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alstry (< 20)

Cities Imploding????



February 20, 2008 – Comments (3)

A city in California on the brink of bankruptcy.  Its police officers and firefighters want to retire to lock in retirement benefits.  Pension plans around the country underfunded as millions preparing to retire.  Now the municipal bond market locked up and people can't access their capital without taking huge losses.

Where is America today?  On the surface everything seems fine.  Below the surface debt instruments are crashing.  Residential RE values are crashing.  Commercial RE values are crashing.  Pension funds are underfunded.  Cities are levered up and now having trouble meeting debt obligations.  Financial institutions are paying more than subprime borrowers in interest for equity injections.  Retailers are shutting stores and going bankrupt(SharperImage today).  Cities and states are slashing budgets around the country but seeming can't slash their debt.  Teachers are being asked for paycuts.  Police officers are being asked for paycuts.  Firefighters are being asked for paycuts.

And inflation is heating up?

How do you  think those drivers on that bridge in Minnesota felt about the strength of the bridge just before it collapsed?

The question is whether the integrity of credit on a financial system is the equivalent of a structural beam for an interdependant support system.

3 Comments – Post Your Own

#1) On February 20, 2008 at 9:33 AM, GS751 (26.72) wrote:

We have a subprime economic system.  I am not doing very much investing in America, except for my Ultrashort :).  To keep it short America is F**ked

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#2) On February 20, 2008 at 3:08 PM, AnomaLee (28.98) wrote:

Enjoy your berries. Eat your salmon. But there is hope. 

This is definitely not the Great Depression. Today is probably not as bad as the 197x'-1991' and you still could've made a lot of money.

Things are going to be bad for this year... Maybe next year... and maybe the next 5 years... but eventually they will be worked out

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#3) On February 20, 2008 at 5:19 PM, alstry (< 20) wrote:

In the 70s,80s, and 90s, incomes generally went up with costs.  Actually, with the rise of the two income households, family incomes exceeded the rise in family expenses creating a huge stimulous on the economy in the 70s and 80s.

Today, families are maxed out with debt and limited to no income growth.  Cities are now experiencing negative income receipts.  This rarely happens where on a national level both the family and government incomes have stagnated or contracted simultaneously.

We are just at the beginning of this downturn and it is as bad as the worst from previous downturns.  But this time around the leverage is much much higher. 

People are walking away from their homes in record numbers.  Families are being strangled by high health care/insurance costs.  Municipalities on the brink of bankruptcy.

Will things get better?   Absolutely.....the only question now is how bad will it get between now and then.

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