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Ed Driscoll

The Crackup and the Apocalypse

March 16th, 2013 - 11:20 am

Socialist doom — now in domestic and international flavors. First up, from Walter Russell Mead, “Detroit Dems Enrich Wall Street As City Goes Bust:”

During the long grim slide, much of Detroit’s population fled the implosion; those who remained suffered through declining city services. Schools, police, fire, infrastructure: all the vital services cities are supposed to provide have gone into steep decline.

But while the city’s mostly low-income and mostly African-American residents struggled to survive civic decline, the ill wind from Detroit blew somebody good: well connected Wall Street firms have feasted on the Motor City’s carcass.

Ever since the long death spiral began, Detroit has relied on periodic bond sales to keep its bills paid. The thinking was clear: borrow now, pay it back later when the city’s finances recover. Of course, Detroit’s finances never recovered, and now it’s on the hook for much of this borrowing, in addition to the fees that these banks charged.

And these are serious fees. Bloomberg reports that since 2005, Wall Street banks have charged the city a whopping $474 million. As a comparison, that’s about as much as the city’s current entire police and fire budget for this year:

“The banks promise to get you the money and say you can pay later,” said Greg Bowens, spokesman for Stand Up For Democracy, a Lansing group that campaigned last year to repeal the law allowing appointment of a financial manager. “They get their fees off the top, and you trust that they’re doing what’s in your taxpayers’ best interest.”

As Detroit is learning now, in many cases they weren’t. And Detroit is not alone: In city after city, struggling pension funds have turned to exotic Wall Street investments claiming high returns and minimal risks. In some cases this is working out, in many more it isn’t, but either way, Wall Street is collecting its fees and leaving taxpayers and pensioners to pick up the pieces when it falls apart.

And if you really want to see a socialist welfare state fall apart, visit Cyprus, the island nation east of Greece, where things are imploding worse than Krakatoa, east* of Java:

What ties both of these fiscal horror stories together? “We’re to the point where ‘the people exist’ simply to support the chosen few who selflessly devote themselves to public service.”

 Related (If only because of the headline):Krugman Economic View Built on a House of Babysitting Coupons.”

Update: Not surprising, the Zero Hedge econo blog is all over the Cyprus bank run story:

Congratulations Europe: just when people almost believed you things are “fixed” you go ahead and prove to the world that you are as disunified (because size doesn’t matter in a true union), as confused, as stupid and as broke as ever.

Read the whole thing.

* I know. But at this point, you’d think they’d just get over themselves and move the place, to tie-in better with the film.

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