My Blog

Category: Finance

  • Illinois – Worst Financial Shape Ever

    Bloomberg L.P., the big New York financial data firm, is holding its fall municipal-financing conference on Wednesday, and guess what the title is for the special panel on the Land of Lincoln?  Try Land of Entropy.  Yes, sports fans, the panel titled “Illinois Treading Water” is set for 1:45 p.m. and, according to a synopsis, not too much good will be said about our fine state.

    “California debt is beating Illinois bonds by the most in three months as investors choosing between the two lowest rated U.S. states reward efforts to bolster the finances of the nation’s biggest pension in California,” it says.  But though they passed a version of pension reform in California, nothing good has happened here.

    “Illinois lawmakers failed to advance any measures in a special session Aug. 17,” the synopsis says.  “Standard & Poor’s cut the state’s credit.”  And, at last check, “Illinois carried a backlog of about $8 billion in unpaid bills, not including pension obligations.

    “More: Illinois’ ratio of pension assets to liabilities is “the lowest among U.S. states.”  It concludes, “What is the outlook for significant defaults in the state? How can Illinois get its fiscal house in order?”

    via Crain’s Chicago Business.

    Rahm, Michael Madigan, Pat Quinn, John Cullerton, and the rest of The Machine will go down in history as fiddling while Illinois burned.

  • Jimmy John’s Leaving Illinois, Florida Bound

    Jimmy John Liautaud is moving part of the sandwich chain that bears his name to Florida next year, making good on a threat issued in 2011 after Illinois hiked its corporate tax rate.

    The founder of Jimmy John’s Gourmet Sandwiches said during a Sept. 18 panel discussion in Chicago that he will relocate the company’s licensing division to Florida, where he plans to move in early 2013. Mr. Liautaud said in January 2011 that he applied for residency in Florida out of anger when Gov. Pat Quinn raised the corporate tax rate to 5 percent from 3 percent.

    via Crain’s Chicago Business.

    Ya see!!  This is what happens when you raise taxes.  It’s called the Laffer Curve and it’s a real phenomenon.  Illinois is in the down portion of the curve where when you raise taxes you get less income.  Can someone explain that to Gov. Quinn, Michael Madigan, John Cullerton, Rahm, and the rest of The Machine?

    Raising taxes — especially on “the rich” — only shifts the actual tax burden further down into the middle class.

    What we need is a wholesale rewrite of the tax code.  But that’s a much, much longer post.

  • U.N. Wants New Global Taxes

    A 1 percent tax on billionaires around the world. A tax on all currency trading in the U.S. dollar, the euro, the Japanese yen and the British pound sterling. Another “tiny” tax on all financial transactions, including stock and bond trading, and trading in financial derivatives. New taxes on carbon emissions and on airline tickets. A royalty on all undersea mineral resources extracted more than 100 miles offshore of any nation’s territory.

    The United Nations is at it again: finding new and “innovative” ways to create global taxes that would transfer hundreds of billions, and even trillions, of dollars from the rich nations of the world — especially the U.S. — to poorer ones, in line with U.N.-directed economic, social and environmental development.

    via Fox News.

    The U.N. is proving itself to be a net negative.  I don’t agree much with the U.N. or Ted Turner but the latter made a great point once about how the U.N. gave Nikita Khrushchev the forum to bang his shoe and tell the world how the Soviet Union felt.  It doesn’t really matter whether Khrushchev actually banged his shoe or not.  The fact that he was able to stand up and speak his peace was perhaps enough to avoid another world war.

    The U.N. is good at that; a place to permit leaders to go and speak their peace.

    It sucks at absolutely everything else.

  • Quantive Easing Meets Peter Gun

    A light hearted take on a serious subject.
    [youtube http://www.youtube.com/watch?v=Xvh60dJ-hTQ?rel=0]

  • CPS Debt Downgraded

    A leading bond-rating agency has downgraded the Chicago Board of Education’s debt in the wake of the settlement of the Chicago Teacher’s Union’s recent strike.

    Moody’s Investor Service had already downgraded the Chicago Public Schools’ bond rating outlook to “negative” from stable in July, and cited Thursday the rating agency’s “view that the district will be hard-pressed to make the budget adjustments necessary to close an estimated $1 billion budget gap for fiscal 2014.”

    The schools’ downgrade to an A2 rating “reflects a weakened financial profile” born of depletion of reserves, a coming jump in pension payments after three years in which state law was changed to reduce the payments temporarily, slow payment of state money–and the recent strike, Moody’s said in a release.”If progress is not made toward improving the financial condition and liquidity of district operating funds, or if challenges arise in making the required pension contributions, the district’s general obligation credit quality will be impaired,” according to the release.

    Strikes by other unions, more delays in state funding or “unmanageable” increases in pension costs could result in further ratings downgrades, Moody’s warned.

    A spokesperson for Chicago Public Schools wasn’t immediately available to comment on the downgrade.

    via Chicago Tribune.

    CPS is falling apart.  The biggest losers here are the poor families generally on the South and West sides that have no other options for their children.  It’s the false choice of failing CPS school A or failing CPS school B.

    Rahm caved.  He owns this.  Epic fail.

  • Aldermen Briefed on Pension Time-Bomb

    [Chicago’s] Chief Financial Officer Lois Scott reminded council members that absent significant changes to pension plans, the city will be forced to drastically cut services, raise taxes or do both to close a funding gap that could reach $700 million in just a few years, aldermen said.  …

    …  Lawmakers are looking to fix the state’s woefully underfunded pension system, but the city also needs changes from Springfield to repair its retirement funds.

    … Absent a city pension overhaul, the fund for retired city firefighters would become insolvent in nine years, according to a city report issued two years ago.  The police pension would go broke four years later.  Funds for city laborers and municipal workers would be broke by 2030via Chicago Tribune.

    These numbers are all wrong.  These pension claim they’re going to earn 8% on their money year after year.  That simply has not happened in a decade and they are tens-of-millions of dollars behind where they claimed they would be be even two years ago.

    Kudos to my friend Anthony Curran who suggested we start a Pension Death Watch.  I think it’s a great idea.

  • Federal Reserve Funding the Entire US Deficit

    [Lawrence] Lindsey said that with the Fed purchasing at least $40 billion a month in mortgage debt through QE3, “they are buying the entire deficit.”  …

    The central bank’s recently announced bid to stimulate the economy has also taken the pressure off politicians to deal with the U.S. fiscal cliff, Lindsay argued, which could result in destabilizing tax hikes and spending cuts automatically taking effect early next year.

    “The Fed, maybe because it can’t do otherwise, has told the Congress: ‘We’re going to buy your bonds no matter what,’” Lindsey said. “I think that’s keeping the pressure off the president, off the Congress.”

    The effective of QE3 on interest rates may also keep Congress from reining in borrowing.

    “If the (Fed) chairman’s estimates of the effectiveness of QE3 on interest rates come true, we’re going to be down to an average cost of borrowing for the government of 0.6 of a percentage point,” Lindsey said. “Why would any Congress not borrow and spend if they could borrow at 60 basis points?”

    via CNBC.

    This is all going to come to a screeching halt… and not in a nice way.  The Federal Reserve simply may not exist in 5 or 10 years.  It will have failed.  Congress with throw the Fed under the bus and create a new central bank.

    Of course years of financial chaos will ensue and the value of the dollar will collapse.  (Note to self: move all the money you can offshore.)

  • Anti-Austerity Protests in Spain; U.S. Media Not Reporting

    Police are trying to clear out the massive anti-austerity demonstration that engulfed Spain’s federal district this evening.

    via Business Insider.

    Follow the link for photos.  This is us in a few years.  There’s no other way.

  • 50,000 New Jobs!! Seasonal… at Wal-Mart

    Wal-Mart Stores said on Friday that it plans to give current workers the chance to work more hours and will hire more than 50,000 seasonal employees as it gets ready for the winter holiday season, its busiest time of year.

    via Fox Business.

    [Insert cheap joke here.]

  • Legislative Change Means $670 million More for Teachers’ Pensions

    The state will have to come up with another $670 million for the teacher pension system in the next budget after a retirement fund panel crunched the numbers and adjusted its assumptions.

    The Teachers’ Retirement System lowered what it expects from investments from 8.5 percent to 8 percent. The pension fund’s leadership also increased a variety of other assumptions, including how long it expects retired teachers to live. The fund covers teachers outside Chicago.  …

    The state is paying $2.7 billion into the fund in its current budget. Without any adjustments, the state would have owed about $2.89 billion in the new budget year that begins next July 1.But the changes approved Friday increased that price tag to $3.37 billion. All told, the state will have to pay $670 million more than this year.

    via Chicago Tribune.

    Consider, we’re going to pay $3.3 billion into the teachers pensions and another $3 billion on debt service.  That’s $6 billion next year that could have gone to pay for services for the poor and the elderly but instead are going to the politically connected and union members (… I realize that’s redundant.)

    But this may be the best line of all:

    Senate President John Cullerton and House Speaker Michael Madigan, both Chicago Democrats, recently suggested that changes to the pension system would have to get done in January at the earliest. That’s a post-election period when more lame ducks are freer to take politically risky votes, and the bar to pass legislation with an immediate effective date drops from three-fifths to a simple majority.

    Allow me to translate:  Fixing the pensions is going to be very unpopular and thankfully our experience is that voters have short memories.  We also don’t care how much more money this costs the state (after all, all the bond holders and the teachers unions are our buddies.) We’re also not sure that we can get all the Democrats to go along.  So we to avoid any embarrassment — and to make sure the unions make the campaign donations they promised before the election — we’re going to put this off until next year.

    The Machine is like a casino… the house never loses.