PhillyTablet Inquirer Daily News
Mobile
Home Delivery
philly.com
email
font size
options
 
Monday, January 31, 2011

The new Republican deadbeats

I thought Republicans were the pay-your-bills, personal-responsibility, sound-money party.

It was Democrats, from Andrew Jackson's break-the-Bank campaign, through anti-Wall Street idol William Jennings Bryan, to ex-Cleveland Mayor, US Rep and Presidential dark-horse Dennis Kucinich on today's left wing, who have wanted to water down the dollar and help small farmers, urban homebuyers and other mass constituencies escape their promises to capitalist creditors.

But now, ex-U.S. House speaker Newt Gingrich and ex-Florida Gov. John Ellis "Jeb" Bush, both GOP Presidential hopefuls, have joined the stiff-your-creditors movement. They risk unleashing America's inner deadbeat on a mass scale.

"Struggling state governments" like Democrat-run California, Illinois and New York (they could have added GOP-headed Texas and New Jersey) should declare "voluntary bankruptcy," enabling them to "reform their bloated, broken and underfunded pension systems for current and future workers" and end the "lucrative pay and benefit packages" of millions of prison guards, state troopers, social workers, judges and other public employees, Bush and Gingrich propose in this LA Times column.

Stop the checks! And why stop there? Why not also cancel lucrative long-term government software and construction contracts, "economic development" subsidies to major employers, promised payments to hospitals and universities, and other costly committments made in the recent past by the people's elected representatives?

And why should corporations and hard-pressed working debtors keep making payments on their own debts, if their governments won't?

Consider a recent precedent: Russia in 1998 defaulted on its national obligations after its ex-Communist bosses borrowed too much. Since that pivotal event, that nation has elevated public corruption and investor-robbing to national policy, as William Browder, head of that nation's biggest foreign investment fund, says here in a BusinessWeek column.

Bush and Gingrich don't seem to care about the forces purposeful government default could unleash. "Very irresponsible. It is the politics of fear," says Tom Kozlik, vice president and municipal credit analyst at Janney Capital Markets in Philadelphia.

A "political" default "would rock the municipal market," Kozlik tells me. But states and cities know "their (credit) costs could significantly increase if they significantly destabilize the market's perception of them." So he calls it "highly unlikely" that any real-world state will actually follow Gingrich's and Bush's advice.

Some Republicans who actually have to help govern this country are less irresponsible than Bush and Gingrich. House Majority Leader Eric Cantor has protested the use of "state bankruptcy AS a bailout" - a position that lets him "echo populist sentiment while still acting responsibly toward the market," writes Mark Fabian in today's Muncipal Market Advisors newsletter.

Cut future pension subsidies and guarantees to future, if that's what the people and their reps want. But let's not run away from our promises to millions of retirees and others. We ought to be better than corrupt Russia.
Posted by Joseph N. DiStefano @ 1:02 PM  Permalink | 10 comments
Comments   
  • 0 like this / 0 don't   •   Posted 2:36 PM, 01/31/2011
    I got this thoughtful note from a reader who's too shy to post. Joe D: "I find your articles always of interest, even if I don't agree... In today's article, don't you think you have a bit of a bias showing? By linking a State bankruptcy to deadbeat consumers, aren't you way off mark?... As a banker who has had to collect tough debts over the years, in the toughest cases I welcomed the intervention of the Bankruptcy Court... We didn't always get what we wanted, but at least it brought resolution... You quote from Janney Capital Markets and Municipal Market Advisors. (Those firms) feast off of Municipal Debt. If for some reason the Muni debt business gets hit with a dose of reality, these firms lose their cash cow... What about reality, Joe? Many Municipalities and some States ARE bankrupt. They go to the borrowing trough to prolong the inevitable. If a consumer could do that, there would be fewer personal filings as well. But eventually it catches up. Unless you are aware of another school of economics that has a cure for deficit spending and unsustainable liabilities?... Lastly, you equate default with bankruptcy. Default is what has already happened... Unfunded liabilities (pensions etc) are now in default... I am glad that some politicians are finally bucking the trend and facing reality. If the trough goes dry, no one gets paid anyway."
    — distefj
  • 0 like this / 0 don't   •   Posted 3:06 PM, 01/31/2011
    Good post Challenger.
    — junethe4th
  • 0 like this / 0 don't   •   Posted 3:20 PM, 01/31/2011
    "I thought Republicans were the pay-your-bills, personal-responsibility, sound-money party"....Are you for real? Uh, in case you missed the '80's, when Jelly Bean King took the throne the US was the worlds largest creditor nation. When he left, the US was the largest debtor nation. BushCo presided over the collapse of the global economy. The national GOP is bankrupt. Don't you pay attention at all? How did you get this job?
    — CiceroSpuriousDeodatus
  • 0 like this / 0 don't   •   Posted 3:33 PM, 01/31/2011
    Cicero. I was in high school when Reagan was elected. I've been reporting since the 1980s. Where were you then? And where's your irony, dude? Next time read past the first paragraph.
    — distefj
  • 0 like this / 0 don't   •   Posted 5:46 PM, 01/31/2011
    Trust in the solvency of state and federal debt has been the basis of our nation's financial and capitalist system since the federal government assumed all colonial debt after the Revolutionary War. I'll side with Alexander Hamilton on this one over Jeb Bush and Newt Gingrich.
    — CoolZanna
  • 0 like this / 0 don't   •   Posted 6:59 PM, 01/31/2011
    All Floridians know what Jebthro did to our state budget--he eviscerated it; borrowing millions from sacred trust funds to cover the huge shortfalls his inept governing created! His knuckleheaded plan to privatize all state services backfired; private companies cost 125% of the sensible system he dismantled! His plan to allow his cronies to pave over Florida---our real estate market collapsed as a direct result. No oversight of mortgage fraud, no oversight of anything. What a hapless, crooked dipwad that guy is. Run for prez? Are you KIDDING me? Perish the thought.
    — JanisL
  • 0 like this / 0 don't   •   Posted 10:05 PM, 01/31/2011
    The thoughtful reader in the first post made a lot of sense.
    — Thoughtful&concernedvoter
  • 0 like this / 0 don't   •   Posted 12:19 PM, 02/01/2011
    The republicans are the death knell for the sovereignty of the nation-state in general and our Republic in particular. By its very nature and deliberate constitution, the nation state expresses the sovereignty of the people through its institutional powers, primarily the power to tax. The capacity to tax is the life blood of a nation. And only a strong bureaucracy that can force the collection of taxes in the face of opposition from private interests, can maintain national sovereignty. The propaganda of capitalists is that government should operate like a business. The lie told every time a politician stands up in front of a crowd and says the government has to learn to live within its means just like a family has to budget its weekly paycheck, is the lie to reduce our nation into the dissolvable, bankruptable entity, the joint stock corporation. The corporation is a franchise with attenuated powers granted by the state, not the other way around. Our nation creates the money which is the medium of exchange, to facilitate banking and commerce. It can not go bankrupt. That is a legal fiction, used by legal fictions and individuals, but not by the US government or the states of our republic. They possess the sovereignty which is beyond the uniform commercial code. They are the governing bodies which produced the laws for commerce. The can not be dissolved by the inconveniences of profit making enterprises. Taxes have to be raised to pay for the higher standard of living that we all want. We are not going backwards. The billionaires will have to reduce their status to being only worth $100 or $500 or$900 million, but we can not afford anymore plutocratic plundering of the public for the 500 or so billionaire families and their fellow travelers.
    — Fernando08
  • 0 like this / 0 don't   •   Posted 12:51 PM, 02/01/2011
    Another shy reader, who works in the air transport industry, writes: "I read with interest how defaulting on these government pensions would be taboo. -- Several years ago the private company I worked for declared bankruptcy and slashed pensions for employees already receiving their pensions and reduced via the (federal Pension Benefit Guaranty Corp.) the amount future retirees would get... I guess in the (private) sector this is OK... but not trying to get the government, federal, local, teachers etc, to come to the realization that taxpayers can longer afford nor do we feel they are worthy of receiving these matters?... Times have changed as have expected life spans. -- Take a government worker who puts in 30 years, retires at 51 and live till 85. He or she worked 30 years and receives a 34 year pension! -- Now take the ever popular governmental pension stacking and we wonder why we are broke!"
    — distefj
  • 0 like this / 0 don't   •   Posted 8:25 AM, 02/03/2011
    Can we get to the root cause of pension funds not being able to meet their obligations? I see axamples of people living longer but let's see what the statistics say. My understanding is that life expectancy has increased significantly only for those in the upper income bracket. You can't pick one point in time or a single data set and then use that to say that's the case that it represents the situation. What impact did not making annual payments have on the condition of these pensions? What impact does the current value of investments have? They will increase in value and recover to some degree, right? When will Congress do something about the issues that caused the great recession? Not much has been done to protect these investments. The big lesson in this is not to trust a contract. Don't make wage concessions to protect pensions and benefits. Take the money now and don't rely on health insurance or pensions/401Ks from your employer. The bankruptcy stategy is a anti-union tactic. It's the "legal" avenue for breaking a contract. If states have this easy way out, should we expect them to ever get their act together? Run up debt, don't make pension payments and, when you get in too deep, declare bankruptcy. That's fine with me as long as these states can't borrow money again for 10 years. That's a great idea. Let's handcuff states so that they can never borrow money even when it's a great idea. I guess this is a great strategy to prove the point that the government sucks and the less government there is the better.
    — MikeP


10 comments
About Joseph N. DiStefano
Joseph N. DiStefano writes this blog to feed his PhillyDeals column in the Philadelphia Inquirer. Joe has been a member of Bloomberg LP’s New York Finance Team, wrote the book “Comcasted,” taught writing at St. Joseph’s University, and studied economics and history at Penn. Reach Joe at 215-854-5194 and JoeD@phillynews.com
Advertise Here