The Global Financial Crisisand Municipal Budget Crises:

Philadelphia and Trenton

By Scott PinkelmanPhiladelphia Budget Crunchers

http://budgetcrunchers.wordpress.com

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What is happening?Is The Economy In Crisis?

Will Obama Fix The Economy?

Is The Economy Heading Into the Great Depression 2.0?

Capitalism

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

Finance

The field of financing business by providing credit

Bankers, brokers, traders, etc.

Financial Crisis

Root Causes

StagnationFinancialization Deregulation

Stagnation

Early 1970s: End of ‘Keynesianism’ Deindustrialization Declining Wages Stagnation

1978-2008: Industrial utilization: 81%

2003-2008: 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

The Price of Debt

Deregulation

1999-2000 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

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Homeownership

Timeline2007-08

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. 2008 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 ProgramSAP

Structural Adjustment ProgramSAP

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