The most recent example of such corruption is coming from SEC efforts to identify fraud in the nearly $3 trillion dollar muni bond market and to crack down on pay-to-play schemes that continue to infect the pension fund arena. While traditional pay-to-play schemes have "involved securities firms providing campaign contributions or other benefits to government officials to obtain underwriting business . . a new wave of pay-to-play has now been uncovered in numerous states, including New York, California, Illinois, New Mexico, and Kentucky, where firms provide kickbacks to individuals at public pension funds in exchange for an agreement to invest capital with the securities firm."
One example of such pay-to-play schemes came to light as a result of New York Attorney General (now governor-elect) Andrew Cuomo's investigation against several individuals in the New York State Comptroller's office, including former Comptroller Alan Hevesi. The investigation was concluded last October when Hevesi pleaded guilty to accepting almost $1 million in kickbacks. In exchange for the kickbacks Hevesi admitted that he had approved $250 million in pension funds investments with a California private equity firm. For its part, "[t]he SEC has filed its own pay-to-play case alleging kickbacks against Hevesi's former deputy comptroller and a top Hevesi political adviser, which is still pending, and is also reportedly investigating the pay-to-play practices at CalPERS. "
Such scandals notwithstanding and as Gerald Klatt clearly pointed out, the single biggest problem associated with the manner in which various CAFR fund categories are handled is that the majority of fund-associated investments - including foreign companies and currencies, derivatives, and multi-national corporations -- actually draw much needed money away from the community and into the international arena via the financial economy. Profit-making government owned corporations involving the development of community projects such as golf courses and community swimming pools are another part of the mix, but again, the focus is squarely on profit-making rather than broad-based community service. Moreover and since these community projects are virtually always privately financed, the financial economy again benefits far more than the local community which must pay not only the debt principal and all associated project maintenance and oversight costs, but also all interest and fees associated with the debt as well.
All of which means that the local economy loses while the financial economy wins BIG TIME, effectively diverting Mr. Bernanke's QE2 "money" spigot away from Main Street and toward Wall Street yet again. Moreover and given the fact that Mr. Bernancke's "money" spigot depends on credit creation, it is difficult to imagine how Main Street citizens, whose wealth is being siphoned out of the local economy through government investment accounts and bond debt, can recover enough to benefit. If by some miracle or other QE2 (or 3 or 4) should take hold and trickle down into the real economy, there is that pesky question concerning the debt it creates -- which must of course ultimately be shouldered by citizens.
Debt itself is a dramatic indicator of the depth of Main Street woes. Unimaginably massive as the federal debt may seem and troublesome as state debt appears to be (assorted investment pools aside), all is positively dwarfed by total private debt, particularly that of ordinary individuals , whose household debt-to-income ratio reached an all-time high of 133% in 2007 after having doubled over the previous twenty-some year period. This at the same time that personal savings declined.
By late 2009, millions of homeowners who had been using their homes as personal ATM machines were financially shattered by the bursting of the housing bubble. As inflated home prices went into free-fall, households began to deleverage - both unwillingly through default on mortgages and more or less willingly as a result of job uncertainty. The same uncertainty is forcing domestic businesses to deleverage and banks to tighten their lending practices. According to economist Gary Shilling and others this deleveraging is likely to last for a decade or more.
Massive deleveraging has led to a shrinking jobs market which in turn has increased the demand for student loans . These loans have been adding to household debt at the same time that consumers and households have been paying down credit card debt and otherwise deleveraging. So huge has the student loan market become that, for the first time in history " the total balance of student loans has just surpassed the total balance of credit card debt.. . . .The bad news, of course, is that student loan debt is much more severe than credit card debt, because it can't be discharged in bankruptcy." For those who find they can't manage their loans, the only recourse is default. With defaults averaging 40% and higher for these students, a student loan bubble is emerging.
U ltimately the bursting of this bubble -- like the housing bubble - will lead to less, rather than more, lending to individuals -- a situation that would further dampen Bernancke's effort to get the Main Street "money" spigot satisfactorily flowing. Even the banks take a hit in this kind of situation. W hether the student loan bubble bursts or deflates slowly, the collective overload of private debt combined with declining credit scores and a stagnant jobs market means that neither banks nor borrowers will be willing or able, as the case may be, to pull their share of the load in getting the economy back on its feet by taking sufficient advantage of "easy money" Fed policy.
Next Page 1 | 2 | 3 | 4 | 5 | 6
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
