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By now almost anybody that hasn't been living in a cave for the last decade has a pretty good idea about the biggest heist in history perpetrated by Wall Street crooks with the help of the bought off political class.  

They devised a ponzy scam that consisted in bundling large volumes of real estate loans into investment products known as collateralized mortgage obligations, or CMOs.  On top of that layer, they created a host of complex investment products, which together with the CMOs, came to form the main instruments to defraud the nation's coffers, and plunge the country into economic calamity.

These institutions then sold those investment products to unsuspecting investors not only in the U.S., but around the world.  They were aided by corrupt rating agencies whose income depended on the same criminal Wall Street firms who devised the scam.

The quick money was made mainly by the fees associated with the selling of these fraudulent investment products.  Most of the fees were collected at the top, but the scam included a mechanism to grease the hands of everybody involved in the fraudulent chain, including mortgage lenders, real estate agents, and loan officers.

As with every ponzi scheme, in the long term, it was unsustainable.  When the house of cards collapsed, the perpetrators and their enablers in government, protected themselves, and the citizenry was left holding the bag.

The Next Stage of The Scam

Have you ever heard of moral hazard?  Here's the definition...

In economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others.
Since we just witnessed the biggest financial heist in history, and it all happened with total impunity, and with full collaboration and protection by the government, it stands to reason that the theory of "moral hazard" will apply to the next step in the ongoing looting of the country.

The first step of the looting plunged the country into economic turmoil.  The losses caused by the Wall Street scam, coupled with an artificially-created government revenue crisis through austerity measures, and the fact that the rich and big corporations are not paying enough taxes, has resulted in a situation where cities and states across the entire country find themselves in dire economic straits, forcing some of them to file for bankruptcy, or in the case of some cities, be taken over by state appointed managers.

It is essential to understand that these things didn't happened by chance, or because of the typical boom-and-bust economic/business cycles. These conditions have been artificially created through careful planning by a very  sophisticated cabal of large business and moneyed interests.

As communities and cities and states starve for revenue to provide the type of public services expected by the tax-payers, those same business interests that caused the problems to begin with send another wave of financial barbarians across the country to pounce, and take advantage of the situation they helped create.

By now we've all heard about the loss of hundreds of thousands of public sector jobs, including teachers, firefighters, police officers, court employees, and many others.  It has become increasingly difficult for municipalities to raise enough revenue to pay for schools, prisons, roads, bridges, parks' maintenance, etc.

But not to worry; in the scramble for cash, all of the sudden all manner of financial "consultants" are popping up all over the country, offering cash-strapped municipalities a solution: privatization of the commons and of the public sector.

And so you start to see a push for the privatization of education (charter schools, online initiatives), private for-profit prisons, policing, sanitation and trash collection, and many other sectors.

One common thread in all of this is the greasing of the hands of the government officials, city councils, and directors public education institutions.

Billions in Future Debt

A perfect case study to illustrate this ongoing looting of the country is reported in the exposé by California Watch, "Billions in future debt: Controversial school bonds create ‘debt for the next generation'".

Basically what's happening here is that these "financial consultants" go into cash-strapped school districts and offer them deals that they can't resist; that seems too good to be true: "Hey Herb, here's the deal.  I'm going to give you a $110 million loan and you don't have to worry about paying me back for another 33 years!  Ain't that sweet?  And of course, you really don't have to worry because you may not even be alive that far into the future to have any concerns.  'Oh, how much you'll have to pay back?'  It's about $485 million, and I know, I know, that may seem a little high, but again, not reason to worry about because property values are going to grow significantly which will help the district pay back the loan easily."

Isn't that great?  How can you say no to that?  In the meantime, the institutions pushing this next scam benefit handsomely--not in 33 years, but now!

Although private firms are not obligated to report their fees to state regulators, the state treasurer’s office has compiled some fee information found in official bond statements. At least 42 financial firms have charged school districts and other agencies in California a total of $389 million since 2007, Lockyer’s office reported.
And this is happening all over the country:
Since 2007, school districts and government agencies in at least 27 states and Puerto Rico have financed projects with capital appreciation bonds.

In Texas, 590 districts and other government entities have issued these bonds over the past six years – more than any other state, according to a California Watch review of a database maintained by the Municipal Securities Rulemaking Board, a federal regulatory agency that oversees the municipal bond market. California was second, with 404, followed by Ohio, with 202.

Nationally, the total amount of debt generated by these bonds is unclear. States rely on varying methods for reporting, and in some cases the data is incomplete. Many capital appreciation bonds were issued in packages with other types of bonds, and national databases do not tally their independent values. 

In California, some of the most dubious deals occurred in San Diego County, where the Poway Unified School District in 2011 used the bonds to borrow $105 million that will cost $982 million to pay back, a repayment rate of about 9.4 to 1. The same year, the Santee School District borrowed $3.5 million that must be repaid at $58.6 million, or 16.6 times the principal.

And you would think that people who have a fiduciary duty as public servants will take the time to fully understand the implications of these decisions.  But alas, the stage is being set once again for plausible deniability, from local officials, to the Wall Street crooks who devised this latest stage in the ongoing scam, to the government enablers who are totally complicit in these crimes...
Whether Napa’s school board understood the long-term implications when it approved the deal remains unclear. When California Watch first asked school board member Joe Schunk about the deal in November, he said Napa had not issued any capital appreciation bonds.

A week later, he called back and said he had been mistaken.

Fellow board member Hurtado said that KNN had explained the deal but that “it was hard to understand.”

This all reminds me of a quote I read somewhere, that goes like this: "It's easy for a man not to understand something when his salary depends on him not understanding it."  Or something like that...

Folks, this is a scam; it's happening all over the country, and not only in education.

We are being robbed, again, in plain sight.

To me, this is deja vu all over again.  Back in 2004, 05, 06 I used to frequent some financial online forums and I remember writing almost the exact type of warnings regarding the housing market.  Sometimes I even felt a little intimidated arguing with very highly educated and experienced professionals in the financial industry... I was told that I was completely wrong, and that I didn't know what I was talking about, etc.

Shock Troops

These people are looting the country; they are not done yet.  They know that the whole thing will eventually collapse again, but they have taken steps to protect their assets.

This is why these same nefarious forces, these fascistic billionaires are funding the efforts to arm the right wing loonies, to pass stand-your-ground laws, to use propaganda to fan the fires of fear and hate and paranoia.

Eventually these folks will serve as the "useful idiots" of these fascists.

If the economy eventually collapses under the weight of this massive fraud, crime and unrest may ensue.  This will give these shock troops useful idiots an excuse to do what they've been wanting to do for a very long time: to shoot at people who taking their stuff, or who are perceived to want to take their stuff, or who look like folks who may want to take their stuff.  It's a self-fulfilling prophesy.

This could give an opening for the intimidation of social activists... Imagine a civil disobedience-type protest; traffic is being blocked; a conceal-carry guy gets out of his car and confronts a protester, and an argument ensues... The State has a stand-your-ground law (written, disseminated, and paid-for by ALEC and their fascist billionaires funders)...  I think you know where I'm going with this.

The Future

I'm not necessarily saying that these things are going to happen exactly as I describe them, but I have no doubt that there is a reason big-money interests are behind many of these laws, stand-your-ground, conceal-carry to anywhere you want, etc.

This is all very dangerous, in my view.  Maybe some people who have had experiences in Europe in the 1930's and 40's can share their insights...

If there is an agenda like this, we all need to wake up and realize what's happening before is too late.  It's up to us...


Originally posted to Ray Pensador on Thu Jan 31, 2013 at 09:38 PM PST.

Also republished by In Support of Labor and Unions, ClassWarfare Newsletter: WallStreet VS Working Class Global Occupy movement, American Legislative Transparency Project, and Occupy Wall Street.

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Comment Preferences

  •  I will say that's one of the dumbest... (0+ / 0-)

    ...signs I've seen.  If it wasn't for profit they wouldn't have the cardboard or ink or wood to make their anti-profit slogan.

    Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

    by dov12348 on Thu Jan 31, 2013 at 11:00:34 PM PST

    •  Nothing wrong with profit (30+ / 0-)

      Everything wrong with how it is being obtained.

      Don't forget that most men with nothing would rather protect the possibility of becoming rich than face the reality of being poor. - John Dickinson ("1776")

      by banjolele on Fri Feb 01, 2013 at 03:26:26 AM PST

      [ Parent ]

    •  We would, however, still be able to scratch it (12+ / 0-)

      on a soft stone with a piece of flint, if we have acquired the skill to write and read.

      Profit is not a prompt to communication; it's a result. That is, it doesn't come before; it comes after.
      Sequence is important. However, I will grant that some people have no sense of sequence or of time. So, they do not know what comes first and what comes second or who's on third. It's an old joke, but it reflects a serious issue.
      People who have no sense of time or space or distance suffer from a disability. It's not significant, because we can't see it. And, for that matter, being difficult to visualize, it's rather difficult to describe.

      We organize governments to deliver services and prevent abuse.

      by hannah on Fri Feb 01, 2013 at 03:46:31 AM PST

      [ Parent ]

      •  lol... great post. (7+ / 0-)

        There is a difference between profit for purpose and profit for the sake of profit. Profit harnessed and profit unleashed.

        There is also the regulation of profit so it doesn't serve socially nefarious ends.

        Kind of common sense things knowing what we know as a people.

        Funny that you never get to talk about that stuff, right?

        "I mean, what's the alternative? Doing nothing?"

        Democracy - 1 person 1 vote. Free Markets - More dollars more power.

        by k9disc on Fri Feb 01, 2013 at 07:19:15 AM PST

        [ Parent ]

      •  And you acquire the skill to write and read... (1+ / 0-)
        Recommended by:
        Sparhawk teachers and parents, who survived with you in profit-oriented construction, water and food availability, etc.

        Profit is always back there somewhere.

        Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

        by dov12348 on Fri Feb 01, 2013 at 09:22:44 AM PST

        [ Parent ]

        •  I think you are confusing profit with (4+ / 0-)

          payment. Profit is something more on one hand than was given in the other. To a large extent, profit is the result of different values. A hungry man values a mushroom; the sated man may well trample it in ignorance or haste to go somewhere else. Otherwise, profit is often the alternative to waste, even though that's often, or not at all, appreciated by economists. Things that get thrown out as useless simply don't show up in their accounts. And yet, we know when we think about it that a substance like beer or wine is the rescue of a huge harvest, which occurs in a short time, from being spoiled by rodents or rot. Bacteria, the little critters, process it and leave some for humans to use later. We could even call bacteria capitalists, since they save assets for use at a later time.
          All of these functions can go forward without the use of money, or with. With money, the transactions can occur over greater distances and longer periods of time. Indeed, intimate transactions within the household or neighborhood are actually delayed by the introduction of currency. Imagine having to keep track of every time the neighbor picks up your paper and leaves it on the porch or retrieves your trash can from across the road.
          Another mistake is in pairing profit with loss. Waste avoidance is a whole 'nother matter. Indeed, the binary pattern is misleading in many instances. It is a simplification that provides false information.

          We organize governments to deliver services and prevent abuse.

          by hannah on Fri Feb 01, 2013 at 10:04:58 AM PST

          [ Parent ]

    •  You think people outside of a capitalist system (8+ / 0-)

      can't make paper?


      "I have often seen people uncivil by too much civility, and tiresome in their courtesy." Michel de Montaigne

      by JesseCW on Fri Feb 01, 2013 at 07:31:33 AM PST

      [ Parent ]

    •  Things DO happen for better reasons than profit (7+ / 0-)

      Remember, profit is not "fair pay for fair work." It is what is left over after all other expenses, including pay, have been subtracted.

      For example, I bank with a credit union. They try not to generate a profit at all. If they do, they have to give it back to me and all the other customers.

      With modern computing and telecommunications, we could engineer a world without profit. In Chile, Salvadore Allende was on the brink of doing such a thing with the Cybersyn project when we (meaning, America) had him assassinated and military dictator Augusto Pinochet installed in his place.

      Profit motivates greedy, fearful and violent behavior, more than it motivates hard work and innovation.

      In July, I am going to the national Rainbow Gathering, sort of a hippie/anarchist gathering that takes place in a different national forest each year. Our national forests are not set up to generate a profit, and neither is Rainbow. It is entirely free. Pitch in if you want, no one demands it. You will be fed and given a warm dry place to sleep regardless. We're just a bunch of fairly impoverished hippies, how is it that we can do that, but the American Government can't?

      Saying, "If it weren't for profit, you wouldn't have signs" is akin to telling a bunch of Dickensian orphans in a work-house factory that, if it weren't for the work-house, they wouldn't have gruel. Perhaps true, but completely missing the larger evil.

      •  Here's what I'm getting at. (0+ / 0-)

        There is way more to this than meets the eye:

        Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

        by dov12348 on Fri Feb 01, 2013 at 09:26:59 AM PST

        [ Parent ]

        •  Is/Ought problem illustrated (7+ / 0-)

          Just because something is true, does not mean it should be true. There is nothing more to this than meets the eye. Profit is generally a bad thing. In moderation, it may be a necessary evil, but there is a reason most major world religions have considered usury a sin.

        •  More on the "Library of Economics and Liberty" (6+ / 0-)

          I am not trying to "poison the well" here, but in the interest of full disclosure, it should be noted that you link to a fairly libertarian, pro free market site founded by a man, Pierre Goodrich, who made quite a bit of money as "profit" extracted from the hard work of others.

          Instead of giving his money to help improve the lives of the less fortunate when he died, he put his money into an institution whose sole purpose is to justify his chosen lifestyle by equating "profit" with "liberty." That seems quite self centered to me.

          •  Okay. (0+ / 0-)

            Next: Back to the issue.

            Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

            by dov12348 on Fri Feb 01, 2013 at 09:47:35 AM PST

            [ Parent ]

            •  This was the issue you brought up (3+ / 0-)
              Recommended by:
              dov12348, elwior, CA wildwoman

              The link you provided, and thus, my commentary is relevant. If you have nothing of more relevance to add than "Next: back to the issues," why even write that? What are you hoping to achieve with that comment?

              •  Okay. (0+ / 0-)

                The issue has at least become, as I see it:  Is profit bad?  If so, why?

                Boehner Just Wants Wife To Listen, Not Come Up With Alternative Debt-Reduction Ideas

                by dov12348 on Fri Feb 01, 2013 at 12:09:58 PM PST

                [ Parent ]

                •  My point is that profit is bad in excess (3+ / 0-)

                  That "profit," as opposed to "fair wages," motivates selfish, greedy, destructive behavior, behavior that seeks to take 99.9% of the value that is added in every transaction, instead of seeking a 50/50 distribution of that added value.

                  This selfishness creates a mindset that is a sort of self fulfilling prophecy: when the majority seek to maximize profit at the expense of others, then everyone must do so or be taken advantage of.

                  This mind set, endemic to our modern world, creates mistrust and an inward looking, self serving alienation. Individuals see themselves as isolated entities, small, impoverished and fundamentally weak things, instead of seeing themselves as part of an organic, cooperative, loving and supportive whole

                  Profit seeking, in short, and in my humble opinion, creates ugliness, isolation, feelings of weakness, lack, and want. Cooperation creates feelings of strength, empathy, caring, love, engagement, and participation in something larger than oneself.

        •  Complex Mfg. not mutually dependent w/ Capitalism (4+ / 0-)

          The implication I'm getting from your string of comments is this:

          Because something is complex to manufacture, it is impossible to do without a capitalistic system.

          The implied defense of profit as a sacrosanct value in your comments within the context of this diary and the discussions it has sparked further leads me to believe that you are asserting that not only is capitalism in general essential for complex materials and goods, but we specifically need our the current form of increasingly lassaiz fare finance oriented capitalism?

          Communist Poland was great at making complex stuff.  So much so that they overproduced tanks and trucks.  Don't get me wrong.  Though I abhor contemporary capitalism I don't think the converse of state run industrial communism is much better.  Waste is waste, regardless of the economic ideology behind it.  

          Between peak resources and the unintentional, effectively irreversible geoegineering well underway, we need to reorient the creative engines of our economic policies to be focused less on the manifestation of ideals and more focused on actual results from the systems themselves.  Pragmatism with a capital P.

          The ideology that profit is the premier metric of economic success is THE driving force behind overconsumption and overproduction at this moment in the world.  We won't collectively be able to begin tackling the global problems we face if we continue to hold maximized profit as axiomatic to any functioning economic system.

          •  Re (1+ / 0-)
            Recommended by:
            Brooklyn Jim
            We won't collectively be able to begin tackling the global problems we face if we continue to hold maximized profit as axiomatic to any functioning economic system.
            Isn't profit a proxy for "a lot of people want to buy your stuff"? If that's the case, aren't you producing something of value and adding to society that way?

            Under whatever other system you are describing, what signals me that what I am doing is valuable and I should do more of it?

            (-5.50,-6.67): Left Libertarian
            Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

            by Sparhawk on Fri Feb 01, 2013 at 10:15:25 AM PST

            [ Parent ]

            •  Not necessarily. (3+ / 0-)
              Isn't profit a proxy for "a lot of people want to buy your stuff"? If that's the case, aren't you producing something of value and adding to society that way?
              Profit is not necessarily a proxy for that.  Profit is capital you have extracted from your business, usually in the form of money.

              Proceeds imply demand.

              The excess revenue can then be turned into a variety of things: more employees, better pay, capital investments and maintenance.

              Profit is owners draw, plain and simple.  It is what you take off the table.

              Small profits in a sole proprietorship or small business = modest take home pay for the owner and entrepreneur.

              Large profits mean something else is going on, whether it be customers being overcharged, workers getting shafted, safety and environmental concerns being skirted, patronage-based government subsidies being abused, etc.  All but the are often the result of "externalities," which is contemporary business speak for "stick someone else with the bill for our cost of doing business."

              Profit resulting from those dynamics represent the extraction of wealth from the commons.

              The biggest problem with wealth extraction is this:
              Wealth is the residue of complexity.  It is built up slowly, over a long period of time from the accumulation of increasingly complex interactions.  Complex systems persist because of a multitude subsystems of aforementioned interactions.  When you extract wealth from a system, you begin weakening subsystem patterns and complexity starts collapsing into increasing simplicity.  Profit is extracted and wealth is destroyed.  But it is not at a 1:1 ratio.  The profit that is taken also destroys some of the systems ability to continue accumulating wealth.

              A real world example in the context of the original diary: if California's school system ultimately needs to be reworked due to collapse under the burden of public debt, the cost is much more than the wealth originally extracted as profit by the financiers and the bondholders who were paid some interest.

            •  In theory, yes (0+ / 0-)
              Isn't profit a proxy for "a lot of people want to buy your stuff"?
              In the actual world, profit is often a proxy for exploiting workers, evading regulations (or nullifying them through regulatory capture), sticking your hand in the public trough, and/or conning desperate customers with a misleading and sometimes outright mendacious sales pitch.

              Tell me: How much of that has become the modus operandi for the financial giants in the US? (Hint: read the diary.)

  •  I do hate being held in the pot of warming water (19+ / 0-)

    with the other frogs.

    Thanks for this diary - I see the same systems you do, but I didn't have the info on the 'loan shark' activities with school districts.

    All this news of unlimited abuses sets off my PTSD...

    Something that doesn't make good sense, makes bad sense. That means someone is being deliberately hurtful & selfish. Look for motives behind actions & words.

    by CA wildwoman on Fri Feb 01, 2013 at 01:27:52 AM PST

  •  It's only money and, besides, it's all our (25+ / 0-)

    money and we can take it back. All it takes is the will.

    While it is technically unnecessary for the federal government, which issues all our money in the first place, to tax to get some of it back, it seems there's an impulse to accumulate and hoard afoot in the land and that has to be countered by being taxed.
    (Note that this scenario only applies to the relationship between the accumulators of money and the federal agents of government. The states and municipalities are in a different situation. They have to bargain with the hoarders to lend them some, unless the federal agents send them grants -- like they did with the hurricane money.)

    So, the logical explanation for why all hoarders of cash have to be taxed is because it is necessary to keep the currency moving in the economic current. Otherwise, we end up with stagnation.
    This chart from the Fed clearly shows that, no matter how much money we pump into the economy, the rate at which it circulates is still slowing:

    That's the result of sequestration and hoarding. It's as if we were building a dam on a river and just making it higher and higher. In a virtual world there are no limits, unless we impose them.

    We organize governments to deliver services and prevent abuse.

    by hannah on Fri Feb 01, 2013 at 03:40:03 AM PST

  •  About debt-- (9+ / 0-)

    debts are all around us. Some of the debts are monetized and some are not. In a sense, debts are like sexual encounters. Some are certified and some are not. Each, however, involves a debt, whether voluntarily entered into or coerced. In a sense, all our social encouters are debts, matters of give and take. The extractors just don't recognize theirs.

    So, think of dollars as certified IOUs, monetary certificates comparable to marriage certificates. The notion that the certificate creates the marriage or the obligatory relationship is silly, but nevertheless widely held. Many people believe that, absent a certificate, there is no marriage and, absent a dollar, there is no debt. That's wrong. The obligations still exist, regardless of whether we can see the sign, image, icon, documentary evidence. Conversely, rendering more of these relationships in tangible images does not increase or diminish them. It just makes them visible. Social Security payments to our elders render our obligations to them tangible and, as an added bonus, makes it possible for someone other than their irresponsible relatives to honor the obligations with appropriate care.
    Why our irresponsible brothers and sisters carp about other people doing what they neglect is anybody's guess. Letting them get away with their irresponsibility is generous. Depriving the elders of care is stupid. Buying the argument that there aren't enough dollars is ignorant.

    The supply of dollars, figments of our imagination, is, in fact, infinite. There are no limits to what we imagine. We can, however, let our imagination drive us 'round the bend.

    We organize governments to deliver services and prevent abuse.

    by hannah on Fri Feb 01, 2013 at 04:04:17 AM PST

    •  I'd like to know more (1+ / 0-)
      Recommended by:
      CA wildwoman

      Can you explain a little further?  

      You say the supply of dollars is infinite.  Classical economic theory says the worth of a dollar is limited by the amount of tangible, material goods backing up those dollars - something that is clearly finite.  As well, our faith and trust in the value of those dollars is finite - explaining historical episodes of hyper-inflation.

      So can we really say the supply of dollars is infinite?

      "The fool doth think he is wise: the wise man knows himself to be a fool" - W. Shakespeare

      by Hugh Jim Bissell on Fri Feb 01, 2013 at 06:51:04 AM PST

      [ Parent ]

      •  Classical economic theory is a crock-- (9+ / 0-)

        invented by people who arrived with the prejudice that humans prefer leisure and must be bribed to work. Since bribery is wrong, those who labor and actually make things, were categorized as immoral from the start.

        As far as the federal government, which issues our own currency, never running out of money, you can look to Greenspan, Bernanke and Paul Krugman for that information. It is fact. States and municipalities are, of course, in a different situation, because, like the ordinary household, they have to rely on the issuers of currency. The nations which have recently adopted the Euro as a common currency are still discovering what our several states have known for a long time--havng the currency controlled by an unreliable or irrascible autority can be a real pain. Their sovereignty is severely undermined. But then, the Bank of England isn't making it easy for the U.K. either.

        The bankers have long enjoyed being able to take a cut of interest out of every public dollar spent, especially since the Congress determined that the Treasury should send the dollars through the Federal Reserve Bank before it is made available to be used for a public purpose. Making dollars available to be lent and borrowed before they are used in the exchange of real goods and services was a nifty trick -- a boon to Wall Street at the same time the Congress got to pretend that managing the public purse is not really its obligation.

        The value of the dollar, our certified debt, depends on the good faith and credit of the American people. Our representatives, assembled in Congress, threatening not to pay our debts may put a dent in that credibility, but the situation isn't in any way comparable to Zimbabwe, where the "ruling power" printed bank notes and distributed them to cronies who had nothing of value to buy or sell. These notes have some collectible value on Ebay, but day to day transactions in Zimbabwe have to rely on handshakes, U.S. dollars or South African rands.

        Wherefor the myth? Our Congress was hoping to use the dollar as an instrument to impose its will on the people. They likely feel stressed by the notion that government BY the people might be insisted on and are searching for some handle by which to rein in the unruly "mob." Us.

        We organize governments to deliver services and prevent abuse.

        by hannah on Fri Feb 01, 2013 at 08:08:30 AM PST

        [ Parent ]

  •  so.....they're balloon payment loans? (3+ / 0-)
    Recommended by:
    Sparhawk, nextstep, FG

    that's what we're supposed to be outraged about?

    •  terrible, terrible journamalism: (2+ / 0-)
      Recommended by:
      Sparhawk, nextstep

      " a repayment rate of about 9.4 to 1. "

      the only relevant term is the interest rate, and of course that's the only thing they don't tell us.

      •  If so, the true villains are the public officials (3+ / 0-)
        Recommended by:
        johnny wurster, Sparhawk, elwior

        who agree to such outlandish terms.

        "The way to see by faith is to shut the eye of reason." - Thomas Paine

        by shrike on Fri Feb 01, 2013 at 05:58:14 AM PST

        [ Parent ]

        •  No doubt. (5+ / 0-)
          Recommended by:
          saluda, Ray Pensador, No Exit, FG, Kickemout

          It's part of the systemic problem w/ municipal financing: the people approving the issuance won't be in office when the notes come due, so why would they care what sort of hole they're digging for themselves.

          W/ that sort of structural problem, strong state regulation is necessary to make sure that dopey local officials don't do the sorts of dumb things that they'd do otherwise.

      •  It's basically 10 to 1 in a 30 year frame johnny (6+ / 0-)

        not to difficult to see the robbing in times of historic low interest rates.

        One may live without bread, but not without roses.
        ~Jean Richepin
        Bread & Roses

        by bronte17 on Fri Feb 01, 2013 at 06:06:14 AM PST

        [ Parent ]

        •  Like I said, it depends on what that means (0+ / 0-)

          the rate is.  We can do the math, but if the point of journalism is to inform, the article does a lousy job.

            •  nah... there's a wild swing in the rates (2+ / 0-)
              Recommended by:
              elwior, CA wildwoman

              from these capital appreciation bonds. What should be 2 to 3 times the principal amount is anywhere from 9 to 16 to 23 times the original amount borrowed. Zero coupon bonds? Inflation indexed? Gah...

              So CA and TX and OH are paying rates locked in TODAY that are comparable to Slovenia and South Africa and Ireland... higher than Portugal and Spain... and not far from Greece's rate.

              And no taxes paid on those billions and billions in interest by the banks and private financial entities issuing these bonds.

              And voters are totally unaware of the details of the bond measures they passed.

              Michigan has outlawed these bonds.

              CA and TX and OH otoh are playing with fire.

              Talk about people absolutely hating teachers... the superintendents of these school districts should be horse whipped and tarred and feathered.

              One may live without bread, but not without roses.
              ~Jean Richepin
              Bread & Roses

              by bronte17 on Fri Feb 01, 2013 at 10:37:42 AM PST

              [ Parent ]

      •  Um, no. (8+ / 0-)

        If the agreement requires repayment of 9.4x principal, it's prima facie a bad deal. Even if repayment begins 30 years down the road. The payoff had to be excessively huge to account for investorvrisknin the intervening years, but that only makes it a worse deal for communities entering the deals. If they're cash-strapped now, just wait until repayment begins. Privatization on steroids is the likely result.

        The road to Hell is paved with pragmatism.

        by TheOrchid on Fri Feb 01, 2013 at 06:16:52 AM PST

        [ Parent ]

        •  Rates on these range from 6 - 8% or so. (2+ / 0-)
          Recommended by:
          Sparhawk, nextstep

          In the case of Alvord, the interest rates on their cap appreciation bonds are the same as the rates on their standard bonds.

          They're just deferring the interest payments on it.

          •  You can't just focus on rate... (2+ / 0-)
            Recommended by:
            elwior, CA wildwoman

   establish fairness.  You're ignoring the rest of the deal, which is structured precisely so that (1) consequences occur long after approving civil servants have retired or died, and (2) it is practically impossible to pay off without massive privatization.

            By your logic, the "negative amortization" loans popular around 2005 were great deals because of their low rates.  But they ended up blowing up pretty badly.

            If you focus only on the apparent rate, no one will take you seriously.

            The road to Hell is paved with pragmatism.

            by TheOrchid on Fri Feb 01, 2013 at 08:17:06 AM PST

            [ Parent ]

            •  Re (0+ / 0-)
              You're ignoring the rest of the deal, which is structured precisely so that (1) consequences occur long after approving civil servants have retired or died, and (2) it is practically impossible to pay off without massive privatization.
              So I imagine that you oppose public pensions, then, for the same reasons?

              (-5.50,-6.67): Left Libertarian
              Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

              by Sparhawk on Fri Feb 01, 2013 at 08:57:20 AM PST

              [ Parent ]

            •  johnny wurster is likely (1+ / 0-)
              Recommended by:

              heavily invested in these types of bonds.

              The banks have a stranglehold on the political process. Mike Whitney

              by dfarrah on Fri Feb 01, 2013 at 09:11:01 AM PST

              [ Parent ]

  •  certain loans should not be compounded (5+ / 0-)

    Especially tax-free municipal bonds, student loans, FannieMae mortgages, and renewable energy loans, just to name a few.

    I thought America was the land of the free and the home of the brave, not the land of the exploited and the home of the debt slave.

    Call exploitation and debt slavery whatever you want.

    by jcrit on Fri Feb 01, 2013 at 04:40:42 AM PST

    •  "people should pay higher rates." (2+ / 0-)
      Recommended by:
      Sparhawk, nextstep

      that's all you're saying, properly understood.  if.compounding weren't allowed, the market would just adjust rates upward to make up the difference.  why? because other investments compound, and debt investments are competing with those investments for capital.

    •  Be careful what you wish for... (3+ / 0-)
      Recommended by:
      ksp, elwior, CA wildwoman

      When you say "should not be compounded."

      Take your example of mortgages, whether underwritten by FNMA, FHLMC, $SomeBigBank or your local credit union.  The vast majority of these are paid on a monthly amortization schedule, where each month the bank adds interest to how much you owe and then reduces it by your payment (for the financial nitpickers I'm talking about the P&I portion only). While technically it is compounding, since it's adding the interest into the same bucket as the principal, the amortization formula made sure that every month you'll always be left with a lower balance at the end of the month than you started with. Suppose on this loan you skip a payment. You get dinged with a late fee. The next month you start making payments again. What you may not realize is that when you resume making payments, you're staying a month behind. you'll be dinged a late fee every month til you get caught up or until you call the bank and sort it out. Other than those late fees, however, which are NOT part of your loan (although they have to be paid off for the bank to release their lien when the loan matures or you sell your house), the total amount you will pay over the life of the loan is largely unchanged. You'll just get to the end of the loan and find that you're still a payment behind so the amount due when the loan matures to pay it off is a lot higher than you thought. So technically compounding but in practical terms not so much.

      Now there ARE mortgages out there that don't work this way. Some are whats called "Daily Simple Interest" and those don't compound ever - and that was actually used as a selling point for 'em.  Talk about a scam, because with these loans every day they work out how much interest is due on the outstanding principal and add that to a separate interest account (so it never compounds) and when your payment comes in they pay down the interest account to zero and apply whatever is left over to reduce the principal. Sounds very similar to the monthly amortizing loan doesn't it? At the same starting balance, term and annual interest rate you'd end up with a pretty similar monthly payment too but here's the catch.... With the monthly loan if your payment is a week late you're still good. You wont pay any extra. With the DSI loan, if the payment is a week late there's 7 days extra interest to pay off before you start reducing the principal. Once you get behind by even a day on one of these loans you are paying more in interest on every single subsequent payment over the life of the loan unless you make up for it by paying early in later payments - because on one payment you didn't reduce the principal as much as the schedule said you should So just like the monthly loan does compound but from a simplistic borrowers-eye view behaves as if it didn't, the "simple interest" loan does not compound but from that same simplistic view from the borrowers bottom lime behaves as if it does.

      Yes, FNMA has some loans like that on their books. They are now considered to be so risky for the borrower that if those loans go through any of the various modification programs out there to help folks that have fallen behind, they must be converted to ordinary monthly fixed-rate loans.

  •  I saw a chyron go past on one of the (13+ / 0-)

    cable "news" channels the other morning while picking up a kid...."Goldman Sachs bracing for bond blow up".

    That's all I need to know that it was all a scam from the beginning.

    I want so badly for every municpality to just default on anything they owe the fucking sharks and start over.

    David Koch is Longshanks, and Occupy is the real Braveheart.

    by PsychoSavannah on Fri Feb 01, 2013 at 05:37:41 AM PST

  •  from linked article in diary: (6+ / 0-)
    But a California Watch analysis shows that the issue is not unique to California.

    Since 2007, school districts and government agencies in at least 27 states and Puerto Rico have financed projects with capital appreciation bonds.

    Ohio, Texas, Puerto Rico...

    i'd like to know the rest of the states that financed w/ capital appreciation bonds!

    Faux News ruined my state

    by sc kitty on Fri Feb 01, 2013 at 06:13:20 AM PST

  •  The elites are much more organized (12+ / 0-)

    And history has proven that an organized and ruthless group that knows what it wants which eventually overcome a much, much larger group that is disorganized and divided.

    ¡Cállate o despertarás la izquierda! - protest sign in Spain

    by gjohnsit on Fri Feb 01, 2013 at 06:29:58 AM PST

  •  How Does This Diary Pass The "We Don't Do (2+ / 0-)
    Recommended by:
    shrike, FG

    Conspiracy Diaries or Comments" test that kos rails against?

    "I think that gay marriage is something that should be between a man and a woman.” - Arnold Schwarzenegger 2003

    by kerplunk on Fri Feb 01, 2013 at 06:30:19 AM PST

  •  Still being robbed, I would say. (6+ / 0-)

    "We're in the Bathtub, folks..."

    After Katrina I wondered if the very nature of government had not changed from a top down, President/Cabinet Official says it and it happens in the case of natural disasters and emergency response, to something like an evil responsibility call center - a dozen middle managers texting on their blackberrys and trying to protect their turf...

    I wonder if that isn't the case right now; that government is entirely crippled and dependent on it's corporate crutch.

    Great piece, Ray.

    Democracy - 1 person 1 vote. Free Markets - More dollars more power.

    by k9disc on Fri Feb 01, 2013 at 07:12:49 AM PST

  •  I'm curious about the student loans (5+ / 0-)

    Back when the banksters were securitizing credit card and mortgage debts by converting them into CDO's, they were ALSO doing the same thing with student loans. Unlike mortgages and credit cards, however, which tend to go bad very quickly, student loans aren't even due for years after they are made, so all the defaults come much later. About 5-6 years after they are made.  So for the loans that were securitized in 2007-2008, that would be right around . . .  now.

    If the banks were smart, they learned their lesson from last time, and have moved to de-emphasize student loan debts in their securitized packages. So the coming student loan default tsunami won't hurt them as deeply as the mortgage crash did.

    But I rarely expect banks to be smart . . . . .

  •  Ever notice that the people who squeal about (8+ / 0-)

    "double taxation" generally have no problem with compound interest?

    "I have often seen people uncivil by too much civility, and tiresome in their courtesy." Michel de Montaigne

    by JesseCW on Fri Feb 01, 2013 at 07:36:46 AM PST

  •  Thnx for posting the Carlin video. I've seen (4+ / 0-)

    it before, but it always helps to know that I can't be as crazy as the owners try to make me seem if George Carlin and Noam Chomsky -- undoubtedly the two smartest people I've ever seen in person over 66 years -- both agree with me.

  •  As a disabled Vietnam veteran (4+ / 0-)

    who served honorably and who  has participated in PTSD groups through the VA for many years, I can tell you that one of the most brilliant group leaders we ever had(Psychologist whom I will call Dr. X), used George Carlin videos to help veterans who suffered from PTSD/MST.  If anyone knows about the hypocrisy central to our society, veterans who were sexually assaulted thirty or forty years ago - certainly do.  After a Carlin video, the men were animated, talkative, could vent freely & I saw camaraderie and bonding often take place during such group sessions.  Thank you, Dr. X.  You helped so many of us.  


    •  I often post my strong opinion that the US (6+ / 0-)

      is a Usory society - an abusive and extreme marketplace in which the consumers are overcharged, exploited and cheated by most providers of services and goods.  The lack of effective regulation and government oversight really has allowed business to cheat the American consumer - and to exploit Americans in everything from cell phones to cable TV to Dental treatments to auto repair, and on and on.................It is astonishing.

      •  Yes, known as "rent-seeking" (4+ / 0-)
        A simple definition of rent seeking is spending resources in order to gain by increasing one's share of existing wealth, instead of trying to create wealth. The net effect of rent-seeking is to reduce total social wealth, because resources are spent and no new wealth is created. It is important to distinguish rent-seeking from profit-seeking. Profit-seeking is the creation of wealth, while rent-seeking is the use of social institutions such as the power of government to redistribute wealth among different groups without creating new wealth.[1]

        Everybody got to elevate from the norm....

        by Icicle68 on Fri Feb 01, 2013 at 09:09:50 AM PST

        [ Parent ]

  •  Glad you brought this up. (3+ / 0-)
    Recommended by:
    burlydee, Ray Pensador, NoMoreLies

    Dems seem eager to saddle municipalities with debt without even thinking of the consequences.  Here in Denver, we just approved more debt for the schools.  And who is going to pay back that debt?

    If the US keeps going at the rate it is, there aren't going to be enough good wage earners to tax in order to pay down the debt that cities are taking on now.   And the tax rates are now so low [for higher earners and companies] that government can't raise enough revenue to keep up with ordinary expenditures, much less capital improvements.

    And nobody seems serious about the jobs issues.  How are we to pay debt if there are so few wage earners?  And to think dems are shoving the debt down everyone's throats is even more amazing.

    The banks have a stranglehold on the political process. Mike Whitney

    by dfarrah on Fri Feb 01, 2013 at 09:00:53 AM PST

  •  What this diary lacks (0+ / 0-)

    --is a theme song. I suggest this. And since Oscar the Grouch doesn't have the clearest diction, here are the lyrics.

  •  The next part of the ponzi scheme (2+ / 0-)
    Recommended by:
    Ray Pensador, CA wildwoman

    I'm 61
    I don't have a pot to piss in. I don't have the norm. I do have my happiness. I have some common sense. I'm very observant.
    I hoped there wouldn't be a recession. A couple years before the Great Republican Recession, it looked like domino s to me. I had a garage of junk I sold for less than I paid for it.
    The price of gas / my age experience saw minor recessions just from.
    Houses were selling for triple their worth
    People were putting their life savings into the stock market
    There can be a recession after a war
    The lower & poor classes had no wages, i.e. money to spend
    Union busting
    and NO anti trust of any kind
    I said to myself, "If there's a recession, I'm not going to get caught with an overloaded boat."
    The next part…
    They are doing to the new money wealthier, the same that they did to the housing. Invest in new commercial buildings, condos, hotels. The absurdity. Storefronts vacant for as far as the eye can see. Invest in ME, ME, ME.
    Who has that level of money & if you do don't be prissy stupid with it.
    To all you young tech's with money.
    What's so astonishing to me is how close, 2008, 2012, they got to pulling it off.
    The 1% wants it all, they're sick. THEY are at war with ALL of us, especially themselves.

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