Misery Economic Theater 2011

[Fusion_power]

(AP) BIRMINGHAM, Ala. - Leaders of Alabama's most populous county have voted to file an estimated $4.1 billion bankruptcy, the largest municipal bankruptcy in U.S. history.

The Birmingham News reports the Jefferson County Commission's action came after spending about six hours over two days meeting with its lawyers to discuss legal options. Those options included a bankruptcy filing and a settlement with creditors on the county's $3.14 billion sewer debt.

http://www.cbsnews.com/8301-201_162-...or-bankruptcy/

Sadly, this is the state I live in. The county was in a bind, federal regulations forced them to upgrade the sewer system. Through a series of stupid decisions, they wound up with over $3 Billion owed to NY financial firms. That far exceeds the revenue potential from the water system. They finally did the only thing that is viable by declaring bankruptcy. This dwarfs all previous U.S. government filings. It is perhaps just a harbinger of things to come.

DarJones

[Christenson]

Hey Dar, a couple of questions for you:
Your county has a $3 billion dollar sewer system. Did they get anywhere near that amount of resources for it? What *should* the required physical system have cost? What kind of water rates are they charging?

[only_human]

Originally Posted by Christenson

Hey Dar, a couple of questions for you:
Your county has a $3 billion dollar sewer system. Did they get anywhere near that amount of resources for it? What *should* the required physical system have cost? What kind of water rates are they charging?

http://en.wikipedia.org/wiki/Jeffers...ap_controversy

In February 2011, Lesley Curwen of the BBC World Service, interviewed David Carrington, the newly appointed president of the commission, about the risk of defaulting on bonds issued to finance “what could be the most expensive sewage system in history.” Carrington said there was “no doubt that people from Wall Street offered bribes” and “have to take a huge responsibility for what happened.” The system was repaired and upgraded a few years ago because of environmental problems. Wall Street investment banks including JP Morgan and others arranged complex financial deals using swaps. The fees and penalty charges increased the cost so the county now has $3.2 billion outstanding. Some county officials have been prosecuted for accepting bribes from bankers and are now in prison or awaiting sentence. Carrington said one of the problems was that elected officials had welcomed scheduling with very low early payments so long as peak payments occurred after they left office. The debt structure now was such that there was no way that 700,000 people could pay it back over 30 years. The job could have been done for somewhere between $1.2 billion and $1.5 billion but shouldn't have cost 3.2 billion. Those selling the bonds weren't interested in whether they could be repaid as they would have moved on. The county was not able to pay its bills and now needed to restructure its debts to avoid bankruptcy. Investors would lose out but hopefully innocent small investors would get 100%. The SEC has awarded the county $75 million in compensation relation to “unlawful payments” against JP Morgan and in addition the company will forfeit $647 million of future fees. Carrington said citizens had to elect the right people to avoid a repeat disaster. Officials must identify those responsible, including local investment bankers, and root them out. A characteristic symptom of wrongdoing is unaudited books, the county was three years behind with its auditing, new debts cannot be issued until auditing is complete and this could take 1– 2 years.

(my bold and underline)
I don't have the rates but do have the the rate increases planned in pre-bankruptcy September:
Jefferson County OKs terms for sewer debt settlement 4-1, averting bankruptcy for now

As part of the refinancing of the county's debt, sewer rate increases will be 8.2 percent for each of the first three years beginning Nov. 1. Projected annual increases after that would be no more than 3.25 percent until the debt is paid off, according the the proposed settlement term sheet.

[Christenson]

With a maximum of two choices on the ballot for most offices in my county, it's very tough to elect the "right kind of person"as it were...the reform needs to go to the election system itself. (Vermont has taken some excellent steps in that direction, but I'm in VA!)

Wonder what the bankruptcy court is going to do with these bonds? And speaking of water rates, percentages are a way to lie with statistics...for most of us, doubling a $30 monthly water bill isn't even going to equal the variance in other kinds of bills we pay...

[ewmayer]

Funny how the (former) local officials who took the bribes are being prosecuted, but not one of the banksters who actually offered the bribes has even been indicted, much less prosecuted. Oh wait, we know by now that actually holding a major-bank -crook to account will inevitably cause collapse of the globale economy. Carry on then, all you doers of God's work.

[Christenson]

I've read the story of these local officials before...not in Birmingham, but in a small town on the Georgia coast, in connection with drugs instead of sewers...I'll try to find the book when I get home. I hope some bankers both go unpaid and end up in jail here.

[only_human]

Bankers are a bit like lawyers - easy to despise, but sometimes you really need one.

Good or bad, I don't know. Case in point:

Reading from Villaraigosa wants to borrow future tax money to fix L.A. streets
Measure R in Los Angeles is an existing 1/2 cent sales tax measure that over three decades is intended to supply about 2 billion dollars of revenue for transportation projects.
The Los Angeles Mayor wants to spend $800 million over 18 months borrowed against the $1.4 Billion over 27 years of Measure R revenue (borrowing cost $600 million).
Another $600 million of the original $2 billion revenue as yet untouched (unspent).

[Fusion_power]

So the question now is:

Is BANKRUPTCY for Birmingham a good thing? Keep in mind the major arguments on this board over bailouts for the banks. This time the state of Alabama did NOT bail out the city.

What is the likely outcome of the bankruptcy? The first outcome is that there will be a reduction in the payback on the sewer bonds that were marred by corruption and sweetheart deals. The city will continue to provide goods and services using current tax revenues.

Where things get dicey is the lost revenue from the Occupational Tax that was ruled unconstitutional by the state supreme court. The first such tax was passed back in 1986 when I had just recently moved to the area as part of my job with Nortel. There were various challenges to the tax over the next 20 years eventually resulting in the supreme court strike down. The problem is that Jefferson County had several years with access to about $70 million per year (adjust for inflation of course) which was used to pay for services. So when the sewer imbroglio hit, the county got a double whammy.

The best I can see, there will be loud screaming for more tax revenue in a county that already has some of the highest taxes in the state. There will be equally loud screaming from residents who don't want any more taxes. The bankruptcy judge cannot force new taxes. So at some point in the near future a tax referendum will be held which will be soundly voted down. End result will be a county already stretched to the breaking point cutting services wherever it can.

DarJones

[ewmayer]

Mish describes the latest we-can-fix-it fad among Europe's political leadership, the installment of economists/international-bankers (both professions which did themselves very proud in the runup to and playing-out of the 2008 global financial crisis - not!) to head various indebted sovereigns and presumably use "the miracle of leverage and Keynesian money-printing" to quickly fix a problem 30 or more years in the making as "Rise of the 'Borg' Technocrats". His latest blog post describes the short-term market euphoria resulting from Borg technocrats taking the helm in Greece and Italy:

Whack-a-Mole Euphoria; Reflections on 6-Sigma Events

Hooray! The Borg Technocrats have saved us already, even though they have yet to lift a metallic finger.

The Borg took a huge whack not at a mole actually, but an Italian Elephant. This event instantaneously brought upon mass-euphoria.

The market has more-or-less been in a continual state of euphoria recently having been saved (by something), for the 83'rd time in the last 63 days.

In a lengthy posting immediately preceding the above one, Mish quotes fellow blogger Peter Tenebaum, who has some pithy insights on how far the Eurozone has strayed from its original (stated) purposes:

The 'Technocrats' Are Coming

What's the EU All About?

One keeps hearing demands for more centralization – tax 'harmonization', which is new-speak for 'let's impose the highest possible taxes everywhere', more 'redistribution', and above all, 'more regulation', especially of the evil financial markets where all sorts of bad things are happening to sovereign bonds nowadays.

Naturally, fractional reserve banking and the inflationary boom-bust sequences it has brought forth doesn't even rate a mention – since it has also enabled the growth of this huge statist moloch the EU and many of its member nations have become.

What is really needed is some introspection and remembering what the EU was originally about. Its founders wanted to restore 19th century liberalism to Europe – free trade and freedom of movement for people and capital within Europe.

They emphatically did not want to erect some sort of socialist super-state. They wanted to bring back to Europe what the mad socialist and fascist ideologues of the 20th century had destroyed.

Now we have a bureaucratic monster in Brussels that has produced nearly 300,000 new regulations over the past decade, in addition to the hundreds of thousands of pages of 'administrative law' and other regulations the member states themselves produce every year.

It is a miracle we still have a functioning civilization.

If we want the problems to be solved, the most important question should be: what is needed to enable the production of new wealth? What kind of environment will be most conducive to reviving the entrepreneurial spirit? It should be simple enough, but it would of course threaten a great many vested interests.

Armistice Day

The Armistice Day (here in the US it's since been generalized to Veterans Day) commemoration at Cupertino Memorial park near where I live just concluded. In addition to dozens of veterans of various ages there were also sizable contingents of local police and firefighters. The latter had parked 2 large ladder trucks back-to-back with their ends about 10 yards apart, ladders raised and angled so the tips just met, in a firetruck version of the military crossed-swords salute. Nice touch.

"At the eleventh hour of the eleventh day in the eleventh month of 1918, the guns fell silent."

[literka]

European Union is very far away from what it was supposed to be. The assumption was that it was governed by member state different each year. Still it is so, only that now it is a fiction. For example, this year Poland had a leadership. During this period there was not a single decision made by UE leaders. On the contrary, German Parliament voted few issues closely related to UE. They should be voted in Parliament of UE. Solution of the problem of Greece should be considered in the UE Parliament. But all initiatives come from only one country - Germany. UE Parliament became a meaningless institution. Members of this Parliament fly to Brussel early in the morning, they sign a list to get money and rush to airports to be in theirs native countries afternoon. It is not stupid, because there is not anything that they can do in Brussel.
Europe is divided into territories of influence. For example, Germany did not do anything with respect to Ireland, British don't do anything corresponding to Greece. It is not clear where the territory of France is. Probably Spain and Portugal, but it will appear later. Humiliated Italy did not get any provinces, but probably they will fight back.

[Fusion_power]

So are you saying Europe has devolved into fiefdoms?

From what I can see, you appear to have a point that there is not much to be done in Brussels. That appears to be more of a problem with the EU charter than anything else. There are no "rules" for bailing out ailing economies. Greece got to this impasse by wasteful overspending. What do you expect Germany to do? Write a blank check?

The entire EU could hold a very telling conversation about how to deal with economies in a tailspin. The Euro as common currency virtually guarantees that some nations will fall into economic chaos and there must be a regulatory framework to deal with them. Kicking the red headed step children out of the EU is not exactly the right solution.

Maybe Greece needs to hold a "nation sale". Large country for sale, beautiful location, historic buildings, lots of tourism, wonderful people. Purchaser must assume all existing liabilities such as "entitlement people" and tax evaders as well as all debts. There will be no bidders as things stand today.

DarJones