Self Wheeling and Dealing

Bailout mania has come to define our way of life. The political class benefits by making deals. With the Community Reinvestment Act, people who could not repay mortgage obligations were given loans which they could not pay back. These loans were backed by the federal government, and now everyone pays. In Detroit, the Big Three automakers had a cozy deal. Management doesn't carp about benefits conferred upon the UAW workers, if the union didn't carp about executive compensation. Politicians, wishing to assure a union vote, want to preserve the system and in addition, force Detroit to make and manufacture "politically correct automobiles."

The only problem with this utopia is the fact that folks stopped buying american cars. And then one cold November morning we find out that our auto industry will collective fail to make payroll. We get the dire news that we need to bail out the auto industry or else 'bad things will happen."

Now we see bailouts and governmental failures throughout the country. Even governments are going broke. Phoenix, Philadelphia, and Atlanta also have their hands out for some of that mad money. http://www.getmoneyenergy.com/2008/11/municipal-bailouts-phoenix-philadelphia-atlanta/ These three municipal bailouts auger future disasters.

What is the anatomy of a municipal bailout? It pretty much starts with the toleration of corruption by our print media. Usually it takes the form of a newspaper liking the ideology of one political party (say the Democrats) and wishing to create stars out of pieces of human dreck. Eliot Spitzer is one politician who immediately comes to mind. If there was ever an intemperate blow hard it was Pimp Daddy Eliot. He threatened media people on the Sean Hannity Show.

Spitzer showed his pimp hand to Wall Street chasing frivolous cases, while the real crooks were apparently robbing us blind. Amazing. I bet Eliot Spitzer and Bernard Madoff hit alot of the same people for campaign contributions and investments, respectively. And good ole E Spitzer somehow never caught Madoff and his "Ponzi" Scheme, which largely defrauded people who were not unlike the former disgraced Governor's parents.

But Eliot Spitzer was "Pro-Choice," so he must be a nice lad who respects women. This kind of thinking, of course, is killing us.

What is the anatomy of a municipal collapse? Nassau County, New York offers a fine laboratory for this. Nassau has certain unique issues, like its inability to correctly assess property value for real estate tax purposes, which has created huge public sector debt under successive Republican (Gulotta) and Democratic (Suozzi) Administrations. A failure to negotiate successfully with collective bargaining units to contain labor costs is the next failure, one which I suspect is an accident done on purpose.

Long Island Newsday has been a cheerleader for County Executive Tom Suozzi, an ambitious politician who ran an unsuccessful primary against Eliot Spitzer in 2006, where he garned less than 20% of the vote. Nevertheless, a recent Newsday Editorial has come to criticize Mr. Suozzi's recent handling of negotiations with the collective bargaining units. http://www.newsday.com/news/opinion/ny-vpnas285979133dec28,0,1281915.story

The Newsday editorial is interesting both in what it said and what it did not say. The editorial board fails to discuss the recent soft negotiation tactics in light of the pay raise that the County Executive achieved for himself and key staffers only last year. So, without the true moral authority to lead by example, Suozzi enters negotiations with the CSEA, the county's largest collective bargaining unit, after soft deals were already in place for himself, his cronies, and the police unions. It also happens that 2009 is an election year for the Nassau County Executive, all county wide offices (DA and Clerk), and the entire Nassau County Legislature. So folks have to be taken care of if they are to attend lavish golf fundraisers, if they are going to be counted on to carry nominating petitions (or to refrain from supporting a primary insurgent), or if they are angling for some kind of "benefit." Appointed people want raises. Appointed people want promotions. Appointed people tend to have their benefits piggy-backed along with the union people.

So, what happens in a year where it is highly likely that sales tax receipts will lower than average? And what happens when real estate taxes should decrease theoretically due to lower property value assessements?

Everyone gets a raise!

Folks get to keep full and free medical benefits. The Union makes one small concession which really isnt a concession. Nassau County government has a few "husband/wife" teams on the payroll. It use to be that both spouses enjoyed full and free medical coverage, even if both had duplicative family coverage. Under the new agreement, the County gets to terminate the benefits for one spouse, but gives a $2000 per annum buy back to the spouse who gives up his benefits.

Contrast Tom Suozzi to a real municipal chief executive - the Great Rudolph Guiliani. Guiliani negotiated tough with the collective bargaining units, including the PBA which was so annoyed with how tough Guiliani was that it endorsed Ruth Messinger, an ultra-liberal Manhattanite who would not exactly be the choice of rank in file police officers. Rudy risked a huge constituency's support to do what he thought was best for the City and its taxpayers. Arguably, what applies to Suozzi also applies to George Pataki when he was Governor of New York. Pataki made numerous concessions to the UFT and the health care unions which were not the best for New York State, but which assured his re-election.

So - the anatomy of a fiscal bailout is this - Management, either public or private, leaps into bed with a unionized workforce. This arrangement benefits certain politicians who gain votes from union members, and campaign contributions from the big wigs.

The politician can either can count on full union volunteer support, or gain the "neutrality" of a key opposition voting block, as when the UFT stayed Neutral in George Pataki's successful race in 2002. They did not back the Democratic, and did not aid his campaign efforts, when normally they would. Also, think how many UAW votes went to politicians who were friendly to the bailout. Bailout money adds a corrupt dimension of aiding failing and failed private and governmental enterprises, preserving the status quo. Eventually, no matter how many times artificial attempts are made to preserve corrupt institutions, the market will prevail.

The same of course could be said for the Financial Sector bailout. The Community Reinvestment Act encouraged lending to high risk borrowers, as did activism from groups like ACORN, "red lining" litigation against lenders by the Janet Reno Justice Department, and the efforts of HUD under the stewardship of Andrew Cuomo. Congressional watchdogs like Christopher Dodd and Barney Frank assured us that everything was ok with Freddie and Fannie and that no meltdown was expected, until it came. Even more ironic is the large number of mortgaged properties which had been purchased by investors instead of homeowners, and the housing glut we face with abandoned units which still have a high sticker price, but which nobody can buy.

Few -if any - of our political leaders want to take the long hard look necessary to fix these now systemic problems, which become permanent.