$2tn debt crisis threatens to bring down 100 US cities

[Turborama]

Source: The Guardian

Overdrawn American cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery. Nor are European cities safe – Florence, Barcelona, Madrid, Venice: all are in trouble

Elena Moya
Monday December 20 2010 17.58 GMT

More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery.

"Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy," Whitney told the CBS 60 Minutes programme on Sunday night.

"There's not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults – more. This will amount to hundreds of billions of dollars' worth of defaults."

Read more: http://www.guardian.co.uk/business/2010/dec/20/debt-crisis-threatens-us-cities

[BlueJazz]

1. Boy..if there was only a way to increase revenue.

[EFerrari]

2. Really. We need one of them bake sale thingies.

A carwash. A raffle.

[aquart]

9. My city outlawed bake sales.

My mayor is a billionaire.

[EFerrari]

12. Oh, geeze.

:(

[liberalmike27]

35. And all because we've been giving the rich tax cuts

when we need to be collecting more because many have been brainwashed into thinking it's a good idea.

All the while they've been telling Americans that it creates jobs, when in fact they were packing up factories and sending them hither and yon. All the while they were collecting ever larger products, while selling us stuff at slightly lower profits, they were also loaning us money on huge credit cards, where we also paid them a good bit of interest.

And of course, the American rich buy a large portion of our debt too, so there's another few percent we give up before we pay a single bill each day.

And just when the cities are suffering the most from the actions of the rich, from the exporting purposely of 25 million jobs over the last 30 years, we give two more huge tax cuts to the richest in the land, the wealth tax especially onerous to lacking collections from the very people who not only caused the problems, but have the only money we can really tax without making it worse. Hmmmmm...been saying it for near-ten years now. Not happy it has materialized.

[dkf]

15. These are local taxes...

Every county is welcome to try increasing taxes.

[aquart]

46. Is it possible you believe local and federal are unconnected?

Oh dear.

[Warren DeMontague]

37. If only. Like, say, a highly profitable product, currently illegal, that could be regulated & taxed

not only feeding tax dollars into city coffers, but also saving enforcement costs...

Hmmmm... Let me think... Hmmmmmm....

[boppers]

48. What is this product you speak of?

I assume this is a product that the totally honest purveyors have been paying taxes on?

A product where people have been so honest that they wouldn't avoid laws like tax laws?

[IamK]

3. City workers are about ready to get thumped again... get ready for the P word..

[givemebackmycountry]

4. And America responds..."la, la, la, la, la,...I can't hear you"

Go U.S.A.!
We're No. 1 !

GOD, this shit is getting intolerable.

[femrap]

5. This is when it gets

really ugly. Shit. Reminds me of the song by Tom Petty....'I don't want to be a refuge.' So much damn debt. It was only a matter of time before The Bond Market caught its tail.

[Tunkamerica]

21. refugee. a refuge is where a refugee stays.

[femrap]

41. Thank you for your discerniing eye, tunk.

You know of Tom Petty?

[unkachuck]

6. when are we going to stop....

"More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown,..."

....playing around with these economic barbarians? We need to have death sentences for all those who wrecked our economy causing untold hardship and death. I will acknowledge the benefits of the death penalty under this circumstance....

[Citizen Worker]

32. We need to look forward not backward. Just put all of this behind us and move on. Remember, we are

a nation of laws and not of men, except if you are a banker then this rule does not apply.

[Nihil]

39. Excellent point: "... except if you are a banker then this rule does not apply"

> We need to look forward not backward. Just put all of this behind us
> and move on. Remember, we are a nation of laws and not of men,
> except if you are a banker then this rule does not apply.

You didn't need to say much but you have said plenty (for those with
eyes to see & ears to hear - the rest will either ignore you or just
bleat that "it can't happen here").

:toast:

[Skink]

7. we found out how bad it was out there.

even Jim cramer called it. It wasn't hard to predict.

[aquart]

8. What a surprise.

But I'm sure the middle-class tax cut will help.

[Mopar151]

10. How many of these

Have to do with insane financing ripoffs (a la Alabama sewer financing), or municipal reserves squandered by investments in derivatives (orange County,CA, Springfield MA)?

[Oilwellian]

26. You can be assured...

Wall Street played a big role in raiding state & federal pensions.

[PSPS]

11. At least the rich got their tax cut. They can fortify the walls around their neighborhoods.

[daleo]

13. The mayor of Kabul is still getting richly funded

So some cities are doing ok.

[HCE SuiGeneris]

14. It's late. I'm tired and unable to find the 100 cities that were cited.

Can anyone provide the link/list?

[alp227]

23. Whitney's site is www.meredithwhitneyllc.com

I don't see any sign of the report here though.

[dkf]

16. Meredith Whitney said the states would start selling their assets to generate revenue.

Pretty sad.

[tomm2thumbs]

17. 'Arizona has sold its state capitol and supreme court buildings to investors, and leases them back.'

So much for Arizona's governor having a handle on the situation.

Fire sale! Fire sale! Everything must go!!

[Monk06]

18. Nothing short of forgiving all debt by every major city in the world is going to

prevent this shit storm from happening. The banks created
this debt with the help of national governments who shifted
national debt to municipal debt by cutting funding to the
cities in order to award the rich with tax breaks they did
not deserve.

Time for the banks start paying their way and get off the
Fed's welfare wagon.

[jtuck004]

22. Realistically, the cities created huge payrolls of workers,

lots of infrastructure that has to be paid for, overly generous pensions. And instead of paying the pensions, some would pay as little as 10%
of the money owed in a payment, assuming that the economy would continue.

The banks didn't make the cities borrow the money to leverage their lifestyle. Forgiving debt will not
lower the monthly payments these cities owe. But it will make it damn expensive for them to ever issue
a bond again to build anything. If that happens, they might as well file bankruptcy and fire everyone,
because that city will, for all intents and purposes, be dead.

The problem is that there is not enough tax revenue to support what they borrowed, or are continuing to borrow.

But if you raise taxes to pay for the bloated organizations you kill development. People walk away
from their homes and go to places where where the taxes don't need to be so high. The ones that are left
say screw you, and then what do you do? Try raising taxes. Go ahead. See what happens.

People look at Detroit, planning to move people from sparsely populated neighborhoods and cut services to
that area, and say "how sad". Yet they don't realize their city is very likely close to the same thing.

Cities look to states, yet the majority of them are insolvent. The Fed has no money - we have unfunded
liabilities of 10 times our national debt just a few years out.

And now 1 in 3 workers makes less than $20,000 a year. We haven't had that small a tax base to draw on since perhaps 1980?

But even dumping a few employees leaves city employees in some places making far more than the average taxpayer, and that is probably not sustainable.
Along with this is the fact that many of the pensions are underfunded for what they owe.

Dark days ahead.

[AlbertCat]

27. Try raising taxes. Go ahead.

I wish someone would!

This "you can never raise taxes" meme is made up and impractical.


Of course SPENDING taxes wisely would also help.

[jtuck004]

29. 1 of three workers is living on less than 20,000/yr. 40 million + people

on food stamps 30+ million unemployed or underemployed. Housing getting ready to take another roughly 1 trillion dollar
drop in value.

Industrial production is sitting at less than 75% of capacity. How many more kids do you want to starve for salaries and pensions?

They just dumped scores of jobs from the state university last year, and just took took 100,000 people off state-assistance here. And that
was at the state level.

Seems like hardly anyone gets it - there is not enough income to support what is due.

And federal taxes must go up within just a couple years or we start watching the national debt rise much faster than it is now.

It's like nobody ever took basic accounting, much less basic math.

[RUMMYisFROSTED]

42. There's plenty of income to support it.

It's just not in the turnips at the bottom.

[jtuck004]

43. That's part of the problem, but not all

You will never get their taxes high enough to overcome what has been removed from the rest of the people.

Look at the contributions and lobbying money -

University of California $1,591,395
Goldman Sachs $994,795
Harvard University $854,747
Microsoft Corp $833,617
Google Inc $803,436
Citigroup Inc $701,290
JPMorgan Chase & Co $695,132

And that's just the top of the list to Obama's last campaign. Now figure in hundreds of millions of lobbying money to individual senators of both parties, and the increase in campaign funding that went to the Republican campaigns in the midterm (covering their bets, as they were).

Does anyone really think politicians are going to have the willpower to go after these people for any significant taxes?

Governments have built an unsustainable structure of salaries on how things were 10 years ago. The number of federal workers making $150,000 a year has mushroomed. Cities, our own for example, are paying lots of police, firefighters, teachers, others near or over $100,000 a year, with retirements structures that allow them to retire with nearly that much (and in some cases apparently more) than that. And they only partially funded the pensions.

There is an extremely top-heavy structure. With industrial jobs to support decent incomes that worked, but millions of factory jobs are no longer here, and we lost 8.3 million jobs in 2008 and 2009 alone. Much of that is likely to take 20 years to come back, if they come back, and are very likely to be low-wage service jobs when they do.

Combine the hollowing out of our industrial base, the damage the investment banks did, the debt that governmental entities took on and got used to living with, and there are no good options to fix this. So taxes will go up, people will have even less to spend, the cities, states, and federal government will use it to service debt instead of investing it in education and infrastructure, and we may very well see the second Great Depression.

[Psephos]

28. an accurate, but certainly unpopular, analysis

Over the long run, no private citizen, business, or government can spend way more than it makes without going bankrupt. There are limits to how much taxation a city or state can enact without driving its people and businesses elsewhere, and there are plenty of examples in current play to suggest what those maximum tax burdens are.

Cities and states have been Madoff'ed by politicians who promised the moon, contractually obligated the government to pay for it ("some day"), and then left the Ponzi realities to be confronted in the future.

The future is now.

[jtuck004]

31. There are going to be a lot of very unpopular decisions soon. n/t

[Monk06]

30. Take a case like the city of Vancouver that is like every other major city in

North America which saw globalization and free trade
open up their local real estate markets to the world
market. The result: grossly inflated commercial and
residential prices. Unfortunately the only people who
can afford them are international corporations and
wealthy offshore investors, who refuse to allow tax
increases necessary to maintain the growth of the
amount and cost of infrastructure. As you said.

Behind it all are the banks that aided an abetted the
international real estate bubble by promoting easy money
policies and taking advantage of artificially low interest
rates.

No worries raid municipal pensions and then get a bailout
for good measure. The world monetary system cannot last more
than another decade without collapsing or causing a wave of
revolutionary turmoil similar to the period following the
WW I. And that was not pretty.

[JDPriestly]

33. LA has laid people off and shortened work weeks.

[DeSwiss]

19. Investment bankers are too big to fail, but not cities. Right. K&R n/t

[Poll_Blind]

24. +1

PB

[Iwillnevergiveup]

20. In old age

looks like I'll still be working even with a pension. Oh, wait a minute...lucky to have a job!

[mackerel]

25. Vallejo California filed for bankruptcy in 2008 and

it's been down hill ever since. I don't wish it on any city.

[and-justice-for-all]

34. Capitalism twisting its knieves....nt

[Red Knight]

36. This is a great opportunity!

Now more cities and states can sell or lease parts of their infrastructure to Wall Street or foreign countries through sovereign wealth funds for mere pennies to get them through one more year while trading valuable assets away for 75 years(like Chicago's parking meters)or more. Then these funds can TELL cities how they get to run things.

Oh what a wonderful country!

[xchrom]

38. cities and states will sell off what they can --

and then 'private enterprize' can tell cities how to run it's affairs.

full circle neo-liberalism at work.

[Roland99]

40. Multi-generational households will soon be the norm in the U.S.

[AngryAmish]

44. I live in Chicago. We gave away too much money.

We did not plan for a rainy day. Taxes are going up soon. And I'm gonna be leaving soon.

[4_TN_TITANS]

45. And now comes the privatization of local gov services...

along with states selling off parks, forests, anything not nailed down.

[anamandujano]

47. Very informative thread. Thanks all.

[boppers]

49. If you make over 28K a year, prepare to learn how the majority of the US lives.

It's coming.

It's really going to suck for those who have lived high on the hog while complaining that they didn't have a "living wage"... because they weren't "rich enough" yet.

After that (or in conjunction with it), people in the US will get to learn how *most of the people on this planet* live.

Hint: They don't have their car (luxury), to drive (luxury), to their own home (luxury), to watch TV (luxury), while eating pre-made food (luxury).

Before somebody posts "a race to the bottom" comment in response, yes, it sucked to not have cake as a peasant, but complaining that you aren't as filthy rich anymore isn't exactly compelling... to people making a dollar a day.