NEO-CONS AND NEO-LIBERALS ARE DOING THIS. A DEMOCRATIC POLITICIAN WOULD NOT DO THIS!
I'd like to end for now the discussion of privatizing all that is public with public schools and public transportation. I go to great extent to fight the current education reform but I will talk today about handing actual school buildings over to private charter chains/investment firms.
Why would politicians go to the same Wall Street banks and investment firms to build schools that just defrauded government coffers and individuals of trillions of dollars? The answer is-----they would not unless they are working for those banks. We have all the funds we need to rebuild all public schools----it is simply being lost to fraud and corruption.
In Baltimore as in many cities across America the policy of attaching new school building to Wall Street financial instruments is the new Wall Street scheme to grab real estate and business. Think about it......if you know anything about today's economy you know that Wall Street has pushed the US economy to near collapse yet again-----doing the same things except this time the crash will be far worse than in 2008. The market targeted by Wall Street and neo-liberals is the bond market-----especially municipal bond market and sovereign debt. Remember, when Wall Street targeted the Federal Housing Agency FHA and Freddie and Fanny with those subprime mortgage frauds it was meant to implode and kill the FHA as a public agency. Wall Street did not like government competition in financing housing. They took a perfectly efficient and effective low-income housing agency and killed it with massive fraud and corruption. Well, now its the municipal bond market. The bond market has always been the safest investment for everyday investors and public funds like pensions and US Treasury funds. If Wall Street wants everyone back into the stock market it needs to implode the bond market and give people no where to go. Remember, the FED has manipulated interest rates to near zero so people cannot even place their money in savings accounts and have that money keep up with inflation. THIS IMPLOSION OF THE BOND MARKET IS DRIVEN BY CONGRESSIONAL POLICY THAT CREATED INCENTIVES FOR THE ENTIRE WORLD TO FLOOD THE US BOND MARKETS. That is exactly what they did with subprime loans. Now, the bond market has reached its peak and is ready to crash meaning all the wealthy investors are covering their assets and leaving the public and government bond market to take the massive losses when the crash comes----probably by year's end.
States like Maryland which have neo-liberals committed to wealth and profit have leveraged the state and localities in so much Wall Street credit bonds and financial instrument debt that when the crash comes----there will be nothing to do but default on all these leveraged debt deals.
THIS IS WHY O'MALLEY, RAWLINGS-BLAKE AND THE MARYLAND ASSEMBLY AND BALTIMORE CITY HALL ARE ALLOWING ALL OF THIS WALL STREET LEVERAGE AT A TIME WHEN THE ECONOMY IS STAGNANT AND GOVERNMENT COFFERS STRESSED.
The idea is that all these projects connected to these leverage bond deals will fall into the hands of the investors partnered to these deals. Everyone knows this is happening-----you politicians are deliberately setting this up. Think of all these development deals that have state and city tied to financing with credit bonds and leverage. I am told when I talk with people involved that 'these are vanilla financial deals that cannot create harm'.......OH REALLY???????? Then why is there an entire Wall Street market on Credit Default Swaps aimed specifically at bond and municipal bond investments----just as the credit default swaps at AIG that protected banks from the fraud in subprime loans.
THEY ARE DOING THE SAME THING----ONLY THIS TIME THEY ARE TARGETING PUBLIC ASSETS TO BE HANDED TO INVESTMENT FIRMS INSTEAD OF OUR HOUSES IN FORECLOSURE.
There is so much fraud and corruption in this latest scheme that I cannot address it here.....just no that when this next crash comes, the national debt will keep the Federal government from helping states this time and state economies will not be able to survive without eliminating all kinds of public assets and services/programs. Bye-bye public sector pensions and benefits! This is the plan for getting rid of almost all of public services, programs, and property assets in the state and Baltimore is the most tied to these bond schemes.
I just focus on these public school building bonds because this is the tie to taking public schools private. If you finance public school construction with these financial instruments----when the crash comes and the state and city defaults----VOILA----THE INVESTMENT FIRMS ARE HANDED OUR PUBLIC SCHOOL BUILDINGS. That won't happen I'm told----DO NOT BELIEVE IT. We know Baltimore has eliminated almost all property tax for corporations -----we know what are corporations are allowed to be called private non-profits to avoid taxes, and we know that Baltimore City Hall plans steep cuts in property taxes all of which funds our city public schools. So, it is clear that they are moving towards ending public financing of schools-----all that is left is handing these corporations the physical buildings and that is why we are financing our way to building schools rather than simply using the billions of public money available for development. Meanwhile, while the public in defaulting----the investment firms have their Credit Default Swaps just as they did with the subprime mortgage fraud.
BYE-BYE PUBLIC SCHOOL BUILDINGS------ANOTHER BAD INVESTMENT HAS WALL STREET OWNING YOUR SCHOOLS!
THIS IS ALL PUBLIC MALFEASANCE FOLKS AND ALL CITY LEADERS-----POLITICIANS KNOW WHAT IS HAPPENING NOT LEAST BECAUSE I HAVE SHOUTED TO ALL OF THEM FOR THESE FEW YEARS!
It appears that this PRAG is going to be the AIG of this municipal bond fraud as when the economy collapses this corporation will be bailed out no doubt with Credit Default Swaps but all the public projects handled by this New York based company will default and be handed to private investors. No doubt Johns Hopkins is the major shareholder in PRAG as it was in AIG and as with all the subprime loan foreclosures in the city coming into Hopkins development----so too will these public schools come into Hopkins investment.
Don't forget, School Superintendent Alonzo is the right hand of NYC Mayor Bloomberg and Wall Street and was brought to Baltimore to privatize all public schools. As you hear over and over----how can we afford these financial instruments? The point is ------WE CANNOT.
Baltimore has all the money needed to build all public schools with public money....it''s just all the public money goes to building Johns Hopkins global corporate campus and Harbor East.
ALL OF THIS IS FRAUD AND PUBLIC MALFEASANCE BECAUSE ALL INVOLVED KNOW THE ECONOMY WILL COLLAPSE AND THE STATE AND CITY CANNOT BEAR THIS DEBT!
'The Baltimore school system’s financial advisor is Public Resources Advisory Group (PRAG), a 28-year-old, New York-based company that prides itself on working exclusively for government entities so as to avoid conflicts of interest. PRAG, which also counts the Maryland Stadium Authority among its many clients, has consistently ranked among the top financial advisors in the country.
In 2010, PRAG managed 172 municipal bond issues totaling over $42 billion'.
The Money Pit The city’s half-baked $2.4 billion plan to save Baltimore’s schools may be doomed to fail before it begins
Photographs by J.M. Giordano
By Edward Ericson Jr.
Published: March 13, 2013
The Feb. 26 rally on Lawyers Mall in Annapolis made the TV news. Del. Curtis “Curt” Anderson (D-Baltimore), Baltimore City Public Schools CEO Andres Alonso, and Mayor Stephanie Rawlings-Blake were among the officials making the case for guaranteed funding to rebuild the city’s public schools.
“We’ve come up with an innovative way to try to raise money to build schools in Baltimore,” Anderson said. “This is exactly what people in Annapolis have been telling us to do for years and years.”
Andres Alonso told the crowd, “This is about you. This is about the kids. This is about the buildings they deserve—better buildings now.”
“We will not take no for an answer,” added Rawlings-Blake.
Viewers of WBAL’s nightly news broadcast saw all this, and readers of The Baltimore Sun, The Daily Record, and Patch.com got much the same story. But the details of the city’s audacious plan to replace or rebuild 136 public school buildings have garnered scant coverage during the nearly two years the plan has been in motion. And questions remain even as the legislature nears a decision on the matter.
The stakes are huge. For more than a decade Baltimore schools could hardly be mentioned without the prefix “crumbling.” Studies of the system’s facilities needs have estimated the price tag at between $2.4 billion and $2.8 billion.
That’s as much as the whole city budget, or two to three years of the school system’s operating budget. It’s also 50 times the amount of money the school system typically gets for capital improvements in a typical year.
The plan on the table would obligate the state to hand over at least $32 million to the city’s schools in each of the next 30 years as a “block grant.” Combined with money raised from the city’s controversial 5 cent bottle tax, plus several other sources, an estimated annual total of about $68 million would be amassed.
Those dollars would then be handed over to a nonprofit corporation which has not yet been chartered. That corporation, called the School Construction Authority, would then issue bonds, pledging the $68 million to pay them off.
The amount of bonds that could be raised this way: $1.1 billion.
Having a billion dollars available to renovate and build new city schools would be huge. In the words of the Jan. 8 report by the state Interagency Committee on School Construction (IAC), Baltimore City would be “implementing a construction program on a scale that is unprecedented in Maryland and would be one of the largest single-jurisdiction programs in the United States.”
But here’s the kicker: $1.1 billion is less than half of what the city says it actually needs. Within three years of receiving its unprecedented allotment of guaranteed state money, the Baltimore school system would again have to return to the legislature and other potential funders—this time with an even bigger funding request.
“It’s a huge lift, technically—and in terms of the financial thinking. . . and in public education and in the political process,” says Michael Sarbanes, executive director of the school system’s Engagement Office.
The fact that this enormous, creative, risky push for school financing would deliver just 44 percent of the school system’s minimum identified need is obvious to anyone who reads the school system’s plan or the IAC report. But it has not been featured in the media coverage of the funding drive.
Nor have these other details:
1. The latest $2.4 billion school building estimate does not include more than $100 million in furniture and fixtures that would be needed.
2. Maintenance of existing buildings during the proposed 10-year new-school build-out is predicated on doubling the school system’s bond cap from $100 million to $200 million. It is as yet unclear where the money to service those bonds would come from.
3. Given the 10-year build-out proposed, the 30-year payoff plan under discussion would actually be closer to 40 years.
“I’m not going to give you this as a definite,” Sarbanes says when asked how long the total bond payback time would be. “But if the last [bond issue] is eight years out, then. . . the point about it is, this is a long-term commitment.”
Sarbanes’ reticence is understandable. City and school officials have said little publicly about these challenges. Instead, the focus of the school board, the school superintendent, and the consortium of nonprofits called TransForm Baltimore that has been driving this policy since 2011 has been on the city school stakeholders—parents, students, teachers, and administrators—themselves.
“We asked them what should be taken into account. They told us,” says Sarbanes. “So that’s what drove it.”
This makes sense. Without presenting a united front, the city stands little chance of getting the state legislature to agree to the plan. With the school system’s users on board, hundreds of children can be bused to the capital for photo ops; those who oppose the plan can be painted as anti-kid.
And the need is undeniable. The report released last June by Jacobs Project Management, the consultant hired by the city schools to assess the damage, tells a familiar story (familiar because it is the third or fourth comprehensive study of Baltimore school facilities undertaken in the past decade or so):
Nearly a quarter of the city’s schools were built before 1946; 69 percent of the system’s 182 schools are in “very poor” condition, according to an industry-standard assessment system. Fifty schools should be replaced or scrapped altogether.
When assessed in terms of “educational adequacy,” the average city school received a grade of 55 out of 100. Fail.
More than one-third of the district’s school space was found to be unused or underutilized. As the IAC review concludes, “In every assessment conducted, City School[s] did not compare favorably with other urban districts or any of the national averages.”
As Alonso says, “This is for the kids.” And it is.
Given the obvious need to close some schools, Sarbanes says Alonso has taken special care to develop the plan around the people who are here now: “One of the principles that went into the plan, with the guidance of the school board, was that if a community was going to be experiencing the closing of their school—and that’s one of the most painful things that can happen, because schools have enormous emotional resonance—then those children would be among the first to experience a new school.”
The school system’s plan is detailed to the level of each student, and how far he or she would have to walk to school if the plan is implemented. It is a case study in the art of managing tens of thousands of diverse constituents into a broad consensus.
But the parents of city public schoolchildren, upwards of 90 percent of whom receive free or reduced-price lunches, are mostly not the people whose taxes will be tapped to pay for the plan. Those taxpayers live in the counties, where, according to the IAC report, another $12 billion or $13 billion in school building projects are awaiting funding.
Here’s what the city is asking for right now:
The “block grant” concept is derived from annual capital improvement funds the state doles out to every jurisdiction each year as the budget allows. Over the past five years, the city’s average has been less than $32 million. The legislation—HB 860 and SB 743—would lock in the city’s take at $32 million, at least. That would give the buyers of any bonds backed by the grants the assurances they need that the bonds would be paid off.
But, as the IAC notes, the state budget fluctuates with the larger economy. Dedicating $32 million to Baltimore for the next three decades might cause a squeeze if there is another recession. “Within recent memory. . . the capital budget was set at $116.5 million in FY 2004 and at $125.9 million in FY 2005 as a result of severe State fiscal constraints. During those fiscal years, annual funding for even the largest jurisdictions was reduced to well below $15 million and State approvals of planning, which represent a commitment of future funding for approved projects, were also significantly curtailed.”
Even the act of dedicating $32 million to Baltimore might cause bond rating agencies to lower the state’s own bond rating, the report says.
That brings up the question: If Baltimore’s needs are so great, why does the state not simply bond the construction directly? The answer goes to the heart of the city plan’s creativity, which is more political than economic. “It doesn’t require voter approval,” said Frank Patinella, an advocate with the ACLU of Maryland Education Reform Project, which has led the charge for the plan. “It doesn’t count against the debt limit.”
In effect, the structure of the proposed financing system is designed to mask the size and effect of the borrowing, not from government bond raters but from the taxpayers who would foot the bill.
Besides the $32 million block grant, the city is counting on no less than $8 million annually from the bottle tax, plus its own general fund contribution of $15 million, which is also styled as a block grant. Gambling funds are included at $4 million, even though the casino in question is as yet unbuilt and the existing Hollywood casino in Perryville, citing market conditions, just won the right to reduce the number of slot machines by 23 percent. The final $7 million would come from an accounting change involving city retiree health benefits. The details of this are unclear in the documents City Paper has reviewed. Sarbanes was not able to explain it, except to say that the change will result in an additional $7 million in funding at first, and that will probably increase over time to $11 million.
As late as June of last year, the bottle tax and other city revenue were going to be combined to float a $300 million bond by the city itself to fund school construction. That plan, unveiled in November 2011 by Mayor Rawlings-Blake, was overtaken by the more ambitious—and four-times-more expensive—plan on the table today.
Under the current plan, $66 to $69 million a year would be handed over to the Construction Authority, an entity which does not yet exist. The authority—like the Stadium Authority—would be quasi-governmental, run by political appointees and accountable to the government via annual internal audits and a state legislative audit every six years.
The Authority would implement the school system’s 10-year-plan, says Sarbanes, and school system officials would “act as an agent to the Authority.” When disputes arise between what the school system wants and what the Authority’s bosses think best, someone—it has not yet been decided who—would get to make the decision. “The details have to get worked out,” Sarbanes says.
The Construction Authority is part of the system needed to remove these bonds from the state’s balance sheet. It would also, in theory, remove direct control of billions of borrowed dollars from the school system itself, which has over decades developed a reputation for incompetence and corruption.
Between 2004 and 2008, 11 city school maintenance and facilities employees were criminally convicted in a corruption scheme that had operated since at least 1991. One contractor, Gilbert Sapperstein of Allstate Boiler Service, was sentenced to 18 months in prison for his part in a bribery and kickback scheme involving Rajiv Dixit, then-head of the school system’s facilities maintenance program. Millions of dollars were stolen.
Sapperstein—a longtime vending machine operator and generous political donor—served only one month in prison. The heating and air conditioning systems AllState never fixed have all along been cited as evidence of underfunding and the need for hundreds of millions in repairs and upgrades.
Sarbanes prefers not to dwell on this history. “I don’t have a 10-year perspective,” he says, stressing the improvements to the city’s facilities maintenance section that have been made in recent years. “They do good work and at a high quality. . . the big problem for years and years and years was that we didn’t have a strategy that would address the real underlying problem, which was that the buildings were deteriorating.”
In its 2006 audit of the city school system, the Office of Legislative Audits made “23 recommendations covering virtually every financial management area reviewed,” according to that 109-page document’s introduction. “The areas where more significant problems were identified included procurement, facilities, inventory control, transportation services and payroll/human resources,” the audit said, adding that the city school system’s “management must develop a plan and related strategies for addressing these audit issues, including mechanisms to monitor the progress of implementing corrective actions.”
The next audit, released just six months ago, found “Competitive Procurement Policies Were Not Always Followed,” continuing problems with procurement procedures on “two large contracts,” overpayment for overtime and leave, missing computers, and said the district “Did Not Ensure Contractors Had Properly Completed Maintenance Projects Prior to Payment,” among the 26 findings it reported.
And this: “A Long-Term Facilities Master Plan Was Not Prepared.”
David G. Lever, executive director of the Interagency Committee on School Construction, says he is confident in the school system’s abilities today. “As you know, the school system has improved very much in facilities management since 2005,” he says in a phone interview. “With new management—particularly Mr. [J. Keith] Scroggins and his crew—we have seen a significant improvement in the way the facilities are managed.”
Lever’s confidence had better be well-placed. Under the proposal on the table now, Baltimore City Public Schools would increase its staff of building professionals from the current 14 to about 34. “An additional 5 FTE’s [that’s full-time employees] would work directly for the Authority,” the IAC report says.
Even with all those extra bodies, Baltimore City’s staff would number 10 fewer than that of the Montgomery County school system, which manages about $250 million worth of capital projects each year—$20 million less than Baltimore would be handling annually if its plan is approved.
Under the plan, then, Baltimore projects itself to be significantly more competent and efficient than Montgomery County.
“They don’t have the breadth or the depth in the system yet,” Lever acknowledges. “It will take some time to build up to that level.”
Baltimore’s plan is modeled on a school building frenzy undertaken last decade by Greenville, S.C., a county of 461,000 souls that in 1993 was blessed by the arrival of a $450 million BMW factory. Tire giant Michelin also expanded there after buying out rival BF Goodrich in 1989. And General Electric, the area’s largest employer, builds turbines and aviation equipment there. The well-paying jobs have attracted thousands of young families and the county did not see how its school system could keep up with the demand.
In 1999 the Greenville school board developed a plan to take about $60 million and borrow about $800 million to build or renovate 86 schools in four years. The plan ended up taking about six years and finished 70 schools to serve its 70,000 students—at a cost of $1.06 billion. Despite the overruns, it has been touted as a huge success by the consultants involved —even though the state of South Carolina has, in the words of the IAC report, “modified the conditions for the further use of this method.”
Greenville and Baltimore City could hardly have less in common. Greenville is 77 percent white; Baltimore City is 32 percent white. Greenville’s household income is 7 percent above the state average; Baltimore City’s is 45 percent below. Greenville is a growing county with an expanding industrial base (in 2012, Michelin announced it would build a new $750 million factory nearby); Baltimore is losing population and industrial jobs.
Where Greenville built its schools to keep up with demand, Baltimore wants to build its schools in order to create demand—the construction jobs standing in for the tire and car-making jobs Greenville has. “There would also be a significant impact on these neighborhoods where this construction is going on which will be very helpful to the goal of growing the city,” Sarbanes says.
One thing Baltimore does have in common with Greenville is the desire to get around existing laws limiting debt. Greenville’s bonding authority had been capped to 8 percent of its tax base by the South Carolina constitution. As one of the Greenville school board members wrote: “The constitutional debt limit does not apply because the nonprofit is an independent legal entity.” The structure also sidestepped a law forbidding lease-purchase arrangements.
Brent Jeffcoat, then bond counsel to the Greenville school board, blessed the structure as “legal.” Last summer, officials with TransForm Baltimore, the consortium of nonprofits that is nominally driving this process, flew Jeffcoat to Baltimore to solicit his advice. Jeffcoat is one of several consultants that the Baltimore is counting on to help structure the deal.
The Baltimore school system’s financial advisor is Public Resources Advisory Group (PRAG), a 28-year-old, New York-based company that prides itself on working exclusively for government entities so as to avoid conflicts of interest. PRAG, which also counts the Maryland Stadium Authority among its many clients, has consistently ranked among the top financial advisors in the country.
In 2010, PRAG managed 172 municipal bond issues totaling over $42 billion.
Every deal PRAG structures is different, but the school bond concept bears similarity to a much smaller deal the company facilitated in 2006—right down to the concern about political fallout.
In 2006, as the facts of the 1990s utility deregulation fad came clear, Baltimore Gas and Electric demanded—and the Public Service Commission approved—a 72 percent rate increase. Collecting it all at once would have caused an electoral revolt, so government and utility officials called on PRAG founders William W. Cobbs and Wesley C. Hough to stamp their approval on some structured finance magic.
Testifying before the PSC, Cobbs and Hough’s expertise allowed the PSC to approve the scheme in which BGE would issue the bonds through a shell corporation so as to “insulate the bond investor from the credit risk of the company.”
In that deal, BGE “sold” its right to collect the huge rate increase to a new corporate entity—RSB BondCo LLC—which then took the ratepayers’ money as collateral for long-term bonds it issued. BondCo then forked over the borrowed cash upfront to the utility.
This way, ratepayers had only to pay a 15 percent increase up front, and BGE still got its windfall. Bond investors got a steady stream of income, and Governor Martin O’Malley was able to claim that he reduced the impact of the unavoidable rate increase.
All this was done and all true, despite the fact that the scheme increased overall costs from about $600 million to more than $800 million, including $11 million paid in “bond issuance fees.”
In 2012 Baltimore County called upon PRAG to bless a scheme to finance with bonds a projected $250 million pension shortfall by borrowing that sum at 4.25 to 4.5 percent interest and investing it elsewhere. This is supposedly going to save big money down the line, as the money raised earns a bigger return for years before it is disbursed to retirees.
It’s rather like a homeowner taking out a second mortgage to play the stock market: It might get him a big boat or it might put him into foreclosure.
As Keith Dorsey, Baltimore County’s director of budget and finance, writes on Baltimore County’s website (with Cobbs as a co-author): “In the opinion of the County’s financial advisor, Public Resources Advisory Group, based upon preliminary discussions with credit analysts, the POBs [pension obligation bonds] will not negatively impact the County’s Triple AAA bond ratings although there has been no formal confirmation from the rating agencies.”
PRAG has fewer than 50 people on staff and wears its white hat with pride. As the company boasts on its website: “We are not, and have never been, the subject of an investigation.”
About the TransForm Baltimore plan, the first $1.1 billion round of funding still awaits a vote. Much is still to be determined—from the makeup of the proposed Construction Authority, to who makes the decisions when budget and philosophy clash, to the big question of where the second round of financing—at least $1.4 billion—would be found.
“We’re gonna have to figure out where does the rest of the money come from,” Sarbanes says. “But at that point, we’re going to have more experience, we’re going to have momentum, and we’re going to have a proof that doing [it] this way is good for the kids and good for the city.”
“Throughout the construction phase, we’re going to see cost escalation,” Frank Patinella acknowledges. “We don’t know what the bond market is going to look like. But we know that if we wait, it is going to cost more.”
“At this point, I would have to say that I don’t have a full grasp of the details of how this would be financed,” David Lever says. “Stage two is not completely clear to us either.”
In a previous version of this story, the 13th paragraph quoted Michael Sarbanes saying "“It’s a huge risk, technically..." Mr. Sarbanes claims the reporter mis-heard him and that he said "It’s a huge lift, technically..." The story has been changed to reflect that.
Remember, round two of the massive movement of money to the top by fraud and corruption involves the next massive economic collapse coming probably by the end of this year. I have shouted about this for years and all politicians know this collapse is coming. Neo-liberals are loading their states with so much leveraged credit bond deals-----the US Treasury is loaded with connections to leveraged bond deals----that when this collapse occurs it will take the entire public sector down. So, states like Maryland that have a governor O'Malley and General Assembly tying the state to a maxed credit bond and leverage amount----even having to get special permission to max leverage even more........and Baltimore that is built on nothing but credit bond and leverage deals......will see massive public defaults with the private investors in these deals taking all the public assets tied to these deals. In Baltimore, that is the public school building for one with all those public schools handed to private investment firms. This is deliberate folks----it is simply round two of -----moving all wealth to the top in the US!
The Coming Epic Collapse of the Bond Bubble
Submitted by Phoenix Capital Research on 01/08/2014 00:25 -0400
inShare2 In the 1960s every new $1 in debt bought nearly $1 in GDP growth. In the 70s it began to fall as the debt climbed. By the time we hit the ‘80s and ‘90s, each new $1 in debt bought only $0.30-$0.50 in GDP growth. And today, each new $1 in debt buys only $0.10 in GDP growth at best.
Put another way, the growth of the last three decades, but especially of the last 5-10 years, has been driven by a greater and greater amount of debt. This is why the Fed has been so concerned about interest rates.
You can see this in the chart below. It shows the total credit market outstanding divided by GDP. As you can see starting in the early ‘80s, the amount of debt (credit) in the system has soared. We’ve only experienced one brief period of deleveraging, which came during the 2007-2009 era.
Bernanke's Fed couldn’t stomach this kind of deleveraging. The reason is simple: those who have accumulated great wealth as a result of this system are highly incentivized to keep it going.
The Fed doesn’t talk to you or me about these things. It calls Goldman Sachs or JP Morgan. And most of the Wall Street wealth of the last 30 years has been the result of leverage (credit growth). Take away credit and easy monetary policy and a lot of very “wealthy” people suddenly are not so wealthy.
Let me put this in terms of real job growth (created by startups) vs the “job growth” of the last five years.
According to the National Bureau of Economic Research, startups account for nearly all of the US’s net job creation (total job gains minus total job losses). And smaller startups have a very different perspective of debt than larger more established firms.
The reason is quite simple. When a small business owner takes out a loan he or she is usually posting personal assets as collateral (a home, car or some other item). As a result, the debt burden comes with the very real possibility of losing something of great value. And so debt is less likely to be incurred.
This stands in sharp contrast to a larger firm, which can post collateral owned by the business itself (not the owners’ personal assets) and so feels less threatened by leveraging up. Thus, in this manner, QE and other loose monetary policies maintained by the Fed favor those larger firms rather than the real drivers of job creation: smaller firms and startups.
For this reason, the Fed’s policies, no matter what rhetoric the Fed uses, are more in favor of the stock market than the real economy. That is to say, they are more in favor of those firms that can easily access the Fed’s near zero interest rate lending windows than those firms that are most likely to generate jobs: smaller firms and start-ups.
This is why job growth remains anemic while the stock market has rallied to new all-time highs. This is why large investors like Bill Gross have applauded the Fed’s policies at first (when the deleveraging was about to wipe him out in 2008), but then turned against them in the last few years as a political move. This is why QE is so dangerous, because it increases concentration of wealth and eviscerates the middle class.
Guys like Warren Buffett or Larry Ellison of Oracle can take advantage of low interest rates to leverage up, acquiring more assets (that can produce income) by posting their current assets as collateral (Ellison commonly “lends” shares in Oracle to banks in exchange for bank loans).
Cheap debt is useful to them because the marginal risk of taking it on is small relative to that of a normal individual investor who would have to post a needed asset (his or her home) as collateral on a loan to leverage up.
This system works as long as debt continues to stay cheap. However, in the last 12 months the Fed has definitively crossed the point of no return with its policies. It is not just a matter of timing before this debt bubble bursts.
Keep in mind that the Moody's giving this AAA rating is the same Moody's at the center of the subprime mortgage fraud guilty of fraud for rating those loans AAA while knowing they were junk. Nothing happened to Moody's =====it is still operating as it did......giving businesses the rating they want.
So, Maryland is maxed to the gills in bond sales and leverage and here we are-----even as almost all financial analysts and government watchdogs are saying a crash WILL HAPPEN -----O'Malley getting the state debt into a crashing bond market.
Remember, it was O'Malley that was center to the subprime mortgage fraud in Baltimore and it was O'Malley along with Kopp involved in throwing public sector pensions from the then safety of the bond market into the stock market in 2007 just before that market crashed------public malfeasance causing public pensions to lose 1/2 of their value. They knew then the stock market was going to crash just as they know now the bond market is going to crash. These Wall Street pols are openly throwing the public under the bus because they think
NO POLITICIAN WILL BE ELECTED TO HOLD THEM ACCOUNTABLE. WITH THE LEVEL OF CORRUPTION IN MARYLAND ELECTIONS----
Ask yourself-----how can Moody's project fiscal security when most analysts are predicting this massive econom
Md. Retains Triple AAA Bond Rating, To Sell $750 Million of General Obligation Bonds
Posted on February 26, 2014
ANNAPOLIS (February 19, 2014) -- Maryland State Treasurer Nancy K. Kopp announced today that all three bond rating agencies have re-affirmed the State's strong AAA bond rating in preparation for the upcoming competitive sale of State Bonds on Wednesday, March 5, 2014.
Maryland is one of now ten states* to hold the coveted AAA rating, the highest possible rating, from all three major bond rating agencies. Standard and Poor’s has rated the bonds AAA since 1961. Moody’s Investors has assigned the bonds a rating of Aaa since 1973, and Fitch Ratings has rated the bonds AAA since 1993.
Treasurer Kopp said, “Today’s news of Maryland receiving AAA ratings from the three major bond rating agencies is an acknowledgement of Maryland’s strong, stable and prudent financial management and overall fiscal strength. We are pleased the rating analysts recognize the contribution of Maryland’s diverse economy, our well-educated workforce, and above-average wealth and income levels to the overall quality of an investment in Maryland.”
“Retention of the Triple AAA ratings allows us to continue to save millions of taxpayer dollars resulting from the lower interest rates achieved because of these ratings,” Treasurer Kopp said.
Fitch, in assigning its AAA rating and stable outlook, said: “Debt oversight is strong and centralized, and the debt burden is moderate. The state has policies to maintain debt affordability, and the constitution requires GO [General Obligation] and transportation bonds to amortize within 15 years.”
Fitch Ratings further said: “Financial operations are conservative, with the state consistently demonstrating a strong commitment to budgetary balance through the downturn, including through repeated spending cuts, fund balance transfers and revenue increases. The state has also maintained flexibility in the form of its rainy day fund (RDF), which remained funded at or near 5% of general fund revenues through the downturn.”
Moody’s, in explaining its Aaa rating and stable outlook said: “The highest quality rating reflects Maryland’s strong financial management policies and stable economy with high personal income levels. The rating also acknowledges the state’s above average debt burden and large unfunded pension liabilities relative to the size of its economy.” Moody’s also noted that “Consistent with its history of strong financial management, the state has been appropriately addressing its structural budget gap and pension funding concerns even under pressure from federal budget reductions.”
In assigning its ‘AAA’ long-term rating and stable outlook, Standard & Poor’s said: “The rating reflects what we view as the state’s: Broad and diverse economy, which has experienced tepid recovery due to sequestration and federal fiscal policy uncertainty; we expect growth to accelerate due to resolution of certain federal budget and fiscal issues; High wealth and income levels; Long history of proactive financial and budget management, including implementation of frequent and timely budget adjustments to align revenues and expenditures; Well-developed financial and debt management policies including long-term financial planning that should be helpful in addressing future budget challenges; and Moderate debt burden, which we expect to continue due to a clearly defined debt affordability process that limits annual issuance, coupled with a constitutional 15-year debt maturity schedule.”
Standard and Poor’s further stated: “The stable outlook on Maryland reflects our view of the state’s proactive budget management in recent years and the economic recovery underway, which has stabilized revenues.”
All three rating agencies praised Maryland’s history of strong, sound financial management. Standard & Poor’s assigned a rating of “strong” to Maryland’s management practices, noting that “…Maryland has made continuing efforts to institutionalize sound financial management practices. …the state’s use of a five-year financial plan, which is updated annually with the adopted budget, provides the basis for future fiscal decisions and recognizes future fiscal year gaps. Monthly monitoring and reporting of key revenues allows the state to make midyear financial adjustments, if necessary, to maintain balance. Maryland has consistently maintained its statutory RSF (Revenue Stabilization Fund) at or above its legal minimum of 5% of revenues.”
Each rating agency recognized Maryland’s ability to manage despite serious federal budget cuts. S&P noted “While federal fiscal policy remains a challenge to the state’s budget and long-term financial plan, we believe that Maryland continues to actively monitor developments and has options to mitigate this risk based on its well-developed budget policies and financial reserves.” Fitch indicated “Sound fiscal management practices and the consistent maintenance of fiscal flexibility, including in the form of budgetary reserves, provide the state with significant ability to respond to near-term economic or fiscal conditions, such as federal budget reductions, in a manner consistent with the ‘AAA’ rating.”
Each of the rating agencies recognized significant pension funding challenges as well as reforms enacted over the past three years. Moody’s indicated “[l]ow retirement system funded levels” represent a credit challenge for the state and “[f]ailure to adhere to plans to address low pension funded ratios” could make the rating go down. Fitch Ratings noted “Despite pensions being a comparative credit weakness, the state has taken multiple steps to reduce the burden of pensions.” While acknowledging that “[b]ased on the reforms…, the state’s actuary projects that the system will be 80% funded by 2024 and full funding will be achieved by 2039”, S&P indicated “[t]he state’s below-average pension funded ratios continue to represent downside risk to the rating.”
The bond sale will include three competitive bids which are expected to be sold to institutions. The sale will include $450 million of tax-exempt bonds, $50 million of taxable bonds, and approximately $250 million of tax-exempt refunding bonds. This offering will not include the direct retail sale of bonds given the market’s low interest rates and the commensurate lack of demand by the public for this type of investment.
As has always been the case with the issuance of Maryland’s tax-exempt General Obligation Bonds, the State uses the proceeds to finance necessary capital projects, such as schools, community colleges, university projects and hospitals.
The Maryland Board of Public Works, composed of Governor Martin O’Malley, Comptroller Peter Franchot and Treasurer Kopp, will preside over the competitive bond sale on Wednesday, March 5, 2014 in the Assembly Room in the Goldstein Treasury Building in Annapolis.
The Maryland State Treasurer’s Office expects to conduct another bond sale in July or August 2014.
* The other nine states with AAA ratings from all three rating agencies are Alaska, Delaware, Georgia, Iowa, Missouri, North Carolina, Texas, Utah, and Virginia.
Source: Maryland State Treasurer Nancy K. Kopp
GOVERNOR O'MALLEY RELEASES STATEMENT ON MARYLAND'S TRIPLE AAA BOND RATING RETENTION
ANNAPOLIS (February 20, 2014) -- Governor O'Malley today issued the following statement in response to Maryland's Triple AAA bond rating retention from all three major ratings agencies:
“The top bond rating agencies reaffirmed Maryland’s AAA bond rating, once again showing that our fiscally-responsible approach to governing is working."
"Since 2007, together we’ve cut over $9 billion in spending, shrank the executive branch to the smallest per capita levels since the 1970s, and put our state on the verge of eliminating the $1.7 billion structural deficit we inherited."
"We’ve done all this while investing record amounts in schools, which has led to the #1 rated public schools in America. We’ve invested in college affordability, and the College Board says we’ve done more than any other state to hold down the cost of college tuition. We’ve invested in public safety, and, together with law enforcement, we’ve driven down violent crime to 30 year lows."
"Our better choices have led to better results. And today, Maryland has secured its position as one of only ten states to hold the Triple AAA rating from all three rating agencies, and one of only seven states to maintain that rating through the Great Recession.” Headline News Main Page
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