Friday, May 8, 2009

A National Bailout for Cities Would be Bad, Very Bad for Taxpayers

A national bailout of cities and or states would be devastating to taxpayers. If a national bailout of cities were to occur it would make the current bailouts look like chump change. Part of the problem with city and state budgets are their pension systems. City and state pensions are Ponzi schemes the way in which they were designed dooms them to failure. Employees or employers contribute only 8-10% to the pension system but once the employee retires they take out 75-90% of their salary, the funds in which the pensions are invested do not return the difference needed to remain sustainable. The retirement age of said employees is anywhere from 45-65 this is another structural failure of the pension system because life expectancy is so high. Many retired employees end up receiving pensions funds for a longer time period than they actually worked within the system.

What can a taxpayer do? Vote for candidates who do not support the current system and vote for candidates who will move toward a defined contribution plan. When and if confronted with a bailout encourage legislators and leaders to accept bankruptcy over a bailout.

The current system has created a two-tiered caste system, which may lead to tyranny. Those in the government who serve the taxpayer should be served by social security and not by a non-sustainable pension system.

Spelling and grammar errors as well as typos are left as an exercise for my readers.

The following piece appears at

U.S. cities need national bailout agency: Rohatyn

NEW YORK (Reuters) - The architect of the 1970s financial rescue of New York City said on Wednesday the federal government should create a powerful national agency to bail out dozens of floundering U.S. cities.

Felix Rohatyn, the chairman of New York's Municipal Assistance Corp. from 1975 to 1993, said at the Reuters Infrastructure Summit that policymakers should look to the Reconstruction Finance Corp. created in 1932 as a model to aid cities and states as they confront their biggest deficits in decades.

"I think this all is unfortunately virgin territory," he said, referring to the impact of the 17-month-old national recession on state and local governments.

Rohatyn, author of "Bold Endeavors," a history of landmark U.S. infrastructure investments, said the depression-era reconstruction bank was a successful lender to local governments, banks and businesses.

The 1930s bank bought preferred stock from the institutions it helped; this let taxpayers share in any future gains.

Rohatyn suggested this kind of funding model might work for the new national agency he outlined.

Today, scores of cities and states are running billions of dollars of deficits. Some have suspended non-critical services by furloughing workers to save money. California and New York state have raised taxes, unpopular steps in a recession.

Unlike the U.S. government, which can print money to close deficits, states and cities are required to balance their budgets.

Rohatyn said hard-pressed state and local governments should be temporarily allowed to run deficits instead of curtailing vital services.

If these governments cannot solve their deficits by themselves, then a national agency could step in, he said. That was how New York state's control board solved the city's budget crisis in the 1970s.

"I think there is a yawning need for a serious look at urban and state problems," Rohatyn said.

In addition to leading the Municipal Assistance Corporation, which sold debt for New York City during its near-brush with bankruptcy, Rohatyn helped lead the state Control Board, which wielded huge power over city budgets.

The board stepped in after New York City's elected leaders were unable to agree on measures to balance the budget.

Rohatyn recalled that tens of thousands of city workers were laid off in just a few years while subway fares doubled.

(Reporting by Michael Connor, Karen Pierog, Joan Gralla, Jim Christie and Ciara Linnane)

1 comment:

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