The Worst is Yet to Come

Building on Rich’s post on debt, I stumbled across this article that summarizes Harrisburg, PA’s recent attempt to declare bankruptcy. Essentially, the city got themselves $310 million in debt (that’s $6,000 per resident) on an incinerator. Yes, a fucking incinerator. They took on a bad obligation, compounded it by signing a deal with the lowest bidder for renovation (lowest bidders always cost more) and are now trying to impose a commuter tax to get out of the hole before the state essentially takes over the city and forces them to lease or sell city assets.

This is not even the only scandal among Pennsylvania small towns. Numerous towns are facing financial difficulty over interest rate swaps and mine is potentially facing millions in losses on a possibly illegal naked interest rate swap — that is, we might have to fork over millions to pay interest and penalties on a loan we never took out.

This is going on everywhere in America. Not only are cities, counties and states in debt, many are tangled in such complicated financial schemes, it’s not clear how they’re going to crawl out. All over the country, people have forgotten the first rule of finance: do not invest in something you don’t understand; do not take on debts you don’t understand. And we’re supposed to believe these twerps will clean up Wall Street?

There are some people who are starting to get it:

Some 8 million U.S. consumers stopped using bank-issued credit cards in 2010, according to the credit-reporting agency TransUnion. The average credit-card balance has fallen 10 percent this year from 2010, to $6,472; U.S. consumer debt has dropped for 12 consecutive quarters, from a peak of $14 trillion in early 2008 to $13.3 trillion last spring, mainly because of mortgages repudiated or abandoned. People are cutting visits to the hairdresser, buying used cars without financing, and living on surplus cheese as they trudge toward the promised land of a debt-free existence.

Of course, many economists are claiming that this is a bad thing because we should all be out spending, spending, spending to “stimulate” the economy. Well, excuse my lack of Economics PhD, but what he fuck do they think the last decade was all about?! We borrowed and spent like mad — in both the public and private sector. The result was an empty economy with essentially zero growth and all economic gains concentrated among the wealthiest. Is that what we want to go back to?

We keep running against this reality: there is no short-term fix for the problems we are in. We can minimize the pain, but we can’t fix the economy with band-aids. Long-term fixes that will slowly right the ship over the next decade are the only answer. And part of that long-term fix is de-leveraging the country.

There is simply no alternative. As even Ezra Klein — in a great leftish article on the economy — acknowledges that this is not just a downturn in the business cycle. Financial crises are different. And while Klein wouldn’t agree, I think this cycle is different because of the truly staggering amount of debt out there.

As mentioned in the Atlantic article, one positive affect of the Great Depression was to instill an aversion to debt in a generation of Americans. My parents’ generation is obsessed with being debt-free (some of them anyway) and not getting into complex financial entanglements. I hope against hope that one of the good things to come out of this will be an aversion to debt among younger people. The OWS crowd and their calls for student loan forgiveness make me shudder for the future. But I just had a 5 year-old girl tell me today that people spend too much and need to save. And all her little friends agreed. If we want more people like that little girl and fewer like the whiny entitled students, we need to face reality about our debts. And make that reality as crystal-clear to the American people as we possibly can.

PS – The Atlantic article has one huge flaw. It describes Japan as having deleveraged their debt. I’m not sure what parallel universe Earth that Japan is on. On this reality’s version of Earth, Japan’s debt is more than twice their GDP. They also don’t mention countries that deleveraged successfully, like Canada or Sweden.

PPS – Oh, and we can we put a fucking axe through the lie that government budgets are being slashed?

Comments are closed.

  1. Akula765

    I don’t know about forgiving student loans… but they do need to be reformed.

    There’s no reason they should not have the protections that every other consumer debt has. People should repay their loans. For those that truly wind up in shitty circumstances, they should at least have the protection of bankruptcy.

    The fact that people who run up credit cards buying mountains of useless shit are treated better than people who dared to try and improve their lives is fucking ridiculous.

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  2. Seattle Outcast

    Manufacturing rejected the lowest bidder mentality over 20 years ago because you fucking get what you pay for. I thought most people had figured this out already.

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  3. AlexInCT

    Essentially, the city got themselves $310 million in debt (that’s $6,000 per resident) on an incinerator. Yes, a fucking incinerator

    Green bullshit strikes again. They bought that incinerator because the snake oil salesemen peddling that green bullshit told them it would save them money and create jorbz! Look how well it worked for them.

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  4. AlexInCT

    I don’t know about forgiving student loans… but they do need to be reformed.

    They should start by revising the hideous lie that a college degree guarantees higher earnings. CERTAIN college degrees do that. Most of what you get with a BA degree however, and anything with “studies” in the name for sure, is a recipe for disaster, considering the cost to get it. I know people with such “studies” degrees and over $100K in debt. They where robbed by a combination of lies. The first that the dgree istelf would lead to higher earnings. The second that you should study what you are interested in so you can be “happy”. When happy also includes paying the bills, “studies” type degrees are going to do nothing but disappoints, as the only qualification you end with is the ability to ask people if they would like fires with that or want it super sized.

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  5. Hal_10000 *

    If student loans were not special debt, there is no way people would get tens of thousand to get fun degrees like MFA. They would have to show that their degrees will increase earning, just like you do for a business loan.

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  6. Hal_10000 *

    It’s not quite that. This isn’t green at all. They ran it for years and got something out of it. But when the emphasis shifted to landfills, they couldn’t let it go. It’s straight-up corruption, no green jobs required.

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  7. Dave D

    $6,000 per person, eh? Well bHo and his buddies are slapping ~$5,000 per person per year of extra debt onto each and every American. Why can’t local governements do the same? It’s insanity!

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  8. richtaylor365

    Obviously it is not good when municipalities go bankrupt, a clear sign of mismanagement, but it is not the end of the world and in most cases will benefit its citizens. I live next door to the largest city in California to declare bankruptcy, back in 2008. Their recipe for disaster was clear to everyone, almost 80% of city tax revenue went to satisfying exorbitant salaries and benefits for Vallejo firefighters and police officers, way to go unions. It was not sustainable and the city could not get out of the union contracts. The good news is that the bankruptcy court invalided the union contracts and allowed them to start from scratch. Many cops and fire fighters simply retired, knowing that the gravy train had ceased. They now have a police and fire force more in line what what other cities offer and, as my link says, are now able to start with a clean slate.

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  9. sahrab

    O/T but your from Pennsylvania?

    What the heck is the deal with the square rocks, set on an angle, on the top of the retaining walls? Not sure if its a statewide tradition, but i know they are all over Harrisburg

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  10. AlexInCT

    Erm Hal, I remember reading about this back when, and Harrisburg got the incinerator because the greens told them landfills where evil and would cause all sorts of problems, and that the incinerator would pay for itself in a decade. Mostly because the greens felt they could sell the use of it over landfills to others and avoid costly lawsuits tied to landfills (from these fucking greens of all things). It’s the same bullshit you hear when they tell you how super expensive solar panel, wind, or other such pie-in-the-sky systems, including fucking idiotic hybrids, will pay for themselves in savings of one form or another that then never materialize. Looks like a decade later the incinerator had not paid for itself, and even more important to note is the fact that Harrisburg has been begging the state, for a lot of years now, to help them pay off that cost.

    Yes, it was green promises/threats that made them buy this boondoggle, even if most people do not want to report on that now.

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  11. briggie

    Another huge problem with Student Loans is they allow the universities to jack up tuition. When my sister and I went to college (in 2003) it was $13,000 for everything (our mom handled most of the finances, but I remember looking at the bills). This was for a b list state school in New England. My step-sister just started this fall and is going to the same school.

    The same school only 8 years later is just under $20,000. I don’t think the website has all the fees though because my step-father was saying the total cost is $25k. That is about $100,000 for a bachelors in-state to a public b list state school…whiskey tango foxtrot.

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  12. balthazar

    If they made them dischargeable just about every student would take a couple years off after college, declare bankruptcy, and get a free education. There’s a reason they stay with you.

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  13. Manwhore

    Then sallie and Freddie would stop passing them out like water, bullshit schools and specialized degrees would dry up and the market would stabilize to lending money to only those with the means to repay. The market would stabilize like it was pretty stable before this bullshit law was enacted in the first place.

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  14. AlexInCT

    Then sallie and Freddie would stop passing them out like water

    Passing out what like water? School loans? PFEH! Why should Sallie Mae do any such thing (not sure what Freddie Mac has to do with school loans unless there is also another Freddie organization doing those)?

    Right now the higher education gurus and government are running the perfect scam on people, and they ain’t killing that cash cow. Get a college degree and you will make more money than without! You want a loan? Here you go! It’s not coincidental that the cost of an secondary education has grown at a rate that is orders of magnitude higher than the worst case inflationary scenarios, and if you like me are inclined to believe that what people are tough these days is of far less substance and quality than it was in the not so distant past, you are obviously paying a lot more to get far less. This is our next bubble right here. It has to burst sooner than later.

    But as I already pointed out above: there are college degrees, and there are college degrees. Not every college degree is created equally. And I am not talking about Ivy League vs. State schools, but Engineering, Medicine, Law, Business, and Hard Science degrees vs. the rest. WTF do you think you are qualified to do with a “Womyn Studies”, “French Poetry of the 14th Century”, “Basket Weaving”, or some other such nonsense degree to a potential employer that warrants high pay?

    In my opinion, paying anything more than $40K to get a BA degree today is a terrible investments. Some of these got you decent teaching jobs in the past. Today they leave you barely qualified to work at a restaurant or fast food place. When interviewing I would suspect that any employer that saw someone racked massive debt getting one of these degrees, Ivy League or not, could think that person wasn’t too bright either.

    Just allowing people burdened by too much student debt and no prospect of decent employment to declare bankruptcy, will do far more harm than good. It will kill the market for loans dead and straddle the tax payer with another trillion in needed bail outs. The thing is that stopping government from pushing these loans is the key part of addressing the issue however. Once that has been tackled we can revert to making student loans dischargeable in bankruptcy. If the government types are no longer allowed to be in bed with higher ed. types that are making a killing from the easy loans and dumb kids that don’t realize they are not getting anything close to their money’s worth, we would get rid of 2 problems.

    The first would be the skyrocketing cost of education. By default, because far fewer people would qualify under a stricter system and they could then drop the debt, schools would have to start charging realistic prices and offer value. As the cost drops people would need fewer and smaller loans to do it. Colleges would also have to be far more selective of who gets in. It’s a win. The second, a consequence of being forced to add value and less people wanting to waste time, would be that colleges would get rid of a huge chunk of the bullshit progressive propaganda machine that currently passes for an education. That is why I see the usual suspects fighting any real solution tooth and nail.

    Hey BTW, does the problem and the people perpetuating this sound familiar to you?

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  15. Akula765

    The thing is, a lot of degrees that people dismiss as useless aren’t. Like an MFA, as you cited. I know a few people with good jobs that they landed because of their MFA. On the flipside, I know many people with degrees in engineering or nursing or other “useful” degrees that are unemployed. Who decides what degrees are worth lending towards and which aren’t? Obviously private lenders can do it for themselves, but what about federal loans?

    I’d also point out that we didn’t have these asinine restrictions 10 years ago, and it wasn’t a problem.

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  16. Akula765

    Again, this wasn’t a problem 10 years ago when those restrictions weren’t place.

    And it’s really convenient that John Boehner, who sponsored the legislation to remove bankruptcy protections, receives an awful lot of money from the private student loan industry?

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  17. Manwhore

    According to Alex, only the degrees that benefit with profitability are the ones to pursue. Short term memory permitting, the future should not be bankrolled on the idiocy of “I have to go into banking, because that’s where teh moneh is”.

    We don’t get to predict where the next innovation will be. It could be anywhere, and that’s why we take the risk on the future. What Alex (maybe others) actually advocate is a useless society where we all open restaurants under the premise that “hey, we all need to eat!”

    It is a risk, but a risk shared by all, and as with all risks, it should come with consequence. To straddle the younger generation with all of the risk and none of the reward is futile, IMO.

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  18. AlexInCT

    According to Alex, only the degrees that benefit with profitability are the ones to pursue.

    No dumbass. According to Alex, taking on massive debt to get a degree that leaves you both unprepared and unqualified to pursue careers where people get paid a lot, is stupid. It’s like buying a $500k house when you really can only afford to pay for a $80K one. Nobody should do so.

    Short term memory permitting, the future should not be bankrolled on the idiocy of “I have to go into banking, because that’s where teh moneh is”.

    You persist on showing how fuckins stuooid you are huh? I am now convinced you claim to be conservative only to post stupid shit that makes conservatives look bad.

    We don’t get to predict where the next innovation will be.

    First off, who is this royal “We” you speak off? And what the fuck innovation are you talking about? Most of our greatest recent innovations have come from college drop outs that decided it was waste of their time & money.

    It could be anywhere, and that’s why we take the risk on the future.

    Yeah, I am sure that it will come from one of them “Womyn Studies” or “French Poetry of the 13th Century” degreed intellectuals with ridiculous debt to earning potential ratios. I would not be surprised that they think allowing them to not pay off the debt obligation they took on and stiffing others with it is their idea of a better future too.

    What Alex (maybe others) actually advocate is a useless society where we all open restaurants under the premise that “hey, we all need to eat!”

    Well then, if you are OK with borrowing way more than you can ever make, to get a worthless college degree, because you think somehow just attending college will prepare you to make a break through innovation of the future, then be my guest. Just don’t whine and demand your loans be forgiven after the fact. Also let me point out that as kids we all think we will be the next star sport athlete making the big bucks, but then most of us grow out of that and realize that odds are usually in the 1 in a million range for that. The smart & mature people, the ones that want to still live decent and responsible lives, then do the right things to make it work.

    It is a risk, but a risk shared by all, and as with all risks, it should come with consequence.

    Da commorade.

    To straddle the younger generation with all of the risk and none of the reward is futile, IMO.

    These are the fuckers that votes by a 2 to 1 margin for the current retard-in-chief, so now they are pissed he fucked them over the hardest? And how is the younger generation getting straddled with anything other than the massive debt by the very government types they just elected 3 years ago, that insists on social engineering society to it’s illusion of fairness, huh? Or is your point that since senior citizens get to suck at the government teat with SS, lazy people get to do the same because of the welfare state, corporations buy favors from politicians that have rigged the system so they have to, and everyone is angling for something paid by other people, that young people – which I think you fool yourself into believing you are one of – should then be allowed to spend a decade or more in school, at other people’s expense, like they do over in Europe where there are no jobs for the young and unemployment is in the high twenties for them, only to come out with nothing of value for society, simply because of the catchy “we are the future” phrase. Some conservative you are BTW with this moronic line of “I want other people to pay for me” thinking.

    Here is some advice for young people: demand much smaller government, and work to get that. Also make sure you do the responsible thing and do not take on far more debt than your employment prospective is worth. And most important of all, understand that not all degrees are created equally, and to tack onto something you brought up, that college isn’t even needed if you truly have a vision for something new and innovative and the drive to make it happen. Not what idiots that spend too much money getting worthless degrees want to hear, but the idiots need a healthy does of truth.

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  19. Mook

    Rich, it’s depressing to read that Vallejo’s bankruptcy didn’t solve one of their major financial problems – lavish, gold-plated pension obligations. The bankruptcy didn’t absolve them of that liability one iota according to the article. Politicians raise public sector salaries and pensions to extreme levels, and all then leave taxpayers on the hook for the pensions.. as the city workers retire at age 52. Pensions should be part of the bankruptcy too. As the Wisconsin union riots showed us, public employees pay little or nothing into their pensions, yet draw out 3X, 4X that of social security starting at a young age.

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  20. richtaylor365

    I think the prevailing sentiment, rightly or wrongly, went like this, We can’t change the pension system for those already retired because we have an obligation to honor the agreement made to those retiree’s, but current and future employees we can alter the formula, make them pay more of a percentage of their paycheck into their retirement and extend the age at which they can start to draw from that pension.

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  21. Mook

    I don’t know about that. Cops, firemen, city workers get to keep forcing taxpayers to fund their $80,000+ annual pensions + healthcare and spousal benefits, paid for by taxpayers who are scraping by themselves in the private sector..I read how there’s some CA law enforcement retirees making over $200k/yr in pension benefits.

    At the time these city employees signed up to those jobs, they never dreamed that their pensions would be so wildly inflated, so I’ll disagree that taxpayers have any obligation to pay them… certainly not anything more than what Social Security recipients receive.

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  22. richtaylor365

    Before the bankruptcy I know several of the city cops and about a handful of firemen, all those that I knew retired after the bankruptcy, knowing that the good times were coming to an end.

    Vallejo PD was at that time one of the 5 top highest paid departments in the state, Vallejo fire was THE TOP paid dept. in the state. Now both are still in the top one third tier but not the highest, due to restructured contracts ordered by the bankruptcy court. both now pay a larger percentage on their salaries into both their medical and retirement plans (the exact percentage, I don’t know for sure, been out of the game too long)

    But I disagree with you concerning the present retiree’s. Both parties (the city and the union reps) signed the contracts in good faith, both the city and the workers knew exactly what the deal was. The workers held up their end and put in the time, now they are reaping the benefits, as they should. For the current employee’s, their formula is different and more in line with other cities.

    And as far as law enforcement retirees making over 200K, I would imagine that this only happens involving higher leveled employees like chiefs of police or commissioners, the rank and file make no where near this.

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