California's Gestapo-3

On 19 June 2010 I got the California State Board of Accountancy's Spring 2010 Update. From page 18, "Do you presently live and work out of state, but continue to maintain an active California CPA license? The CBA has some important tax-related information for you. Required by law, the CBA must provide the FTB, upon request, specific information including your name, address, social security number, and license status. The FTB may then use its authority under the Revenue and Taxation Code to generate a request for tax return information from any California-licensed CPA who does not file a California tax return, regardless of his/her state of residence, and require you to provide proof that you did not earn income in California. Failure to respond to the FTB request for tax return information for any reason, including non-receipt of the request, can result in the FTB filing a lien against you. The CBA does not receive any notification when such a demand letter is generated by the FTB and the CBA does not have access to any information in this regard. if you have any questions, regarding this process or want information, please contact the FTB at (916) 845-7057", my emphasis.

The FTB is desperate. Imagine, shifting the burden of production to an out-of-state resident. Is the FTB kidding? The FTB may wind up in federal court over this. Would the FTB knowingly and wilfully mail "requests" for "tax return information" to wrong addresses then file liens? Will the DOJ then pursue the FTB for mail fraud, 18 USC 1341? Don't hold your breath. What would the FTB accept as proof? An affidavit from a Texas Ranger that I did not set foot in California during 2009? Should each California CPA who lives out-of-state CPA have a "cop" follow him around all year to provide the affidavit? This is another FTB abuse. If you are financially solvent and can leave California, do. Why doesn't the CBA get notification? The CBA claims among other things to protect the interests of CPAs. Good luck.

One of my tax clients is in a dispute with Massachusetts about interstate tax allocation. Taxachusetts wants to tax his earnings in New Hampshire and Texas. He may wind up in court over this.

Wait Listed By Jail-17

"As far as jails go, the Los Angeles Police Department's gleaming, new Metropolian Detention Center is about as good as it gets. ... The new detention center sits empty because of the city's dire fiscal crisis, which has left the LAPD unable to hire enough jailers to operate the large, labor-intensive facility", Joel Rubin at the LAT, 20 June 2010: http://latimesblogs.latimes.com/lanow/2010/06/lapd-new-74-million-dollar-jail-sits-empty.html.

Quoted without comment.

States Repudiate Pensions

"Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits. ... 'We can't afford to deny reality or delay action any longer,'said Gov. Pat Quinn of Illinois, adding that his state's pension cuts, enacted in March, will save some $300 million in the first fiscal year alone. But there is a catch: Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthorugh reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money. Some new rules may even hasten the demise of the funds they were meant to protect. ... That vaunted $300 million in immediate savings? The state produced it by giving itself credit now for the much smaller checks it will send retirees many years in the future--people who must first be hired and then, for full benefits, work until age 67. By recognizing those far-off savings right away, Illinois is letting itself put less money into its pension fund now, starting with $300 million this year. ... 'We're within a few years of having some of the pension funds run out of money,' said E. Eden Martin, president of the Commerical Club of Chicago, a business group that has been warning of a 'financial implosion' for several years. 'Funding for the schools is going to be cut radically. Funding for Medicaid. As these things all mount up, there;s going to be a lot of outrage.' ... If a state pension fund ran out of money, the state would be legally bound to make good on retirees' benefits. But paying public pensions straight out of general revenue would be ruinous. In Illinois's case, it would consume about half the state's cash every year, bringing other vital state services to a standstill", my emphasis, Mary Walsh at the NYT, 20 June 2010, link:

http://www.nytimes.com/2010/06/20/business/20pension.html.

The pensioners will not get paid all they were promised. Current services will be maintained. Who are Illinois CPAs? Price Waterhouse, the guys who audited AIG and Vampire Squid? Or some other Big 87654 firm? Anyone with eyes open saw this disaster coming decades ago.

LA End Game

"Los Angeles is facing a terminal fiscal crisis: Between now and 2014 the city will likely declare bankruptcy. Yet Mayor Antonio Villaraigosa [AV] and the City Council have been either unable or unwilling to face this fact. ... Even if [AV] were to enact drastic pension reform today--which he shows no sign of doing--the city would only save a few hundred million per year. ... Five thousand is the number of employees added to the city's payroll during [AV's] first term as mayor. According to California's Economic Development Department, when [AV] took office there were 4.73 million jobs in Los Angeles and 252,000 unemployed people. Today, there are just 4.19 million jobs in [LA] and over 632,000 unemployed people. ... How have city leaders responded to this crisis? Pension officials have played accounting games, like smoothing the investment return over seven years rather than five years. ... And most egregiously, rather than laying off employees, city officials have shifted certain workers to agencies like the Department of Water and Power and the airport, which have their own funding. ... He continues to insist that bankruptcy is not an option for [LA] even as anyone who can count understands there is no other option", Richard Riordan & Alexander Rubalcava (R&R) at the WSJ, 5 May 2010, link:

http://online.wsj.com/article/SB10001424052748704608104575218392603082622.html.

Riordan is a former LA mayor. Rubalcava is an investment advisor. Yes, R&R, LA's bankruptcy looks inevitable. Got muni bonds? Sell!

Illinois Deficit

"Illinois lawmakers were in disarray Thursday as they groped for stopgap measures to address a $13 billion deficit equaling nearly half of the state's general-fund revenue. ... But the confusion in the legislature indicates that serious steps to fix state finances won't be taken until after the November elections--if then. ... An income-tax increase proposed by Democratic Gov. Pat Quinn is going nowhere. Even temporary steps, such as borrowing to make pension payments, have stalled. Illinois is months late on many of its bills and has no plan for catching up. ... A bill under consideration in the state House would give Mr. Quinn greater leeway to shift money among state funds and to require agencies to set aside part of their budgets now in case of future cuts. ... 'We are lucky in that we can still borrow,' [Donne] Trotter said, noting that lawmakers responded to rating-agency concerns last month by reducing pension benefits and lifting the retirement age for new state employees to 67 from 60. Lawmakers also are weighing the idea of postponing pension payments for the first half of the fiscal year until January, Mr. Trotter said. ... Mr. Quinn presented a budget in March that would still leave the state with a $10.6 billion deficit. His plan projected a deficit of $4.7 billion for the coming fiscal year beginning July 1--which he planned to cover through borrowing--and a $5.9 billion deficit carried over from the current budget. ... California officials said this week that April personal income tax collections lagged projections by 30% Federal estimates don't bode well for states, either", Amy Merrick at the WSJ, 7 May 2010: http://online.wsj.com/article/SB10001424052748703686304575228582377071698.html.

Illinois budget looks worse than California's. An old Chinese curse was, "May you live in interesting times". An updated version might be, "May your portfolio consist of 50% Illinois and 50% California muni bonds".

Late State Tax Refunds

"Procrastination is no longer just for the taxpayers who wait until the last moment to file their tax returns. Thanks to the economic downturn, at least a half-dozen cash-poor states are now delaying their tax refund checks. ... 'We're sorry for the inconvenience. We understand that people are relying on the money for credit card bills, etc., etc., but we'll get them out as fast as we can,' said Paul L. Dion, the chief of Rhode Island's Office of Revenue Analysis, explaining that 34,423 refund checks were being held up as the state ensures it has enough cash on hand to pay its debts on time. 'For the record, mine is on hold as well.' ... Budget cuts left Iowa's Department of Revenue without the money to hire the 50 temporary workers it ususally adds around tax time. So some refund checks were slowed while nearly everyone in the department--from auditors and revenue agents to top agency officials--was directed to pitch in by opening up envelopes and processing tax returns. ... It is yet another change brought about by the longest recession since the Great Depression. Many state governments are as overextended as their residents, and find themselves balancing and rebalancing their checkbooks each week to make sure they have enough money to pay their bills. Of course, holding on to the money that many taxpayers count on is usually a last resort: several states were greeted with angry outcries when they delayed sending out refund checks last year; including Alabama, California and Georgia, made sure to pay out their refunds faster this year", Michael Cooper at the NYT, 2 June 2010, link:

http://www.nytimes.com/2010/06/02/us/02refund.html.

Will the involved states let you pay taxes late in sympathy?

Three Strikes And California's Out

"Williams, who is 46, was a homeless drug addict in 1997 when he was convicted of petty theft, for stealing a floor jack from a tow truck. It was the last step on his path to serving life. ... Still, for the theft of the floor jack, Williams was sentenced to life in prison under California's repeat-offender law: three strikes and you're out. In 2000, three years after Williams went to prison, Steve Cooley becaume the district attorney for Los Angeles County. Cooley is a Republican career prosecutor, but he campaigned against the excesses of three strikes. 'Fix it or lose it,' he says of the law. In 2005, Cooley ordered a review of cases, to identify three-strikes inmates who had not committed violent crimes and whose life sentences a judge might deem worthy of second looks. His staff came up with a lost of more than 60 names, including Norman Williams's. ... In 1994, the three-strikes ballot measure in California passed with 72 percent of the vote, after the searing murder of 12-year-old Polly Klaas, who was kidnapped from her slmuber party and murdered while her mother slept down the hall. When the killer turned out to be a violent offender recently granted parole, support surged for the three-strikes ballot initiative, which promised to keep 'career criminals who rape women, molest children and commit murder behind bars where they belong.' The complete text of the bill swept far more broadly. ... But in California, 'serious' is a term of art that can also include crimes like Norman Williams's nonconfrontational burglaries. After a second-strike conviction for such an offense, almost any infraction beyond jaywalking can trigger a third strike and the life sentence that goes with it. One of [Michael] Romano's clients was sentenced to life for stealing a dollar in change from the coin box of a parked car. ... Now California is in the midst of fiscal calamity", Emily Bazelon at the NYT, 23 May 2010, link:

http://www.nytimes.com/2010/05/23/magazine/23strikes-t.html.

My favorite three-strikes criminal stole three 75 cent candy bars from a convenience store. At $62,000 a year, California's taxpayers will spend about $1.6 million to incarcerate him for the next 25 years. Over $2.25! Really! The Mikado's Lord High Executioner would not be pleased. As a practical matter most three-strikers will be parolled; eventually. My barber opposed this law. I asked him why. He said because it would make witness murders "free". Why not kill the witness? It won't add to your time. I told him strictly speaking it would cheapen witness murders as robberies accompanied by murders would be more likely to be investigated than "straight" robberies. He thought about this for a minute, said I was right and still opposed the law. My barber was a college dropout who took one economics class at NYU in the late 1940s.

Mayor Reconquista's Tactical Retreat

"To get from downtown to the residence of the man who, in 2005, became the first Hispanic elected mayor since 1870, you drive through a sliver of Korea. With 125,000 people packed into 2.7 of the city's 469 square miles, Koreatown is typical of this polyglot city where more than 100 languages are spoken and nothing is typical except recentness: 46 percent of the residents are foreign-born. So when His Honor Antonio Villaraigosa [AV] was invited to appear at a recent rally protesting Arizona's law concerning illegal immigrants, he went. But he stipulated: 'I want American flags.' ... They say [AV] should 'face the fact' that 'between now and 2014 the city will likely declare bankruptcy.' [AV] says this will not happen. But look at what has happened. ... So [AV] must like with the arithmetic of interest-group liberalism. The federal government, he says, can run deficits and print money; the state government (supposedly) must balance the budget but can push burdens down onto cities. There, he says, 'you have 10 cookies in the cookie jar and every interest wants all 10.' The nightmare numbers include the state's unemployment rate (12.6 percent)--it is higher than the nation's (9.9)--and the city's rate (13.5), which is higher than the state's. The city's long-term success depends on its schools, in which many of the children come from homes without fathers", George Will at Newsweek, 17 May 2010, link: http://www.newsweek.com/id/237640.

If LA's future depends on 73%-Hispanic LAUSD, it is bleak. Think about this: AV told his handlers which flags not to bring. Would AV want American flags at a similar rally in say 2020? Remember, AV is a former La Raza member. Hahahahaha. Do you still want to own California muni bonds?

Greece Today, America Tomorrow

"Are Europe and America headed to where Athens is today? ... Protected by the [US] through a half-century of Cold War, Europe cut back on defense and ratcheted up spending for La Dolce Vita. ... As the cradle-to-grave welfare states rose, an ever-increasing share of the labor force left the private sector for the security of the public sector. ... The fertility rate of Greece and every European nation fell below 2.1 births per woman needed to replace an existing population. Greece's birth rate has been below zero population growth for three decades. ... Were Greece a company, the solution would be bankruptcy. ... Because, should Greece decide not to take a chainsaw to her welfare state, but walk away from her debts and default, she would blow a hole in the balance sheets of the biggest banks in Europe. ... Rather than savage their welfare-state programs, and risk riots in the streets and a massacre at the polls, Madrid and Lisbon, too, might look ageeably at default. ... For how much longer will Greeks work longer, retire later and live on smaller pensions, so holders of Greek bonds can get their interest payments right on time? ... But the crisis will return. For the nations of Europe have made commitments beyond their capacity to keep, given their growing debts and aging population. ... And the unfunded liabilities of Social Security, Medicare and federal pensions rival those of Western Europe. States like California and New York, larger than Greece, look a lot like Greece. ... While the temptation is great for Washington to bail them out again, the [US] government itself has now begun to attract the concerned notice of holders of US debt", my emphasis, Pat Buchanan at World Net Daily, 6 May 2010, link:

http://www.worldnetdaily.com/index.php?pageId=150649.

"Crisis--from the Greek word 'Krisis'--is one of the many English words we owe to the ancient Athenians. Now their modern descendants and reminding us what it really means. ... So serious was the situation that it took a European version of the 2008 TARP bailout of US banks to save the euro. ... If fully implemented, it will be the mother of all bailouts--and one of the biggest admissions of error in modern financial history. The design of the European currency has been fatally flawed from the outset. It just took the Greek crisis to expose it. .... It would end forever the exchange-rate volatility that has bedeviled the continent since the breakdown of the Bretton Woods system of fixed exchange rates in the 1970s. ... A single European currency also seemed to offer a sweet deal. Countries with excessive public debt would get German-style low inflation and interest rates. And the Germans could quietly hope that the euro would be a little weaker than their own super-strong Deutsche mark. ... But the worst defect in the design of the Economic and Monetary Union (EMY), we argued, was that it united Europe's currecies but left its fiscal policies completely uncoordinated. ... The design of the EMU illustrates a profoundly important truth about human institutions. Just because you don't create a formal procedure for something you would rather not happen, that doesn't mean it won't happen. ... Problem solved? Unfortunately not. ... For one thing, it's simply not credible that the Greek government will be able to deliver the fiscal tightening it has promised at a time of deep recession. ... It will surely be at least a year before investors wake up to the fact that the fiscal predicament of the [US] is actually worse than that of the euro zone", Niall Ferguson at Newsweek, 24 May 2010, link:

http://www.newsweek.com/id/237645.

In about 1985 I remember reading a Fortune interview of Barton Biggs (BB). The substance of what BB said was, "The notion of 250 million South Americans slaving away in the hot sun to repay some New York banks does not comport with my notion of political reality". Well said BB Mine neither. Between now and 2017 I expect the "Venezuelanization" of most of Europe and the US. Got bonds? Sell while there's still time.

I disagree with NF. The Greek bailout did not save the euro. It saved banks holding Greek paper. It will kill the euro. There is nothing any European country could have done with respect to taxing and spending before the coming of the euro it couldn't do after. The euro was and is a "whole lotta nuttin". The euro was sold as a piece of financial engineering!

Illegals and the Ottomans

"Throughout history, when an occupying power has wanted to destabilize and destroy a nation, it has settled a foreign people in its midst. The seeds of the Balkan conflict were sown when the Turks planted Albanian Muslims in Kosovo to uproot the Christian Serbs who had long defended the borders of medieval Christendom and had more than once turned back the tide of an expanding Ottoman empire. ... Despite this, Americans did not worry about the massive migration of Mexicans and other third-world immigrants for many years due to their belief in equality and the idea of the American melting pot. Unfortunately, both concepts are complete myths, devoid of any support from logic, history or science. ... There is, quite simply, no such thing as human equality in any material sense. ... As for the myth of the American melting pot, it should suffice to point out that the idea was popularized by a Russian Jew who emigrated to England, never lived in the [US] and was a fervent believer in the cause of establishing a Jewish homeland. ... The reality is that from the mid-17th century to the mid-19th century, the New England states had almost no immigration for 200 years. And it is important to note that when the Irish did finally come to America, they were fewer, more culturally similar, and they came in a more gradual manner from farther away. ... The reality is that America will proceed on one of two paths. The first is to embrace the conflict. If Americans can find the courage to consciously reject the myth of the melting pot and expel the Mexicans from the American Southwest, the Arabs from Detroit and the Somalis from Minneapolis, they can reclaim their traditional white Anglo-Saxon Protestant culture. ... White Americans continue to vote with their feet, retreating slowly but continuously before the inexorable wave of migratory expansion. Encouraged by the frailty of American society and the fragility of myth-based American political culture, what are still currently the fringe views of the Aztlan revolutionaries will rapidly become the mainstream opinion of Mexican irredentists in California, Arizona, New Mexico and Nevada. ... Only Texas, with its unique and exapnsive view of itself, combined wiht its history of violent conflict with Mexico, is likely to take action over time. ... There is no magic assimilation to replace the ruthless mathematics of demographic transformation. Precisely how the Lincoln-forged Union will fragment cannot be foreseen wth perfect clarity at this point, but as recent events suggest, it should begin in the bellwether states of California and Arizona", Vox Day (VD) at World Net Daily, 10 May 2010, link:

http://www.worldnetdaily.com/index.php?pageId=151689.

"The Ottomans had an interesting method of assuring political stability. The sprawling empire operated on a system in which 'millets', distinct ethnic and religious groups, were allowed to oversee their own internal affairs while giving absolute loyalty to the sultan and his government. Every now and then a millet would be ordered to pack up and head out for a new home, at times at the opposite end of the imperium, amid new neighbors--sometimes the original residents, sometimes other refugees--of alien origins, ethnicity, and religious belief. ... In short order, the various groups would become so enmeshed in harassing and attacking each other that they could spare no time or energy to defying the staus quo. ... The American left has its own millet system, consisting of ethnic (and other) groups defined in large part by their grievances as victims of America. ... The left prefers Balkanization and permament conflict. ... So how to keep the pot boiling? The answer was to find a new millet--or rather to take advantage of the one next door, of the deperate people fleeing a serial kleptocracy, an uneducated, ignorant, and frightened mass open to all forms of manipulation. ... It explains the insistence that any solution to the immigration problem provide for amnesty and citizenship for the millions of illegal already living within our borders. ... Illegals will become a new protected class, with privileges and entitlements denied the rest of the populace (including, ironically, current members of previous such classes). ... A vast bureaucracy will arise to 'assist' the new citizenry, funded with billions. ... There must be no amnesty. Such an action would simply drop a permanent inassimilable presence in the midst of American society", JR Dunn at the American Thinker, 14 May 2010, link:

http://www.americanthinker.com/2010/05/the_real_reason_the_left_loves.html.

I agree with Michael Panzer's interesting 22 May 2010 post at When Giants Fall about Turkey, Iran and nuclear weapons, link: http://www.economicroadmap.com/2010/05/not-so-positive.html.

Yes VD. At the very least, California, from San Diego to Santa Barbara, looks like it will revert to Mexico. Pancho Villa won!

China has a policy to move Han Chinese into Sinkiang province, which was primarily Uighur, to ensure Beijing's control. We permit let illegaal aliens stay in the US, which will likely cause the US to dissolve. Look at the contrasting policies.

Absent a new "Operation Wetback", I expect the US to break up no later than 2040, see my 11 January 2009 post: http://skepticaltexascpa.blogspot.com/2009/01/usa-rip.html.

Good Question Pat

"With the support of 70 percent of its citizens, Arizona has ordered sheriffs and police to secure the border and remove illegal aliens, half a million of whom now reside there. ... 'We in Arizona have been more than patient waiting for Washington to act,' said Gov. Jan Brewer. 'But decades of inaction and misguided policy have created an unacceptable situation.' ... Barack Obama ... is siding with the law-breakers. He is pandering to the ethnic lobbies. He is not berating a Mexican regime that aids and abets the invasion of the country of which he is commander in chief. Instead, he attacks the government of Arizona for trying to fill a gaping hole in law enforcement left by his own deriliction of duty. ... He has called on the Justice Department to ensure that Arizona's sheriffs and police do not violate anyone's civil rights. But he has said nothing about the rights of the people of Arizona who must deal with the costs of having hundreds of thousands of lawbreakers in their midst. ... The state has a fiscal crisis caused in part by the burden of providing schooling and social welfare for illegals and their families, who consume far more in services than they pay in taxes and who continue to pour in. Even John McCain is now calling for 3,000 troops on the border. ... If Arizona does not get control of the border and stop the invasion, US citizens will stop coming to Arizona and will begin to depart, as they are already fleeing California. ... Whose country is this, anyway?," Pat Buchanan at Vdare, 26 April 2010, link:

http://www.vdare.com/buchanan/100426_whose_country.htm.

Well said Pat. As far as Obama is concerned, non-Minority Americans are just cows to be milked for money to be given to "his" people.

LA's "Windfall"

"After a week of dire predictions, city officials here said an unexpected $26 million of new revenue will help stave off an immediate fiscal crisis, but serious longer-term financial problems remain. ... The city's budget deficit is expected to grow to $485 million in the coming fiscal year, which begins on July 1. ... 'In LA there are multiple centers of power with multiple priorities, and getting them to agree on one plan is an incredibly difficult process, which works better in the long term than when you're in a crisis,' says Fernando Guerra [FG], professor at Loyola Marymount University [LMU] in [LA]. 'In a crisis we need unitary power, but the city of [LA] doesn't have that'," Peter Sanders at the WSJ, 10 April 2010, link:

http://online.wsj.com/article/SB10001424052702304703104575174290182168722.html.

"Before he bacame mayor, Antonio Villaraigosa [AV] rose to power here as a union leader, organizing lawyers, teachers and secretaries. But with [LA] facing a $485 million budget crisis, Mayor [AV] is pressing for layoffs if union workers don't agree to wage cuts. That has pushed the old labor warrior to the other side of the picket line--and through the looking glass. ... The mayor's proposed budget for the next fiscal year, released earlier this week, calls for the elimination of more than 3,500 city jobs, affecting a range of city services, including pothole patching, libabry hours and park programs. ... The mayor's porposal has raised the ire of the unions, which represent more than 95% of the city's 37,000 workers. ... That sets the stage for what could be a protracted battle between the unions, the mayor's office and the City Council. ... 'He symbolized the growing power of unions and that link with unions and Latinos,' said [FG], a professor of political science at [LMU]. 'He was the symbol of the new LA: Latino, union, progressive'," Tamara Audi at the WSJ, 24 April 2010, link: http://online.wsj.com/article/SB10001424052748704830404575200752592646676.html.

Guerra, do you favor establishing a military dictatorship in LA? My idea: have LA get foreign aid from Mexico! LA's "crisis" to come was obvious at least 15 years ago. Like Greece, LA's problem is that it doesn't issue its own money. Today. Perhaps AV can make pesos legal tender in LA.

The new LA is like Obama's America in that the only place it has for Caucasians is to pay taxes. Locally, AV is known as "Mayor Reconquista". Why? Because he was a member of "La Raza", i.e., "The Race". Of course, AV isn't a member today.

Multistate Debt Crisis

"California, New York and other states are showing many of the same signs of the debt overload that recently took Greece to the brink--budgets that will not balance, accounting that masks debt, the use of derivatives to plug holes, and armies of retired public workers who are counting on benefits that are proving harder and harder to pay. And states are responding in sometimes desperate ways, raising concerns that they, too, could face a debt crisis. ... Connecticut has tried to issue its own accounting rules. Hawaii has inaugurated a four-day school week. California accelerated its corporate income tax this year, making companies pay 70 percent of their 2010 taxes by June 15. And many states have balanced their budgets with federal health care dollars that Congress has not yet appropriated. Some economists fear the states have a potentially bigger problem with their recession-induced budget woes. If investors become reluctant to buy the states' debt, the result could be a credit squeeze, not entirely different from the financial strains in Europe, where markets were reluctant to refinance billions in Greek debt. ... California's stated debt--the value of all of its bonds outstanding--looks manageable, at just 8 percent of its total economy, But California has big unstated debts, too. If the fair value of the shortfall in California's big pension fund in counted, for instance, the state's debt burden more than quadruples, to 37 percent of its economic output, according to one calculation. ... Unstated debts pose a bigger problem to states with smaller economies. ... State officials say a Greece-style financial crisis is a complete nonissue for them, and the bond markets so far seem to agree. All 50 states have investment-grade ratings, with California the lowest, and even California is still considered 'average,' according to Moody's Investors Service. The last state that defaulted on its bonds, Arkansas, did so during the Great Depression. ... Some states have taken even more forceful measures to build creditor confidence. New York State has a trustee that intercepts tax revenues and makes some bond payments before the state can get to the money. California has a 'continuous appropriation' for debt payments, so bondholders know they will get their interest even when the budget is hamstrung. ... In fact, New Jersey and other states have used a whole bagful of tricks and gimmicks to make their budgets look balanced and to push debts into the future. ... Some economists think the last straw for states and cities will be debt hidden in their pension obligations", my emphasis, Mary Walsh at the NYT, 30 March 2010: http://www.nytimes.com/2010/03/30/business/economy/30states.html.

Why shouldn't Connecticut have its own accounting rules? Doesn't Zimbabwe Ben? Who cares what state officals or the rating agencies say? NY's trustee does nothing for me. His existence is purely cosmetic. Do you still want to own muni bonds?

Wait Listed By Jail-15

"The California budget crisis has forced the state to address a problem that expert panels and judges have wrangled over for decades: how to reduce prison overcrowding. ... Many in the state still advocate a tough approach, with long sentences served in full, and some early problems with released inmates have given critics reason to complain. But fiscal reality, coupled with a court-ordered reduction in the prison population, is pouring cold water on old solutions like building more prisons. ... The strains on the system are evident inside the state prison here, about 50 miles north of Los Angeles, where 4,600 inmates fill buildings intended for half as many. A stuffy, cacophonous gymnasium houses nearly 150 people in triple-bunked beds stretching wall to wall. The new effort this year is intended to remove from prisons criminals who are considered less threatening and divide them into two categories: those who pose little or no risk outside the prison walls, and those who need regular supervision. ... To slow the return of former inmates to prison for technical violations of their parole, hundreds of low-level offenders will be released without close supervision from parole officers. Those officers will focus instead on tracking serious, violent offenders. ... The state spends, on average $47,000 per year to house a prisoner. Early estimates suggest the new changes could save $100 million this year. ... California is the only state that places all prisoners on parole at release, no matter what the offense, Professor [Joan] Petersilia sad, and usually for one to three years. .. . Even the guards' union, which so heavily promoted and supported the tough sentencing of the past that fueled the prison building and expansion boom, now says it supports the idea of alternatives to prison and did not publicly object to the new law", Randal Archibold at the NYT, 24 March 2010, link:

http://www.nytimes.com/2010/03/24/us/24calprisons.html.

Even the guards' union. Wow. Times must be tough in California.

Los Angeles Is Scared

"Los Angeles is struggling to raise money and cut costs to fill a $200 million budget gap that could force thousands of layoffs and drive the city into bankruptcy. ... Officials ... worried that without the cuts, more businesses and jobs would flee the city, which has a 12.5% unemployment rate. ... 'If we didn't roll that [tax] back, there was a real chance many of them would leave,' said Austin Buetner, the mayor's new economic chief. 'They're high-paying businesses and the wages are spent in our city,' he said. ... Analysts say giving up cash for the prmise of job creation can be risky and doesn't always work. 'State and local governments are going to have to place their bets on what will bring in greater revenue and keep more jobs,' said Jessica Levinson, director of political reform for the nonpartisan Center for Governmental Studies in Los Angeles. 'It's a balancing act that every jurisdiction will have to face. Few governments have any room for error. Cutting taxes can mean laying off teachers and police officers to save cash. 'Most cities, counties and the states are strapped for cash and can't afford to make an ill-conceived gamble,' Ms. Levinson said", Tamara Audi at the WSJ, 9 March 2010, link:

http://online.wsj.com/article/SB10001424052748703954904575110003748502676.html.

Even LA taxpayers "vote with their feet". We'll see if LA's internet company tax reductions start a trend. Do you still want to own muni bonds?

Wait Listed By Jail-13

"At the Twin Towers Correctional Facility, Jaime Iniguez was awakened Friday morning and told to get ready to leave. Iniguez, 53, was serving a four-month sentence for drunk driving, his second DUI offense. He wasn't scheduled to be released for another month. ... Iniguez is a member of a distinct group that benefits during a sour economy: jail inmates. When times are flush, the Los Angeles County Sherriff's Department has the money to keep jails open and staffed, and the vast majority of sentenced inmates serve most of their time behind bars. But when times get tough and tax revenues shrink, the department has repeatedly looked to its jail operations to make cuts, freeing thosands of inmates who've served only a fraction of their sentences. ... By 1966, on average, defendants were serving less than 25% of their jail sentences. ... Until this week, all male inmates served at least 80% of their jail time. Most women still serve only 20%", Jack Leonard & Ruben Vives at the LA Times, 5 March 2010, link:

http://www.latimes.com/news/local/la-me-jails6-2010mar06,0,819900,print.story.

See? Jails are a "Superior Good" Aren't you glad you studied economics? I suspect inmates leaving Wayne County Jail (WCJ) consider themselves unlucky. At least WCJ feeds them.

The Fed's Bad Loans

"The Federal Reserve Bank of New York [FRBNY] doesn't have to look far to understand the woes of banks and investors that hold loans and securities underpinned by real estate. It can look at its own books. ... In an unexpected twist, the takeover of the Bear assets effectively leaves the [FRNBY] as holder of credit-default swaps on bonds issued by the states of Nevada, California and Florida, That protection rises in value when the bonds decrease in value. ... Fair values are based on observable market proces, data points that can underpin as asset, and cash flow. ... Maiden Lane II's holdings include oddly named securities like a $29 million piece of New Century Home Equity Loan Trust 2005-3, which was stuffed with subprime loans originated by failed mortgage lender New Century Mortgage Corp. ... Among the residential mortgage loans and securities, about half were secured by homes in California and Florida. ... As a result, the Maiden Lane fund inherited about $4 billion of Bear's old Hilton debt. Blackstone is close to finalizing a deal to reduce its $20 billion loan by about 20%, according to people familiar with the matter", Carrick Mollencamp, Lingling Wei & Serena Ng at the WSJ, 2 April 2010, link:

http://online.wsj.com/article/SB10001424052702303395904575158331936921388.html.

The Fed is no better at buying subprime assets than anyone else. It exists to be "worse". Others had to lose on these assets had the Fed not bailed them out. Why unexpected? To whom?

Kennedy on Prisons

"Justice Anthony Kennedy spoke out against excessive prison sentences this month in California, criticizing the state's deeply misguided three-strikes law. It was a welcome message, delivered with unusual force. ... Sentences in the [US] are eight times longer than those handed out in europe, Justice Kennedy said. California has 185,000 people in prison at a cost of $32,500 each per year, he said. ... Justice Kennedy took special aim at the three-strikes law, which puts people behind bars for 25 years to life if they commit a third felony, even a nonviolent one. The law's sponsor, he said, is the correctional officers' union, 'and that is sick.' ... Under the three-strikes law, a man named Gary Ewing was sentenced to 25 years ot life for shoplifting three golf clubs from a golf pro shop. ... It's not that the court is insensitive to excessive punishments. It has repeatedly thrown them out--when they are against corporations", NYT, 16 February, 2010, link:

http://www.nytimes.com/2010/02/16/opinion/16tue3.html.

I believe California incarcerates about 168,000 prisoners at $62,500 each per year. That said, it's too many. Three-strikes law was imposed on convenience store thieves, who took three 75 cent candy bars. California's taxpayers can spend $62,500 a year for 25 years over a $2.25 theft! Amazing.

BusinessWEAK vs. Pat Buchanan

"They are called the PIGS--Portugal, Ireland, Greece, Spain. What they have in common is that all are facing deficits and debts that could bring on national defaults and break up the European Union [EU]. Who brought the PIGS to the edge of the abyss? All are neo-socialist states that provde welfare for poor people, generous unemployment, universal health care, early retirement and comfortable pensions. Most consume 40 percent to 50 percent of their gross domestic product annually, a crushing burden on the private sector. ... For 30 years, the fertility rate of Europe has been below the 2.1 children per woman necessary to replace a population. In Russia and Ukraine, a million people disappear yearly. In Western Europe, the passing of the native-born goes on quietly, as Third World peoples come to fill the empty spaces left by the aborted and unconceived. ... These newcomers have neither the education nor the skills of the Europeans. Hence, they earn less and contribute less in taxes, but consume more per capita in social benefits. ... Thus the burden of pensions and health care grows steadily and the need for higher taxes and larger worker contributions increases. ... Greece is the first European nation to hit the wall. ... The EU'c crisis would then be like a crisis in the [US] should California default on its state bonds and interest rates on other municipal bonds surged to double digits. ... In every Western nation, government is growing beyond the capacity of taxpayers to bear", my emphasis, Pat Buchanan at Vdare, 9 February 2010, link:

http://www.vdare.com/buchanan/100209_pigs.htm.

"The [EU's] experiment with a single currency is deep in crisis because Europe failed to learn from the Greeks. ... Today's Sirens are the investors and traders of the global bond market, who lure nations into tapping abundant credit at low rates when times are good. ... Greece has fallen into precisely that trap. It got low-interest loans by promising to behave responsibily and keep its budget deficit low. ... At this point, Greece and the [EU] have no good choices left. It's hard to see how Greece can muddle through on its own. ... Yiannis Kelekis, 68, a retired construction worker who joined a demonstration in rainy Athens, complained: 'The people that caused the crisis are now asking for others to make sacrifices.' ... If the EU] refuses aid, the government could find itself unable to issue $26 billion worth of debt as scheduled this spring. ... Trouble is, extending aid isn't a great choice, either. ... For now, investors are pouring money into the US Treasury market as a safe refuge. ... When Greece joined the euro zone, its borrowing costs fell to near-German levels because bond investors bought into the theory that Greece had finally become fiscally responsible. ... According to economists Kenneth S. Rogoff of Harvard University and Carmen M. Reinhart of the University of Maryland, Greece has been in default for half of the time since it won independence from the Ottoman Empire in 1829. ... Greece and the EU wouldn't be in this no-win situation if they had followed their own rules from the start. But coming up with a failsafe mechanism that forces sovereign nations to do what's right when they feel like cheating is pretty much impossible", my emphasis, Peter Coy (PC) at Businessweek, 22 February 2010: http://www.businessweek.com/magazine/content/10_08/b4167018421438.htm.

Gary North's (GN) 17 February 2010 post at Lew Rockwell is about the PIGS: http://www.lewrockwell.com/north/north814.html. GN asks, "How wise is to to lend to wicked people? Not very". Consider what this implies for Treasury paper.

Obamacare anyone? California anyone? What's controversial about this?

PC is PC. He never suggests Greece reduce spending. Anyone who buys sovereign debt does it at his peril. The article was titled, "The Bond Vigilantes Who Left Greece in Ruins". Imagine, the bond market did it, not Greek government spending. Failsafe mechanism? Try the gold standard. "Lure nations"? Is Greece a naive 14-year old girl being seduced by Casanova?

Wither Class Size

"Laws aimed at lowering class sizes in US public schools are coming under fire as budget shortfalls lead many states to slash education spending. ... The moves follow California's easing of class-size targets last year, which helped result in around 75% of the state's public elementary schools incresing class sizes thus school year, according to estimates from a University of California, Los Angeles, report last month. ... The move toward bigger classes is causing a backlash among some teachers and parents, who argue that smaller classes are essential for individualized instruction. ... Others say the benefits of smaller class sizes are unproven", Cari Tuna at the WSJ, 13 February 2010, link:

http://online.wsj.com/article/SB10001424052748704337004575060030026160638.html.

Smaller class size is another Teacher-Educationalist-Social Worker complex scam. I remember New York's Catholic schools in the 1950s has classes of 40-50. So? It's good to see the dismal science at work. Fund "shortages" may even cut school costs. I remember the Columbia Teachers College fools who "visited" us in about 1962 and were shocked to find NYC public school class size was negatively related to student achievement. Had they asked us, we could have told them that's what they would find. Why? NYC assigned the largest classes to the best students, the smallest classes to the worst!