The Global Financial Crisis and Municipal Budget Crises: Philadelphia and Trenton By Scott Pinkelman Philadelphia Budget Crunchers
What is happening? Is The Economy In Crisis?
Will Obama Fix The Economy?
Is The Economy Heading Into the Great Depression 2.0?
Capitalism
An economic system with private ownership and profit. Profit - Money or wealth that is more than the costs of production and is paid to the owner or investor.
Finance
The field of financing business by providing credit Bankers, brokers, traders, etc.
Financial Crisis
Root Causes Stagnation Financialization Deregulation
Stagnation Early 1970s: End of ‘Keynesianism’ Deindustrialization Declining Wages Stagnation : Industrial utilization: 81% : Industrial utilization at 77% Post 2001 ‘jobless recovery’
(Magdoff and Foster, 2008)
Financialization
Financial Sector Debt 1973: Total Debt 140% of GDP Financial Sector: 9.7% 1989: Total Debt 234% of GDP Financial Sector: 18.7% 2005: Total Debt 329% of GDP Financial Sector: 31.5%
Debt as % of Income
The Price of Debt
Deregulation Repeal of Glass-Steagel Act Commodity Futures Modernization Act Securities
Recent Causes Post 2001 Federal Reserve Interest Rates Speculative Real Estate Bubble Rise in home prices after 2001 Second mortgages The rise of 'subprime' mortgages
Homeownership
Timeline March 2007: Mortgage companies begin to seek to sell subprime lending arms August 6, 2007: American Home Mortgages files for bankruptcy August 10, 2007: LIBOR sets.5% higher August 17, 2007: Federal Reserve cuts discount rate by.5%
Timeline Sept Sept 6 - Fannie Mae and Freddie Mac placed under government conservatorship Sept 14 - Federal Reserve decides to let investment bank Lehman Brothers Fall Sept 14 - Merril Lynch sold to Bank of America Sept 16 - Federal Reserve ‘liquidity injections’ into money market funds September 21 - Investment banks Goldman Sachs and Morgan Stanley become ‘bank holding companies' Sept 19 – Troubled Asset Relief Program (TARP) Bailout Announced
Bailout Officially $700 billion With loan guarantees: up to $8.56 trillion Video Massive outcry; initially voted down in the House 'Largest transfer of wealth from taxpayers to stockholders in history'
What's it being used for? Given to get banks lending to one another No stipulations / little oversight $18 billion in Wall St. bonuses Bank of America: Lobbying against the Employee Free Choice Act Bank Consolidation 4 superbanks: Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
Philly Budget Crisis City Budget $4.03 Bn annually Nov 2008: $1 billion deficit over 5 years Jan 15, 2009: Projected deficit raised to $2 billion $108.1 million in cuts by 2009
Libraries
Essential Services
Causes 5 year Shortfalls In: Pension Fund: est $498 million decline BusinessTax: $119 million (down $33m from last year) Real Estate Transfer Tax: dropped 37.3% 158m Property Tax: $180 m less
Pension Pension Fund has lost 22% as of mid January Covering these losses will cost the city $359 million Unable to issue bonds 5 year bonds - $140 million to defer pension payments Pensions cost 252 million in 1998 – will cost est. 613 million in 2012
FY 2010 Budget Temporary increases in sales and property taxes Two-tier pension plan with municipal union Sliding scale at health centers
Trenton FY 2010 New Jersey Shortfall 100 million Gov Corzine’s proposal to allow municipal gov’ts pension contribution deferrals 6.8 million in Trenton 4 million dollar shortfall
Water Sale Sale of Trenton Water Works pipelines to NJ American Water Co Estimated at $20 million; State allowing City to count $7.7 million to city Estimated to help shortfalls to two years Petition Drive to stop sale Privatization of public infrastructure “Sale vs. tax hikes”
Property Taxes 29% increase in Trenton 19% (FY 2010) followed by 14.5% (2011) in Philadelphia Major source of revenue this budget year Philadelphia FY2010: $9.87 cents per $100 Trenton FY2010: $2.74 cents per $100
Neoliberalism
Global Neoliberalism Neoliberalism The current stage of capitalism. Starts around the early 1970s Public services for sale “No borders” Dominant ideology in economics. “Modern Imperialism”
Structural Adjustment Program SAP
International Monetary Fund in the 1980s Characteristics Privatization Free trade Cutting capital controls
Philly and Trenton in Context 'Financialized' city budgets Dependent of stock and bond market Only growth strategy is attracting outside companies through tax cuts or land deals Needs of the population aren't met More taxes, reduced services Public services are being privatized