During the go-go investing years, school districts, transit agencies and other government entities were quick to jump into the global economy, hoping for fast gains to cover growing pension costs and budgets without raising taxes. Deals were arranged by armies of persuasive financiers who received big paydays.
But now, hundreds of cities and government agencies are facing economic turmoil. Far from being isolated examples, the Wisconsin schools and New York’s transportation system are among the many players in a financial fiasco that has ricocheted globally.
The Wisconsin schools are on the brink of losing their money, confronting educators with possible budget cuts. Interest rates for New York’s subways are skyrocketing and contributing to budget woes that have transportation officials considering higher fares and delaying long-planned track repairs.
And the bank at the center of the saga, named Depfa, is now in trouble, threatening the stability of its parent company in Munich and forcing German officials to intervene with a multibillion-dollar bailout to stop a chain reaction that could freeze Germany’s economic system.
Public transportation systems are conceived in financial ruin and operated at a perpetual loss. Period. They are a drain on public resources, albatrosses around the public neck. It doesn’t surprise me in the least that they would find themselves even further underwater at a time like this…they’re basket cases even in good times.
The schools are turning into propaganda stages anyway. Parents who want their children to be Christians, who want to protect them against deceptive toxic pansexual conditioning (brain-washing) , to be able to reason and to know God’s word, are being forced to make other arrangements – and to avoid certain church denominations as well.
Meanwhile, Obama has promised to bankrupt the coal industry…. http://thepoliticalpage.wordpress.com/2008/11/02/obamas-plan-to-bankrupt-the-coal-industry/
You should never participate in a Global (or US) stock market if you can’t afford to lose. You can win but you can lose also.
[blockquote]Meanwhile, Obama has promised to bankrupt the coal industry…. [/blockquote]
Well, to be fair, he only said he’d bankrupt coal-fired electrical generation plants. They’re just 50% of our generation capacity. The coal industry would come soon after. In the meantime, The One would be [url=http://hotair.com/archives/2008/11/02/obama-ill-make-energy-prices-skyrocket/]bankrupting us[/url].
Cities, transit agencies, and school boards are not “collateral damage.” They are at the nexus of the problem. One vignette: our local school board allegedly educates about 5800 students from K through 12. Their [i]existing[/i] bond debt is about $170 million. They’re asking for another $75 million on Tuesday.
Our children need a solid education. They do not need a palace. They do not need six layers of administration, many of whom are banking salaries in six figures.
The only reason this has been able to happen is the flood of easy money. Easy money leads to clusters of bad decisions and mountains of malinvestment. Does our nearby city of not quite 5000 residents really need a $3.5 million pool open only two months of the year? On borrowed money,when they have to create a special tax to fund a quarter-million dollar stoplight — the first in town — and dip into their emergency fund for a $30,000 tornado siren?
Outfits like this are the [i]source[/i] of the problem, not its “victims.”
Bart you wrote well, when I speak of collateral damage I am thinking for example of the citizens in the cities impacting by the poor decisions of others, etc.
Others? Who put the people who made these decisions in the position to make them?
They’ve met the enemy, and they are them.
There are a couple of issues here, that need to be untangled. The School Board borrowed $200 million at a low rate of interest, and relent the money by buying $200 million in CDO’s at a higher rate of interest. In other words, they were 100% leveraged.
This is extremely risky under any circumstances, in any economy, and is not a symptom of anything other than the normal human desire for something for nothing. The $200 borrowed was not to build a new school or for any educational function, except to speculate that they could forever earn a positive rate of return on the spread between cost of money borrowed and invested. This type of investment is incredibly inappropriate for a school district under any circumstances
As for the MTA, to borrow money at a variable rate when interest rates are at historic lows has a low probability of success. However, much of the problem is that the economic slowdown, collapse in real estate values, ie, sources of their tax subsidies, are going down.
The point is that these problems are not the result of some unforeseeable external catastrophe, they are the result of bad decisions and taking inappropriate risk without really understanding the risk. This is our fallen human nature, not bad guys on wall street or elsewhere.