Meredith Whitney: 2011- Year of Defaults

[Jay]

Re: Meredith Whitney: 2011- Year of Defaults

I love Miss Meredith and the only thing she is saying that doesn't quite wash with me is the idea that the FEDS (Federal Government and the Federal Reserve) won't find a way to bail out the states and municipalities. I would hardly think that bailing out AIG, McDonalds, and the Royal Bank of Scotland was politically okay but it happened. The shouldn't bail out these entities and it won't be close to fair but why would they stop now?

I don't know why the Fed would rush to bail out the states. The Fed is interested in centralized financial power. Giving the states more money to spend on middle class pensions is antipodal to the Fed perspective in almost every way. They only bail out states if the system is at risk, and then only with strict IMF type austerity promises. I think we will see a ton of pressure on the states coming up. The Fed sees this as primo union crushing time.

[dcarrigg]

Re: Meredith Whitney: 2011- Year of Defaults

The economy lost over 2.6 million jobs total between 2000 and 2010 while government added 1.8 million jobs.

Spin:Counterspin

Paul Krugman
December 21, 2010, 11:24 AM
Notes On Government Employment
I see that my various posts on government employment have brought out a variety of complaints — OK, there was a temporary spike from the Census that’s being misused, but isn’t there an upward trend, isn’t that a bad thing, etc..

So, a few points.

First, what we’ve seen under Obama is a small rise in federal employment, swamped by a larger fall in state and local employment — reflecting the budget woes of the states, and the inadequacy of federal aid in the slump. So you see a small rise if you look only at the feds, but a decline if you look at the overall picture.

Second, most government workers are at the local level, and most of the rest are state workers; the federal government is a small piece of the total. And if you look at what they do, a lot of them are teachers; many of the rest are firefighters, police, and other occupations we sort of like.

Third, why has government employment grown over time? Because, um, we have a growing population. Here’s government employment as a share of the population:



Yes, government got bigger under those socialists Dwight Eisenhower, LBJ, and Nixon. Since then, however, there has been no trend relative to population.

And bear in mind, again, that the representative government employee isn’t a bureaucrat trampling on your liberty; he or she is a schoolteacher.

When you get deeper into the details, you find other stories; thanks to one of my commenters for pointing to Mike Konczal’s dissection of claims that there has been a huge increase in the number of regulators; it turns out that essentially all of the increase reflects the growth of Homeland Security.

So those are the facts — not that they matter.

[dcarrigg]

Re: Meredith Whitney: 2011- Year of Defaults

this sounds un-american. i think we'll do it the old fashioned way- give the money to bankers and the deserving rich via asset inflation.

Prescient. I concur.

[we_are_toast]

Re: Meredith Whitney: 2011- Year of Defaults

Annual cost per local government employee $42,890
Mean annual income (all occupations) $43,600

http://www.bls.gov/oes/current/oes_nat.htm#00-0000

What if we didn't have to fire teachers, Police, and firefighters to save billions?
What if income taxes for those making over $250,000 per year were reset to 2000 levels?
Annual savings = $70 billion

Merry Christmas to all, especially to teachers, police, and firefighters who may find this to be their last Merry Christmas for some time.

[jk]

Re: Meredith Whitney: 2011- Year of Defaults

Annual cost per local government employee $42,890
Mean annual income (all occupations) $43,600

http://www.bls.gov/oes/current/oes_nat.htm#00-0000

What if we didn't have to fire teachers, Police, and firefighters to save billions?
What if income taxes for those making over $250,000 per year were reset to 2000 levels?
Annual savings = $70 billion

Merry Christmas to all, especially to teachers, police, and firefighters who may find this to be their last Merry Christmas for some time.

i like your math, but the next step - once you'd convinced congress to raise those income tax rates - would be than persuading them to send it all to local governments. good luck with that.

i've kind of given up on thinking about how i think things SHOULD go. it's like watching a slow motion movie of a wreck, as it unfolds in stately and terrifying inevitability.

[cjppjc]

Re: Meredith Whitney: 2011- Year of Defaults

i've kind of given up on thinking about how i think things SHOULD go. it's like watching a slow motion movie of a wreck, as it unfolds in stately and terrifying inevitability.

Every once in a while I catch myself think about how things should go. Not as often as I used to. It's much better to try to behave as I should.

[jneal3]

Re: Meredith Whitney: 2011- Year of Defaults

Spin:Counterspin

Thanks for this.

From the fed data, it looks like resetting the govt employment level as a pct of population back to 2000 levels would be a small increase in govt employment. Govt employment by this measure has been trending down for years, which seems to agree with how school funding feels to us parents.

[c1ue]

Re: Meredith Whitney: 2011- Year of Defaults

It also makes me wonder if they have a database of expired tags that they give to cops in order to go to their house and see if they can give them a ticket. I wish my garage wasn't full.

Short answer is yes, there is such a database.

Fortunately the enforcement is generally different than the department responsible for vehicle registrations.

Just think how much fun you'd have if 'someone' were to link online versions of parking regulations into the parking enforcement software.

One reason I spend so much effort on security...

[FRED]

Re: Meredith Whitney: 2011- Year of Defaults

i like your math, but the next step - once you'd convinced congress to raise those income tax rates - would be than persuading them to send it all to local governments. good luck with that.

i've kind of given up on thinking about how i think things SHOULD go. it's like watching a slow motion movie of a wreck, as it unfolds in stately and terrifying inevitability.

iTulip has since 1999 not been in the "what should happen" business. We're in the "what's likely to happen, given the inexorable logic of political and monetary institutions and policies." Understanding the antecedents and processes is our primary occupation.

It's like a movie, alright; one in particular: Goundhog Day.

[FRED]

Re: Meredith Whitney: 2011- Year of Defaults

Annual cost per local government employee $42,890
Mean annual income (all occupations) $43,600

http://www.bls.gov/oes/current/oes_nat.htm#00-0000

What if we didn't have to fire teachers, Police, and firefighters to save billions?
What if income taxes for those making over $250,000 per year were reset to 2000 levels?
Annual savings = $70 billion

Merry Christmas to all, especially to teachers, police, and firefighters who may find this to be their last Merry Christmas for some time.

EJ writes in:

Better yet, how about we allow cities and towns to punt the FIRE Economy portion of under-financed municipal expenditures:

‘Circumstances Beyond Fiscal Stress’

He said there might be a few bankruptcies but added there has been “too much focus on the bankruptcy question. In almost all of the cases where bankruptcy is on the table, there are extenuating circumstances beyond fiscal stress,” he said.

Case in point: Pennsylvania’s state capitol, Harrisburg. The city is an astonishing $288 million in debt because of its decision to build a huge new trash incinerator. Bond interest payments this year are $68 million—approximately $3 million more than the city’s entire annual budget.

Our review of dozens of 2010 - 2011 municipal budgets reveals a clear pattern. During the boom when tax revenues poured in, bankers talked city councils into the idea that they could afford an opulent high school building or renovation, or new fire station or golf course or incinerator or operations center. Now that the boom is over, they can't afford the payments. But FIRE Economy friendly courts won't let them out.

I predict we will see a schools without teachers and fire stations without firemen before we see muni bond defaults, because most of the bonds that are at risk are that way because of debt owed on such projects and because municipalities will pay the bonds before anything else. Without credit a town is sunk.

The original sin was to borrow the money to buy an amenity that the city could not afford. It's a version of the sub-prime scam but applied to towns.

[don]

Re: Meredith Whitney: 2011- Year of Defaults

I agree completely, but that won't stop short sighted bureaucrats from trying to save their own jobs. I am hearing from customers about work they had done 7 or 8 years ago being questioned about permits. I'm talking minor stuff like a water heater being replaced. Some local jurisdictions are particularly aggressive. I was talking to a friend the other day outside a restaurant. Some stranger walks up and wants to know if we are working there! "No, just having lunch", I said. There was an awkward moment as he just stood there glaring at us. Eventually the idiot realized there was a restaurant right behind us. He was an inspector who thought he'd made his big bust for the day. What a jerk. Eventually he'll be gone like others I know who lost their job when city hall realized the irate calls to their councilmen aren't worth the paltry amount of money they take in. One guy I used to work with became an inspector and used to brag about what an ass he was to people. Now he is a janitor at my kids school. They laid off the entire staff except one inspector, who I hear is now very polite and fair.

My first recession after becoming a contractor I noticed two things down at City Hall. One, there was no reduction in staff, and two, permit fees increased. My first real learning experience on how this works. (a corolary to the above was the inspectors who imbibed were starting earlier in the day at their favorite watering hole ... about 2:30 in the afternoon. I avoided any inspection requests that "late" in the day.)

[jk]

Re: Meredith Whitney: 2011- Year of Defaults

iTulip has since 1999 not been in the "what should happen" business. We're in the "what's likely to happen, given the inexorable logic of political and monetary institutions and policies." Understanding the antecedents and processes is our primary occupation.

It's like a movie, alright; one in particular: Goundhog Day.

i wish i thought our situation was as optimistic and upbeat as "groundhog day." in the movie, although the same day keeps repeating, bill murray eventually LEARNS things about making that day better and more meaningful. i don't see a lot of that going on. at least not yet. maybe we're still in the part of the movie where he just keeps killing himself...

[cjppjc]

Re: Meredith Whitney: 2011- Year of Defaults

During the boom when tax revenues poured in, bankers talked city councils into the idea that they could afford an opulent high school building or renovation, or new fire station or golf course or incinerator or operations center. Now that the boom is over, they can't afford the payments. But FIRE Economy friendly courts won't let them out.

Is that the way it happened? It wasn't elected officials who thought first of great ways to improve their cities.

[cjppjc]

Re: Meredith Whitney: 2011- Year of Defaults

i wish i thought our situation was as optimistic and upbeat as "groundhog day." in the movie, although the same day keeps repeating, bill murray eventually LEARNS things about making that day better and more meaningful. i don't see a lot of that going on. at least not yet. maybe we're still in the part of the movie where he just keeps killing himself...

http://www.time.com/time/magazine/ar...887728,00.html

[doom&gloom]

Re: Meredith Whitney: 2011- Year of Defaults

EJ writes in:

Better yet, how about we allow cities and towns to punt the FIRE Economy portion of under-financed municipal expenditures:

‘Circumstances Beyond Fiscal Stress’

He said there might be a few bankruptcies but added there has been “too much focus on the bankruptcy question. In almost all of the cases where bankruptcy is on the table, there are extenuating circumstances beyond fiscal stress,” he said.

Case in point: Pennsylvania’s state capitol, Harrisburg. The city is an astonishing $288 million in debt because of its decision to build a huge new trash incinerator. Bond interest payments this year are $68 million—approximately $3 million more than the city’s entire annual budget.

Our review of dozens of 2010 - 2011 municipal budgets reveals a clear pattern. During the boom when tax revenues poured in, bankers talked city councils into the idea that they could afford an opulent high school building or renovation, or new fire station or golf course or incinerator or operations center. Now that the boom is over, they can't afford the payments. But FIRE Economy friendly courts won't let them out.

I predict we will see a schools without teachers and fire stations without firemen before we see muni bond defaults, because most of the bonds that are at risk are that way because of debt owed on such projects and because municipalities will pay the bonds before anything else. Without credit a town is sunk.

The original sin was to borrow the money to buy an amenity that the city could not afford. It's a version of the sub-prime scam but applied to towns.

The question becomes how many will bust out to walk away from ... everything. Small towns that then become part of the county or state. Dis-incorporations, etc.