Tuesday, January 28, 2014

The Tar Pit: Neoliberalism Public Asset Mining Comes to America

Growing numbers of Americans are disgusted by the current regime and general system of governance. Opinion polls point to dissatisfaction with system in total and even institutions formerly viewed favorably have seen trust and public confidence in them slip (SCOTUS). Our elite like this system though as it has allowed their rise and neo-Roman lifestyles. They will do anything to maintain the fiction and continue the democratic game in their favor. The next phase for maintaining the Ponzi, the poor governance and the mandarins has started lightly in certain parts of America. Privatization of public assets is coming to a city or state near you, if not already, and it is solely to plug the many holes in the S.S. America and keep the illusion shimmering.

I like to call this scheme Tar Pit Economics. The sabre tooth tigers might not be able to beat a wooly mammoth one on one so they band up and herd the mammoth towards the tar pits. Once in the tar pit, the mammoth cannot escape, and then the sabre tooths jostle amongst one another to pick off the meatiest scraps for themselves. After they are done, the vultures swoop in and nip off what they want with even less of a fight as the mammoth is dead. Our financial elites and well oiled private operators are the tigers, mammoths are our political elites, the tar pit is debt, and the vultures are late game vulture funds. The finance sector performs amazing services for the governments in the US (and globally) and slip them easy credit. The governments use easy credit to placate the population to secure power, not govern. The money allows them to avoid good policies and dealing with problems. The tar pit is the debt and spending that the governments need to maintain to preserve their power and status. Once trapped, they will sell off their best bits attempting to preserve their lives rather than walk away from a tar pit and fight the sabre tooths face to face and deal with the fall out. The vulture funds are the late game sharps that will earn high returns on those last scraps once the game is up and new regime is in place.

This has been done around the world as the dirty side of the Washington Consensus. Big New York banks loaned South America huge sums of money in the '70s and early '80s. Those nations could not repay. As part of their bailout deals, they received some loan forgiveness, but had to restructure their economies, sell off public assets, and remove trade and finance barriers. The old debt did not completely go away and was sold on a newly created market by fellows at GoldmanSachs. The process was repeated in Mexico in the early '90s, Asia in the mid '90s and Russia after the fall of communism up to their default. Most of these nations lose versus vulture funds that buy distressed debt after the bust because court battles over debt are settled in New York. Wonderful system we have.

This is here in America now. Many states and cities have governed purely for self preservation of the elite rather than good governance. Control the cities, rig state elections, rig national elections. They need that bank of registered voters to fill bags of straight ticket D votes in back seats to swing very close elections. Ask the GOP in Connecticut and Minnesota about bags in back seats. It is a good sequence, and it is why so many of our cities are blue even in deep red states. Do not make the cities livable, just fill them with blue voting meat. Dysfunctional Chicago has been at the vanguard of privatizing public assets. Chicago sold rights to parking meters for $1.16 bil. Now lawyers and media are still trying to undo the original deal. The deal was so quick (deal was reviewed for 48 hours) and bad that it nixed the privatization deal for the Midway airport. Pie in the sky take from Reason in 2009 here. The Chicago corrupt cronies want to nix the deal because Chicago blew through the money in three years. A seventy five year lease became a stop gap slush fund that lasted three years. Chicago could have raised meter fees, expanded hours, and enforced the meter rules stronger, but they chose the path of least resistance and no effort. Chicago is in the tar pit. They will eventually have to restructure or default on debt, and then the big money vulture funds will pick from the scraps and take them to court for huge returns (just as the Congo).

Public-private partnerships do not always have to be bad. Indiana leased its toll road in an entirely different manner. It was a long, formal request for proposal process. The money was explicitly designated for specific ends and some money was kept aside in fixed income assets. That money has generated a nice boost to the state's coffers. In the last gubernatorial election, the Democrat candidate wanted to crack open that fund and spend it. He lost, but it just reflects the spend to secure power stupidity instead of thinking long term. In a comical turn of events, because of the depression, the toll road has generated lower fees and revenue for the private firm than they expected. A rare instance of someone selling high at the right time and working for the government.

Chicago has to do this because of decades of bad decisions and papering over social and economic problems with just a little bit more juice. Rather than face consequences, the political elites are selling off a public asset like street space for 75 years and then burning through the money in three years because no one wants to make cuts. One could go through Chicago's budget and slice off hundreds of millions if one did not fear the consequences. We do not have the political will. It is the sign of our decadent times that we have the wish but not the will. Illinois is a state that commuted all death row inmates at once out of fear that just one might be innocent. Death row inmates who sat there for years housed, fed and entertained per their "rights". Cutting a hundred million off a budget and unleashing the underclass kraken is not on the menu for these spineless idiots.

The FIRE interests and Robert Rubin did not set off on this journey to strike good deals with cities. They needed desperate cities and counties just begging to stay in power and in power solely because of the river of meat. No one has to be a good citizen; just punch the hole next to the person with "D" after their name. That is how poorly governed our cities are and how poorly behaved our city residents are. The liberal elites pay a danegeld to the bottom tier because when riots occurred in the past, the media could blame the system, racism, poverty and a myriad of other excuses. They have been trained to riot and agitate because the old system was run by opponents, and the liberals have not figured out how to keep everyone in line safely now that they have control. Mayor Giuliani, continued by Bloomberg, did, but it required money, cops and aggressive police tactics. Those tactics that the left deplores and cries about for disparate impact and racism. When all other assets have been sold off and all other policies have been tried, the basic rules of law and order will assert themselves. Liberals may bemoan Giuliani today, but within 25 years, they will be copying his tactics with snazzy catch phrases to soften the baton strikes.

1 comment:

peterike said...

Cities also doomed themselves via absurdly generous pensions for city workers. And why not? The pols gave big raises and pensions to the unions. The unions laundered some of that money back to the pols in donations and "volunteers". The pols -- reelected with union help -- gave the unions even more money. And so it went, a totally legal scheme that in any other context would be seen as graft, kickbacks and corruption. Nice work if you can get it.

What interests me is what happens when the game comes to an end. We've seen cities fall into bankruptcy, but not yet an entire state. Yet that will happen eventually if trends continue. What would the fallout be?

Of course the Federal government is already in so much debt that it can never be repaid, but how does that end? Do we take the banana republic route and simply declare our debts null and void and issue new currency? "Thank you citizens! For every thousand dollars you have, you will receive one Obama Buck!" It could happen tomorrow.

In fact, if it would usher in a new era of sensible governance and spending, I would almost welcome it. But it would likely only issue in an even greater level of oligarchy and state control.

Anyway, cities are screwed.