Note: this post inspired by tonight’s viewing of the movie COLLAPSE.
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LA, Detroit, Oakland. Every major state (except TX) and city seem to be on the hook to our oh-so-lovely New York banksters. And not entirely due to the big banks’ fault, although they certainly aren’t helping things now. In fact, they seem to be taking on mafia-like behavior of overcharging the weak and poor. Isn’t that warlord or feudal behavior? Gangsterism, perchance?
BusinessWeek, updated 4:22 p.m. PT, Sun., Nov . 22, 2009
Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007. The 66-year-old Bing, a former NBA all-star with the Detroit Pistons who took office 10 months ago, faces a $300 million budget deficit — and few ways to make up the difference.
Against that bleak backdrop, Wall Street is squeezing one of America’s weakest cities for every penny it can… (emphasis added)
For instance, you’d further read that Detroit must now pay $400M on $800M worth of bonds to UBS and others due to some “fine print.” Basically, if the city’s bond rating tanked, the banks could ask for a “breakup fee.” You know, where THEY break contract and YOU have to pay. (Unlike your cell phone early termination fee.)
Is Oakland vulnerable to the same type of debt repayment flimflam? Sure. It already has been preyed upon! Let’s not forget the AMBAC and MBIA scammers whom Oakland city attorney John Russo sued last year:
OAKLAND – The City of Oakland filed a lawsuit today against some of the nation’s most powerful high-finance companies, charging the firms with defrauding taxpayers through unlawful practices in the municipal bond insurance market.The lawsuit accuses major bond insurance companies of charging California cities and public agencies millions of dollars to guarantee their debts – while at the same time covering up financial shenanigans that made it impossible for the firms to provide the services they were paid for.Oakland’s lawsuit and similar lawsuits filed last month by the cities of Los Angeles and Stockton allege that bond insurance companies such as Ambac Financial Group and MBIA, both of New York, defrauded [Oakland] California taxpayers by covering up their weak financial condition and failing to disclose their overexposure in risky subprime loans and exotic subprime financing instruments. As a result, Oakland and other public agencies paid bond insurance companies millions of dollars to guarantee their debts, when in reality those companies were in no position to do any such thing.“In short, Oakland has paid hundreds of thousands of dollars for insurance premiums that weren’t worth the paper they were printed on,” City Attorney John Russo said Thursday. “This is a clear case of corporate fraud, in which some of the nation’s wealthiest companies rigged the system to make great profits on taxpayer money that should have gone to pay teachers, hire police and fix roads.”Source PDF
These financial scams are mere symptoms of a thoroughly rotten apple. The apple being the ponzi scheme that is our global economic system. Both outright “creative accounting” of ENRON, Arthur Anderson, various Option/Alt-A ARM mortgage lenders, “NINJA” loans, banks hiding “shadow MLS inventory”… and the ponzi scheme of an infinite growth economy.
Oakland, the state of Cali and the federal government are all broke. FDIC is broke. Pensions won’t be paid out fully to Oakland’s retirees, including former city administrator Deborah Edgerly. Oakland and Bay Area politicians will continue cutting public services because they have no choice.
It’s only a matter of years before each of these large, complex institutional systems ultimately defaults, fails, and breaks down. It happened to the Soviet Union. It’s just happened to Iceland. It probably will happen in the UK, Italy and the US in less than a decade.
That is the big picture of what is happening to urban industrial civilization (post-industrial “rich” OECD countries) Italy, Greece, US, UK, Japan and others globally, and that’s what’s coming here to Oakland in a big way within five years. All because there isn’t enough energy and resources to service our debt-based economies and political budgets. (US deficit up to 1+ Trillion dollars per year now for the forseeable future; see CA and Oakland for similar dis-ease.)
Oaktown will need to cut its city budget by far more than the 10% I prescribed a few blog posts ago within the next 5-10 years. The only way to offset this is by churning real estate with more inflow of monied residents from the 680 corridor and SF. It won’t be enough.
As they say, “the future is local.” Let’s get on with it.