By Dave Anderson:
One of the big questions for the next couple of years in public sector finance, is the status and ability of local governments, authorities, taxing bodies and districts to pay back their debts. The big question is simply one of revenue; most of the common local taxes (income, property, car rental, excise etc) have either flatlined or fallen in both real and nominal terms. This means sub-state units of government will be facing a question of whether or not they are able to maintain basic services from a much smaller proportional piece of the pie as their fixed debt service costs eat up a higher percentage of the total available revenue.
The second big question is one of high finance and fraud. What are the interest rate swaps, derivatives and "innovative financing mechanisms" out there, and what are their downsides? Interest rate swaps have already claimed one significant victim in Alabama, and could claim a few more in Pennsylvania. The interesting tidbit is that most of these swaps could be products of investment banker fraud and exploitation. The Wall Street Journal reports:
More than a dozen banks and investment firms are suspected co-conspirators in a criminal probe by the Justice Department's Antitrust Division into alleged bid rigging and price fixing in the municipal financing market, according to a court filing...
The banks and investment firms include units of J.P. Morgan Chase & Co., UBS AG, Citigroup Inc., Wells Fargo & Co., Bank of America Corp., General Electric Co., Lehman Brothers Inc. and Societe Generale. None of the alleged co-conspirators have been accused of criminal wrongdoing.
Some of the banks were cited as being investigated in the matter in an article last year in The Wall Street Journal, which also reported UBS and Bank of America were trying to settle a related Securities and Exchange Commission investigation.
Time to crack down on the looters.
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