Cities find the fine print is costing millions
Local governments fork over billions in fees on investments gone bad

http://www.msnbc.msn.com/id/34067419/ns/business-businessweekcom
By Theo Francis, Ben Levisohn, Christopher Palmeri and Jessica Silver-Greenberg
updated 1:18 p.m. ET, Sun., Nov . 22, 2009

Detroit Mayor Dave Bing is struggling to save his city from fiscal calamity. Unemployment is at a record 28 percent and rising, while home prices have plunged 39 percent since 2007. The 66-year-old Bing, a former NBA all-star with the Detroit Pistons who took office 10 months ago, faces a $300 million budget deficit — and few ways to make up the difference.

Against that bleak backdrop, Wall Street is squeezing one of America's weakest cities for every penny it can. A few years ago, Detroit struck a derivatives deal with UBS and other banks that allowed it to save more than $2 million a year in interest on $800 million worth of bonds. But the fine print carried a potentially devastating condition. If the city's credit rating dropped, the banks could opt out of the deal and demand a sizable breakup fee. That's precisely what happened in January: After years of fiscal trouble, Detroit saw its credit rating slashed to junk. Suddenly the sputtering Motor City was on the hook for a $400 million tab.

During late-night strategy sessions, Joseph L. Harris, Detroit's then-chief financial officer, scoured the budget for spare dollars, going so far as to cut expenditures on water and electricity. "I figured the [utility] wouldn't turn out our lights," says Harris. But there wasn't enough cash, and in June the city set up a payment plan with the banks.

Now Detroit must use the revenues from its three casinos — MGM Grand Detroit, Greektown Casino, and MotorCity Casino — to cover a $4.2 million monthly payment to the banks before a single cent can go to schools, transportation, and other critical services. "The economic crisis has forced us to move quickly and redefine what services a city can and should provide," says Bing. "While we face a tough road ahead, I believe we're on the right path." UBS declined to comment.

Detroit isn't suffering alone. Across the nation, local governments and related public entities, already reeling from the recession, face another fiscal crisis: billions of dollars in fees owed to UBS, Goldman Sachs and other financial giants on investment deals gone wrong.

Wall Street promised big, with small print
The seeds of this looming disaster were sown during the credit boom, when Wall Street targeted cities big and small with risky financial products that promised to save them money or boost returns.

Investment bankers sold exotic derivatives designed to help municipalities cut borrowing costs. Banks and insurance companies constructed complicated tax deals that allowed public utilities, transit authorities, and other nonprofit organizations to extract cash immediately from their long-term assets. Private equity firms, pointing to stellar historical gains, persuaded big public pension funds to plow billions of dollars into high-cost investments at the peak of the market.

Many of the transactions shared a striking similarity: provisions that protected the banks from big losses and left the customers on the hook for huge payouts.

Now, as many of those deals sour, Wall Street is ramping up its efforts to collect from Main Street.

"The banks stuffed customers with [questionable investments] and then extorted money from the customers to get rid of them," says Christopher Whalen, managing director at research firm Institutional Risk Analytics.

The New Jersey Transportation Trust Fund Authority, for instance, must pay nearly $1 million a month at least until December 2011 to Goldman Sachs on derivatives deals tied to municipal debt—even though the state retired the debt last year.

The Chicago Transit Authority, having entered into complex arrangements to lease its equipment to outside investors and then lease it back, could face termination fees of $30 million. The investors could collect penalties because American International Group, which backed the arrangement, has seen its credit rating tumble. "These [sorts of deals] are potentially huge liabilities," says Stanford Law School's Joseph Bankman. "Investors aren't going to be settling for chump change." Goldman Sachs declined to comment.

The Washington establishment suffers a serious defeat
Approval of the Paul/Grayson bill to audit the Fed is both rare and important in several ways

Glenn Greenwald

Nov. 20, 2009 |

Something quite amazing happened yesterday in Congress: the House Finance Committee -- in a truly bipartisan and even trans-ideological vote -- defied the banking industry, the Federal Reserve, the Democratic leadership, and mainstream Beltway opinion in order to pass an amendment, sponsored by GOP Rep. Ron Paul and Democratic Rep. Alan Grayson, mandating a genuine and probing audit of the Fed. The Huffington Post's Ryan Grim has the best account of what took place, noting:

In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.

Grim details how key Committee Democrats such as Frank -- who spent the year claiming to support an audit of the Fed in the face of rising anger over its secret and bank-subservient policies -- suddenly introduced their own amendment (sponsored by Democratic Rep. Melvin Watt) that would have essentially gutted the Paul/Grayson provisions. Banking industry and Fed officials, as well as the Democratic leadership, then got behind that alternative provision as a means of pretending to support transparency while protecting the Fed from any genuine examination. Notwithstanding the pressure exerted on Committee Democrats to support that watered-down "audit" bill, Grayson convinced 15 of his colleagues to join with Republicans to provide overwhelming support for the Paul/Grayson amendment. As Grim notes:

[Frank] urged a no vote, yet 15 Democrats bucked him, voting with Paul. Key to winning Democratic support was a letter posted early Thursday from labor leaders and progressive economists. The letter, organized by the liberal blog FireDogLake.com, called for a rejection of the Watt substitute and support for Paul.

Grayson was able to show Democratic colleagues that the liberal base was behind them.

"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards.

The bill still faces substantial hurdles in becoming law, of course, but yesterday's vote has made that outcome quite possible, and it's worth noting several important points highlighted by what happened here:

(1) Our leading media outlets are capable of understanding political debates only by stuffing them into melodramatic, trite and often distracting "right v. left" storylines. While some debates fit comfortably into that framework, many do not. Anger over the Wall Street bailouts, the control by the banking industry of Congress, and the impenetrable secrecy with which the Fed conducts itself resonates across the political spectrum, as the truly bipartisan and trans-ideological vote yesterday reflects. Populist anger over elite-favoring economic policies has long been brewing on both the Right and Left (and in between), but neither political party can capitalize on it because they're both dependent upon and subservient to the same elite interests which benefit from those policies.

For that reason, many of the most consequential political conflicts are shaped far more by an "insider v. outsider" dichotomy than by a "GOP v. Democrat" or "Left v. Right" split. The pillaging of America's economic security by financial elites, with the eager assistance of the government officials who they own and who serve them, is the prime example of such a conflict. The political system as a whole -- both parties' leadership -- is owned and controlled by a handful of key industry interests, and anger over the fact is found across the political spectrum. Yesterday's vote is a very rare example where the true nature of political power was expressed and the petty distractions and artificial fault lines overcome.

(2) As Grim expertly describes, the effort to defeat the Paul/Grayson amendment came from all of the typical Washington power centers using all of the establishment's typical manipulative tools:

The playbook in Washington often goes like this: When a measure that threatens the establishment builds enough momentum that it must be dealt with, it is labeled as "unserious." The Washington Post editorial board, true to the script, called Paul's measure "an unserious answer to a serious question."

And it particularly rankles the center that a pair of "wingnuts " [Paul and Grayson] are behind a successful effort to challenge the prevailing order.

Step Two is for a "serious" compromise to be offered. In this case, it was Watt's amendment. But by the time the vote was called Thursday afternoon, committee members had seen through his measure, recognizing that it was not a compromise effort to bring real transparency to the Fed but an attempt to further shut the doors.

One can count on one hand the number of times that establishment attacks like this fail, but this time -- at least for now -- it did. And it reveals a winning formula: where there is a strong and principled leader in Congress willing to defy the Party's leadership and the Washington establishment (Grayson), combined with leading experts lending their name to the effort (economists Dean Baker and James Galbraith), organizations standing behind it (labor groups), and a shrewd and driven organizer putting it all together (FDL's Jane Hamsher), even the most powerful forces and opinion-enforcers can be defeated, as they were here. Those progressive advocates' refusal to be distracted by trite partisan considerations, and their reliance on substantial GOP support to pass the bill (as hypocritical as the GOP's position might have been), was particularly crucial -- and smart.

(3) Beyond the specifics, a genuine audit of the Fed would be a major blow to the way Washington typically works. The Fed is one of those permanent power centers in this country that exert great power with very little accountability and almost no transparency (like much of the intelligence and defense community). The power they exert has exploded within the last year as a result of the financial crisis, yet they continue to operate in a completely opaque manner and with virtually no limits. Its officials have been trained to view their unfettered power as an innate entitlement, and they express contempt for any efforts to limit or even monitor what they do.

In other words, the Fed is a typical Washington institution that operates un-democratically and in virtually total secrecy, and a Congressionally-mandated audit that they (and much of the DC establishment) desperately oppose would be a serious step towards changing the dynamic of how things function. At the very least, it would provide an important template for defeating the interests which, in Washington, almost never lose. At least yesterday, those interests did lose -- resoundingly -- and the importance of that should not be overlooked.

Health Care Reform Bill Bad For Small Businesses.
http://www.youtube.com/watch?v=DkWAJsyfTv4

Stacey Lewis, Natasha Johnson and Yolando Mitchell Brown discuss the possible affects Health Care Reform will have on small business. Why health-care reform might be bad for small businesses? What will the impact mean for jobs?
http://www.everywaywoman.com/

MUST WATCH: Glenn Beck And The Dollar Carry

Love him or hate him, he got this one almost competely right, and explained it in terms anyone can understand.

TAKE THE TIME TO VIEW THIS EVEN IF YOU HATE GLENN BECK AND FOX NEWS. IT'S IMPORTANT.

Part 1: http://www.youtube.com/watch?v=WV1-trw2AKo

Part 2: http://www.youtube.com/watch?v=dh9DbO5ek9k

Part 3: http://www.youtube.com/watch?v=7jOLy7EMdAI

Obama: Too much debt could fuel double-dip recession
Wed Nov 18, 2009 6:14am EST

BEIJING, Nov 18 (Reuters) - President Barack Obama gave his sternest warning yet about the need to contain rising U.S. deficits, saying on Wednesday that if government debt were to pile up too much, it could lead to a double-dip recession.

With the U.S. unemployment rate at 10.2 percent, Obama told Fox News his administration faces a delicate balance of trying to boost the economy and spur job creation while putting the economy on a path toward long-term deficit reduction.

His administration was considering ways to accelerate economic growth, with tax measures among the options to give companies incentives to hire, Obama said in the interview with Fox conducted in Beijing during his nine-day trip to Asia.

"It is important though to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession," he said.

Fox News, which released a transcript of the interview, showed that comment by Obama on Wednesday morning and said the full discussion would be broadcast later in the day. (Reporting by Caren Bohan; Editing by John O'Callaghan)

do you think i really care what someone here thinks about me?...

Oh sure you do. You have shown that many times here.

i'm just sayin'

do you think i really care what someone here thinks about me?...

We were promised to have the civil liberties that Bush got rid of with the likes of the Patriot Act, Military Commission Act and the Posse Comitatus Act return to how they were... Oh and lets not forget FISA and the continuing of Bush's polcies..

TO date Obama has done nothing to return the lost civil liberties from the Bush eight years.. In fact we are loosing more of our civil liberties with the new administration.... Something i said would happen if Obama became president over a year ago we would loose more of our civil liberties..

wadada

TO give up civil liberties to be safe from terrorism we can't get the civil liberties back..

That's a interesting thing to say considering what one person here thinks about you.

This is another reason we don't need to give up anymore civil liberties..

IF someone wants to do the task it can still get done..

TO give up civil liberties to be safe from terrorism we can't get the civil liberties back..

wadada

You've covered many stories over the years, I know i've watch several of them, but one like this must leave you shaking your head in disbelief after reporting. Tragic...
-m

Poor woman. What a horrible death. No one could have protected her. He was determined . . . and would have found a time and place to kill her. Chilling.
.