Bloom of Doom III: Cities Going Bankrupt

“Pennsylvania Capital Ponders Bankruptcy” we read in Mish Shedlock‘s commendable blog “MISH’S Global Economic Trend Analysis“. Now, if that doesn’t shed a whole new light on the word “capital“!

There’s two approaches, haven’t we learned in the not so distant past: there are institutions that are “too big to fail“, then there are even those that are “too big to bail“. Then there are those that are “too small – you wail“.

And now there are municipalities. As is good custom with public institutions they spend future tax money to pay for today’s and often yesterdays amenities. Haven’t most religions down the ages taught us what sin is? You indulge now only to be sorrow ever after?

Could they not count two and two together and see there’s some truth in that, even for the staunchest agnostic? But I doubt they are even atheists. The mayor probably teaches at Sunday school and preaches against indulgence. Maybe it’s the strict separation of church and state that forces his hand to sin against his own private principles? Maybe it’s the fact that churches are about the only institutions in the US that thrive regardless of recession, that they are strictly privately financed whereas some churches in Europe are ailing?

Now forgive me (in the here-and-now) but couldn’t a city foresee this? That when you spend more than you could ever in the far foreseeable future earn, you eventually are insolvent? That, the worse it gets, the less new credit you will be able to roll over?

Why then is it so difficult to understand that this applies at every level and in every circumstance? Is it so inconceivable that when a state bails out a corporation (big or small, hardships acknowledged) he has to get that money equally from somewhere and that in the long run there must inevitably come a point where (if you can still afford to pay him or her) a comptroller comes to the conclusion, that bankruptcy is the better of two options? Now, if you were a CEO at a big company (although, contrary to received wisdom, size doesn’t matter here) do you keep spending until your comptroller eventually tells you that you spent beyond the point of no return? Is it conceivable that you had advanced to the top position in that company, outflanking old rival John-the-comptroller to take the helm if you’d still need tutoring on such basic truths? When I come to think of it: what kind of comptroller or CIO is that who comes telling you you’re effectively bankrupt after it can’t be avoided anymore? Isn’t the CEO (read mayor) meant to be capable to abstain from financial recklessness even if the CIO didn’t tell him in time or ever at all? And isn’t a CIO (read comptroller) meant to discount all current and future revenue and expenditure to the current moment and, if he knows his double-ledgers, immediately and at all times to be aware if there was a shortfall now or in the foreseeable future?

Would you as a shareholder vote such oafs into office and trust them with your nest-egg? Why, citizen union member, citizen civil servant, citizen Sunday school teacher, citizen factionist, charitable citizen, selfish citizen, altruistic citizen, why citizen voter do you vote against your best interest when it comes to public office, time and time again? It’s your life and your money but it’s also your children’s destitution …

Consider: if those “public” services are now curtailed, civil servants furloughed etc. – wouldn’t you wish all those services had been in private hands from the beginning? If a private, say, garbage collector or a “public” swimming pool couldn’t meet its obligations, then you, the citizen can walk away and hire the services of another, but in any case, even if there’s a short while when you can’t avail yourself of that service until some competitor, some new entrepreneur takes over, you are at least not saddled with the incumbent provider’s debt! Imagine: public finances have a “funny way” of (dys)functioning: they’re the only services, you, the citizens pay more for when they deteriorate and then even pay long after they were discontinued. This isn’t a bad dream, it’s reality, but still you need to wake up! Now!