Wall Street Cons To Blame for City Meltdowns?

"If A Wall Street Banker ran the local convenience store.."

by Teresa Kuhn, JD, RFC, CSA

Bank on Yourself Authorized Advisor

www.ibankonmyself.com 

An interesting article on the left-leaning ALTERNET website by Thomas Ferguson caught my attention with  its' provocative headline:

 

How Wall Street Hustles America's Cities and States Out of Billions

While I don't necessarily agree with all of the article's conclusions (for example, I think he lets the unions and politicians off the hook too easily)...

Ferguson does, however,  do a great job of pointing out the fact that in addition to the Wall Street and banker con jobs served to individuals, there have been numerous schemes by that same group to bilk BILLIONS out of municipalities.

Ferguson seems startled to learn just how deceptively Wall Street and investment bankers market high risk products of dubious worth, confusing even sophisticated municipal purchasers and failing to provide a clear picture of possible negative outcomes.

Citing a report from the The Refund Transit Coalition, a coalition of unions and public interest groups, he details the ways in which Wall Street banks have for years been hustling American cities, states, and regional authorities out of BILLIONS of taxpayer dollars using slick marketing tactics and difficult-to-understand "Frankenvestments."

I'm not surprised at all. Wall Street and  "too big to fail" banks have made a cottage industry out of shifting risk away from themselves as quickly as possible and stiffing taxpayers and their own clients whenever they make a misstep.


Tales of the Frankenvestments

Ferguson, perhaps a bit less cynical than yours truly, seems genuinely floored by the revelation of the extent of the duplicity of "Frankenvestment" peddlers, writing about the "swaps" pushed by bankers:

"... If rates fell, then banks could make out big, while issuers faced disaster, because the latter still had to make the fixed payments on their bonds, while the banks’ payments would shrink as rates fell. In effect, issuers were gambling on interest rates and betting they somehow knew better than the banks what was going to happen. 

And, ah, yes, the final touch: With old style bonds, you could refinance if rates fell; with the new fangled derivatives, the banks made sure to impose huge termination fees.

The result, for years now, has been literally billions of dollars of losses for cities, states, and other local authorities, including school boards . Locked in by the termination fees, they can stay in the swaps and pay and pay as the banks’ payments to them dwindle. 

Or they can buy their way out of the swaps at preposterous prices –... New York State recently paid $243 million dollars to get out of some swaps, of which $191 million had to be borrowed."

The Alternet article illuminates a great truth I have proclaiming for several years now; one which many Americans are just beginning to fully grasp...

Banks and Wall Street are principally to blame for past and present economic disasters, including the current "Great Correction."

While failing, as many leftist ideologues do, to distinguish our current corrupt "crony capitalism" from true free market economics, Thomas Ferguson nevertheless makes the cogent observation that Wall Street has had more than a little to do with the red ink flowing out of many major US cities.

Writes Ferguson:

What has driven cities and towns to the brink is not demands from their workforce but the collapse of national income and the ensuing fall in tax collections. 

Or, in other words, the Great Recession itself, for which Wall Street and the financial sector are principally to blame."

However, Ferguson misses the point entirely when he tries to attribute the myriad issues surrounding Wall Street greed and deception to Republican politicians or "conservatives."

In my opinion, the theft of America's wealth is neither a Democratic nor a Republican issue- it is a PEOPLE issue, one which affects all of us, regardless of political affiliations and ideologies.  The "divide and conquer" mentality of the elite who run our country fosters counterproductive fighting between the "left" and "right," that serves to distract us from the real issue:

A select group of thieves and liars are robbing us blind while we spend our time debating politics...