In the city of debt and money | What's Left
This week, independent news outlet ProPublica exposed the snake oil salespeople on Wall Street who have targeted struggling municipalities as a new source of profit. It turns out that desperate city councilors trying to meet negotiated pension obligations and fund crumbling infrastructure are easy prey.
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Ironically, this unfortunate situation is the direct result of policies promoted by Wall Street in the first place. While many right-wingers blame public sector workers for demanding negotiated settlements be honoured, the real reasons are a little more mundane.
During the height of the finance-driven economic boom times of pre-2008, employers with pension funds (including cities) were told the good times would never end and that free money from expanding stock markets would keep budgets afloat. As such, they took investment “holidays”, cutting taxes instead of continuing to put money into pension funds. When the financial crisis hit, cities discovered that this was just a shell game and they were left holding massively underfunded plans.
Now, finance capital is back and offering a new solution: borrow to invest. Interest rates are artificially low thanks to Central Bank/Federal Reserve action, but investment profits are sky-high. Apparently, if cities borrow now, they will be able to pay back the debt and still have money left to pay pension obligations.
So, is it actually possible to avoid a crisis by following these recommendations? Nope. It may be free money for the financial institutions who manage these funs at no risk to themselves (while charging a healthy commission), but not for the cities. In the long run, profit levels are not guaranteed and interest rates have only one direction to go: up.
Cities are in a bind but should not be taking advice from the same fat cats who put them in this mess. Capitalism will not solve their problems and elected officials are going to have to look at innovative investments and public ownership programs to get their towns and cities back on their feet.