articles.baltimoresun.com/2011-01-16/business/bs-bz-ambrose-municipal-20110116_1_muni-bonds-bonds-appeal-municipal-bonds
  • Sparkycat

    Posts: 1064

    Jan 17, 2011 4:13 PM GMT
    Or, property taxes will continue to increase. That's what happens here in Iowa City, Iowa. Ever year there's a substantial tax increase, and mortgage payments go up, up, up. The concept of doing without pet projects because there is no money to pay for them is lost on the city council.
  • swall1963

    Posts: 161

    Jan 17, 2011 4:52 PM GMT
    As someone who works for a city and actually works in municipal finance, I cringe every time I hear someone make overblown statements like the former mayor of LA.

    While there are some difficult situations out there, the thought of 90% of states and local governments going bankrupt in the next 5 years is absurd and statements like that only make matters worse by scaring investors driving muni prices down and interest rates up. A 90% bankruptcy rate in the next 5 years would equal $2.5 trillion dollars in defaults on municipal debt. That would take $500 billion dollars worth of defaults each year. In 2009 there were $8 billion in defaults and that is the largest number ever recorded. That would make this last economic crisis look like a minor fluctuation in the global economy.

    I will not state there there will be no bankruptcies in state or local government however the history for a large rate of defaults and bankruptcies just isn't there. From 1970-2009 there were 54 defaults on muni bonds out of more than 18,400 issues. And most of those were on "conduit financing" where a non-governmental entity issued their debt through the local government for tax purposes.

    Analyst Meredith Whitney, who is a bank analyst and not familiar with the muni bond market, helped fuel the sell-off in munis when she made the statement there there would 50-100 defaults in 2011 totaling $100+ billion. The county in the US with the largest amount of debt is only $6 billion. So her numbers don't add up. There aren't enough cities and counties with $2+ billion in debt to have 50-100 defaults equal $100+ billion.

    Yes, state and local government are going to need to do a lot of hard work on budgets deficits and especially long-term underfunded pensions. But, I am more than certain that nowhere near 90 % will file for Chapter 9.

    Discussion is fine, but outlandish statements and spreading panic is never good discourse.
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    Jan 17, 2011 8:07 PM GMT
    I'd agree with you - that the 90% seems overblown - but at the same time, like you said, there's a lot of work that needs to be done and a lack of capacity/desire to do it.

    Catastrophes don't happen until they do - which is to say I'm not sure that the history of 1970-2009 are the best guide either though given the ability of states to bail out municipalities now. Some of the same institutions that bet heavily against the mortgage markets are now moving to municipalities. There is no reason that a crisis of confidence can't happen amongst municipalities such that they are unable to get their bonds refinanced with no one to back them.

    Now you just need to look at the finances of places like California and Illinois to get a sense of the magnitude of the problem - it's not just the municipalities, it's entire states.

    Historical facts: http://www.publicbonds.org/public_fin/default.htm

    A muni meltdown?
    Broke states rattling market
    http://www.nypost.com/p/news/opinion/opedcolumnists/muni_meltdown_10IepFWdpphKZrTnoxftBK
    "For decades, many of our biggest cities and such states as New York, New Jersey and California have grown mindlessly -- running up ever more debt and routinely hiking taxes on business and entrepreneurs. The market's now saying that the game will have to end."

    Will 90% of the municipalities go bankrupt? No. Will a lot? I think the answer is a definite yes unless immediate steps are taken - but look at how willing states and municipalities are willing to lead the way. The only state I can think of that is making a dent might be New Jersey but it's still unclear that they can escape the vortex given their still high debt and deficits. Some states and municipalities believe they will be able to solve the problem with higher taxes and worse there have been many on this site who have even advocated for greater spending supposedly to "kick start the economy" right into the coffers of unions and their pensioners.
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    Jan 18, 2011 5:21 PM GMT
    "who have even advocated for greater spending supposedly to "kick start the economy" right into the coffers of unions and their pensioners."

    Huh?!? So you hate unions. They're all bad n evil, right? lol.

    An example, a friend has a high paid job at the city of Toronto. he makes about 40$ an hour. 40 hour weeks and often working from home on vacation days (no extra pay for that, btw). He contributes 400 or more a month to his pension and has been at this position for more than 3 decades. He's retiring soon.


    His 'union' pension? $3,400 per month til 65 and then 2,400 a month after that.

    -Doug
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    Jan 18, 2011 5:43 PM GMT
    Here: I held my nose (socialist website), and looked at this.

    http://www.wsws.org/articles/2009/sep2009/losa-s22.shtml

    As you can see democrats can be fiscally conservative, too, much to the socialist website's dismay.

    -Doug
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    Jan 18, 2011 5:54 PM GMT



    And here's an example of why some unions begin...

    http://dbacon.igc.org/Work/03AsbestosRevolt.htm


    ...and before you go all equivalent to bible thumping on me, I think unions are only necessary when the employer is foul.

    Look at London Drugs - no union, and no need for one.
  • coolarmydude

    Posts: 9190

    Jan 18, 2011 6:00 PM GMT
    One of the mayor's points was that California and LA aren't friendly to business with tax policies, but the same can be said on how the businesses aren't friendly to local and state governments in that they demand subsidies and tax abatements to stay there in the first place. How is it that they can have it both ways? If you really want to solve the fiscal problems, you have to put ALL the cards on the table.
  • roadbikeRob

    Posts: 14361

    Jan 18, 2011 11:15 PM GMT
    If you guys think California is in bad financial shape, you should look at New York. The empire state is probably in the worst financial shape of any state in the country. Yet the corruption and dysfunction continues unabated in Albany. Go figure.icon_mad.gif
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    Jan 19, 2011 12:56 AM GMT
    More noteworthy details - though not specific to municipalities

    US public pensions face $2,500bn shortfall
    http://www.ft.com/cms/s/0/dd3ff74c-2272-11e0-b6a2-00144feab49a.html#axzz1BRE20g13
  • TheIStrat

    Posts: 777

    Jan 19, 2011 1:03 AM GMT
    Oh, so the market is finally going to find a way to do the self correction that wasn't allowed to happen in 2008. Gird your loins, girls
  • Posted by a hidden member.
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    Jan 19, 2011 1:04 AM GMT
    OMG what is Obama doing to prevent this fro coming to pass?

    What is he doing?
  • Posted by a hidden member.
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    Jan 19, 2011 1:11 AM GMT
    True_blue_aussie saidOMG what is Obama doing to prevent this fro coming to pass?

    What is he doing?


    Obama? Fro? Just what are you implying?
  • Posted by a hidden member.
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    Jan 19, 2011 1:25 AM GMT
    Newt Gingrich and others say let all the troubled states go bankrupt:
    http://www.bankruptcyhome.com/bankruptcy-news/800349396/Newt-Gingrich-calls-for-bill-to-allow-state-bankruptcies--
  • dannyboy1101

    Posts: 977

    Jan 19, 2011 1:39 AM GMT
    realifedad said State and local Governments are tied to the Federal Gov. like a hand in a glove, so Guess the Repubs and the Dems better be doing some bipartisan work and soon, we already learned from the last Decade that certain methods of income transfers upwards to the top 5% doesn't create jobs, we learned that unecessary wars costing trillions of dollars barrowed from China doesn't help our economy. We learned that letting the banks and wallstreet go without regulation to gamble on bad loans (plenty of blame between the party's for those loans).

    Now can we just stop one party from only saying no and missinforming the public for the benefit of their pay masters, while convincing the public through "false News" (its right hand mouthpiece) to vote against their own interests. Maybe then we can work on the other party to get over thinking government involvement in every aspect of life is always the answer and work more for the benefit of main street as apposed to trillions in bailouts for the banks and wall street.

    Dems and Repubs worked together through years of being bought and paid for by big business and other big money interests, so maybe now they'll work together to ward off further regression of our economy. Actually the Government has had plenty of our money to work with and they've missmanaged it terribly. I suggest cutting the Pentagon spending by half, and we'd still be spending more than most of the rest of the world put together. And you Repubs don't even suggest cutting Social Security because the TBAGGERS won't hear of it !!!


    We learned that but as long as the rich keep buying candidates' campaigns no politician will have the balls to do the right thing. How about a cap of $10000 for campaigns. Everyone can only spend that much money whether it's their own or someones donation and when that is spent, there r no more flyers created, no more commercials etc. Should public office only be accessible to the rich or to the intelligent and dedicated?
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    Jan 19, 2011 1:44 AM GMT
    Wasn't there some move Obama wanted to make that would effectively nationalize/seize all privately held 401k's and put them into a common fund (not unlike SOcial Security) with intent of leveraging it to pay down Chinese held debt?

    I know that has little to do with muni and state debt, but we are in serious debt trouble at all levels of government.
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    Jan 19, 2011 2:33 AM GMT
    alphatrigger saidWasn't there some move Obama wanted to make that would effectively nationalize/seize all privately held 401k's and put them into a common fund (not unlike SOcial Security) with intent of leveraging it to pay down Chinese held debt?

    I know that has little to do with muni and state debt, but we are in serious debt trouble at all levels of government.


    I don't believe so. It was the Republicans who wanted to privatize social security.

    The unspoken back story to all this is that in nearly every case these states did not put in their part of the pension money, even though unions and employees did. Instead, they used that money to give tax breaks, as Chris Christie is doing now. Since the money wasn't put in, it didn't accrue the interest it would have, and now everyone is screaming that pensions are too expensive. Same thing with SS, if Bush inherited a surplus (which some of you say he didn't but that was the rationale behind cutting taxes) why didn't he replenish the SS trust fund first? Because as with every Republican, it's more important to pay back their campaign contributors than it is to take care of the people who elected them. Sad but true. icon_rolleyes.gif
  • barriehomeboy

    Posts: 2475

    Jan 19, 2011 2:36 AM GMT
    You have no clue how bad the situation is in your country then. The USA is bankrupt. States and Counties and cities don't have the funds to pay their workers, much less keep mental patients in hospitals and prisoners in jail. It's the beginning of the end.
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    Jan 19, 2011 2:53 AM GMT
    Christian73 said
    alphatrigger saidWasn't there some move Obama wanted to make that would effectively nationalize/seize all privately held 401k's and put them into a common fund (not unlike SOcial Security) with intent of leveraging it to pay down Chinese held debt?

    I know that has little to do with muni and state debt, but we are in serious debt trouble at all levels of government.


    I don't believe so. It was the Republicans who wanted to privatize social security.

    The unspoken back story to all this is that in nearly every case these states did not put in their part of the pension money, even though unions and employees did. Instead, they used that money to give tax breaks, as Chris Christie is doing now. Since the money wasn't put in, it didn't accrue the interest it would have, and now everyone is screaming that pensions are too expensive. Same thing with SS, if Bush inherited a surplus (which some of you say he didn't but that was the rationale behind cutting taxes) why didn't he replenish the SS trust fund first? Because as with every Republican, it's more important to pay back their campaign contributors than it is to take care of the people who elected them. Sad but true. icon_rolleyes.gif


    Spoken as one who has little interest in actually dealing with a very substantive issue and instead more focused on the politics and defending special interest groups and thinking that there is no cost to productivity with higher taxes.

    It has been wholly irresponsible that social security and pensions remain unfunded. I am guessing most people don't even realize that there is not a massive fund where social security taxes go into for payout upon retirement. The current year's retirees get paid out of the current year's taxes because government found it far more easy to spend any funds as surpluses.

    Is it any wonder the calls for privatization so that at least people can actually have some expectation that the monies they are told are designated for their retirements actually go to paying for their retirements rather than some federal slush fund?

    As for fears that governments could seize private accounts to fund public ones? It's already starting to happen in Europe:
    http://www.csmonitor.com/Business/The-Adam-Smith-Institute-Blog/2011/0102/European-nations-begin-seizing-private-pensions

  • Posted by a hidden member.
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    Jan 19, 2011 3:01 AM GMT
    But, hey, at least Obama and Congress extended the tax cuts. Yeah! icon_rolleyes.gif