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More than 100 American cities could go bust next year as the debt crisis that has taken down banks and countries threatens next to spark a municipal meltdown, a leading analyst has warned.

Meredith Whitney, the US research analyst who correctly predicted the global credit crunch, described local and state debt as the biggest problem facing the US economy, and one that could derail its recovery.

"Next to housing this is the single most important issue in the US and certainly the biggest threat to the US economy," Whitney told the CBS 60 Minutes programme on Sunday night.

"There's not a doubt on my mind that you will see a spate of municipal bond defaults. You can see fifty to a hundred sizeable defaults – more. This will amount to hundreds of billions of dollars' worth of defaults."

New Jersey governor Chris Christie summarised the problem succinctly: "We spent too much on everything. We spent money we didn't have. We borrowed money just crazily. The credit card's maxed out, and it's over. We now have to get to the business of climbing out of the hole. We've been digging it for a decade or more. We've got to climb now, and a climb is harder."

American cities and states have debts in total of as much as $2tn. In Europe, local and regional government borrowing is expected to reach a historical peak of nearly €1.3tn (£1.1tn) this year.

Cities from Detroit to Madrid are struggling to pay creditors, including providers of basic services such as street cleaning. Last week, Moody's ratings agency warned about a possible downgrade for the cities of Florence and Barcelona and cut the rating of the Basque country in northern Spain. Lisbon was downgraded by rival agency Standard & Poor's earlier this year, while the borrowings of Naples and Budapest are on the brink of junk status. Istanbul's debt has already been downgraded to junk.

Whitney's intervention is likely to raise the profile of the issue of municipal debt. While she was an analyst at Oppenheimer, the New York investment bank, in October 2007 she wrote a damning report on Citigroup, then the world's largest bank, predicting it would cut its dividend. She was criticised for being too pessimistic but was vindicated when the bank was forced to seek government support a year later. She has since set up her own advisory firm and is rated one of the most influential women in American business.

US states have spent nearly half a trillion dollars more than they have collected in taxes, and face a $1tn hole in their pension funds, said the CBS programme, apocalyptically titled The Day of Reckoning.

Detroit is cutting police, lighting, road repairs and cleaning services affecting as much as 20% of the population. The city, which has been on the skids for almost two decades with the decline of the US auto industry, does not generate enough wealth to maintain services for its 900,000 inhabitants.

The nearby state of Illinois has spent twice as much money as it has collected and is about six months behind on creditor payments. The University of Illinois alone is owed $400m, the CBS programme said. The state has a 21% chances of default, more than any other, according to CMA Datavision, a derivatives information provider.

California has raised state university tuition fees by 32%. Arizona has sold its state capitol and supreme court buildings to investors, and leases them back.

Potential defaults could also hit Florida, whose booming real estate industry burst two years ago, said Guy J. Benstead, a partner at Cedar Ridge Partners in San Francisco. "We are not out of the woods by any stretch yet," he said.

"It's all part of the same parcel: public sector indebtedness needs to be cut, it needs a lot of austerity, and it hit the central governments first, and now is hitting local bodies," said Philip Brown, managing director at Citigroup in London.

In Europe, where cities have traditionally relied more on bank loans and state transfers than bonds, financing habits are changing. The Spanish regions of Catalonia and Valencia have issued debt to their own citizens after financial markets shut their doors because of the regions' high deficits. Moody's cut to the rating of the Basque country on Friday left it still within investment grade but noted "the rapid deterioration in the region's budgetary performance in recent years". It said it expected it to continue over the medium term.

In Italy, Moody's and S&P have threatened to downgrade Florence, while Venice has been forced over the past few months to put some of the palazzi on its canals up for sale to fund the deficit.

"Cities are on their own. Governments won't come to their rescue as they have problems of their own," said Andres Rodriguez-Pose, professor of economic geography at the London School of Economics. "Cities will have to pay for their debts, and in some cases they will have to carry out dramatic cuts, such as Detroit's."
California crunch
Vallejo, a former US navy town near San Francisco, is still trying to emerge from the Chapter Nine bankruptcy protection it entered in 2008.

The city, now a symbol of distressed local finances, is still negotiating with the unions, which refused to accept a salary cut plan two years ago. Paul Dyson, an analyst with the Standard & Poor's credit agency, said Vallejo, which is mostly a dormitory town for Oakland or San Francisco employees, did not have enough local industry to sustain its finances and property tax – a major source of local income – plunged with the collapse of the real estate market. The S&P credit-rating agency has a C rating on the town – the lowest level.

With a population of about 120,000, Vallejo has $195m (£125m) of unfunded pension obligations and has to present a bankruptcy-exit plan to a Sacramento court by 18 January. Since 1937, 619 local US government bodies, mostly small utilities or districts, have filed for bankruptcy, Bloomberg News recently reported. US cities tend to default more than European municipalities as they usually rely on bonds issued to investors, which enter into a default if the creditor misses payments. European towns, by contrast, traditionally depend on bank loans and government bailouts.

http://www.guardian.co.uk/business/2010/dec/20/debt-crisis-threatens-us-cities
 

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& Remember

Government Scum

Caused it all,

A Bunch of Communists

All of them :nuts:
 

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Same problem facing private citizens. It is not hard to understand. If you spend more than you make you will get in trouble. :WTF don't people understand :huh: Gotta stop spending what you don't have.
 

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I dunno about those other cities, but Detroit has had a hard time struggling with urban sprawl where even if properties and taxes were cheap, companies wanted to be in the burbs where the talent and trends where happening.

Lack of combating urban sprawl results in pooh pooh for taxes with which to run a city, and revitalization takes money and investors.

That's a tough sell.

And it's not always a simple formula.

Where as casinos revitalized Atlantic City for example, the same remedy has not solved any problems in the D.

Talented employees en masse, do not take kindly to the idea of packing heat to drive thru the ghetto to employers in the middle of burnt out corp buildings, even for good wages.

And CEO's like to drive thru a trendy neighborhood to pick up their expresso after the gym, and sit in an office with a comfy view of manicured lawns and a symphony of automatic sprinklers.

Another problem is lack of building codes or enforcement by cities for companies to properly upkeep their properties.
This allows leasing owners or corp/smbo owners to maximize profit while the property falls apart.

Many people talk about freedom in europe from excessive regulation, but actually many cities in europe do not allow companies to neglect their properties and are very hard on them to keep their properties in tip top shape and marketable.
 

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Same problem facing private citizens. It is not hard to understand. If you spend more than you make you will get in trouble. :WTF don't people understand :huh: Gotta stop spending what you don't have.


:thumbsup:
 

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Sweet, there are a few cities I'd like to purchase. Hopefully they pop up on the list.

ahhhhh Yeah Yeah Yeah

Don't you worry boy

That desert is going to have it's way with you Yet

You can't Change History

U livin in the Wild West Now

you'll see
 

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I dunno about those other cities, but Detroit has had a hard time struggling with urban sprawl where even if properties and taxes were cheap, companies wanted to be in the burbs where the talent and trends where happening.

Lack of combating urban sprawl results in pooh pooh for taxes with which to run a city, and revitalization takes money and investors.

That's a tough sell.

And it's not always a simple formula.

Where as casinos revitalized Atlantic City for example, the same remedy has not solved any problems in the D.

Talented employees en masse, do not take kindly to the idea of packing heat to drive thru the ghetto to employers in the middle of burnt out corp buildings, even for good wages.

And CEO's like to drive thru a trendy neighborhood to pick up their expresso after the gym, and sit in an office with a comfy view of manicured lawns and a symphony of automatic sprinklers.

Another problem is lack of building codes or enforcement by cities for companies to properly upkeep their properties.
This allows leasing owners or corp/smbo owners to maximize profit while the property falls apart.

Many people talk about freedom in europe from excessive regulation, but actually many cities in europe do not allow companies to neglect their properties and are very hard on them to keep their properties in tip top shape and marketable.
As always, dune sees the problem as a lack of governmental interference.
 

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I dunno about those other cities, but Detroit has had a hard time struggling with urban sprawl where even if properties and taxes were cheap, companies wanted to be in the burbs where the talent and trends where happening.

Lack of combating urban sprawl results in pooh pooh for taxes with which to run a city, and revitalization takes money and investors.

That's a tough sell.

And it's not always a simple formula.

Where as casinos revitalized Atlantic City for example, the same remedy has not solved any problems in the D.

Talented employees en masse, do not take kindly to the idea of packing heat to drive thru the ghetto to employers in the middle of burnt out corp buildings, even for good wages.

And CEO's like to drive thru a trendy neighborhood to pick up their expresso after the gym, and sit in an office with a comfy view of manicured lawns and a symphony of automatic sprinklers.

Another problem is lack of building codes or enforcement by cities for companies to properly upkeep their properties.
This allows leasing owners or corp/smbo owners to maximize profit while the property falls apart.

Many people talk about freedom in europe from excessive regulation, but actually many cities in europe do not allow companies to neglect their properties and are very hard on them to keep their properties in tip top shape and marketable.
Id bet larges sums of cash that the majority of city's having financial problems have had DEMOCRATS in charge of their management for much of the time
 

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Id bet larges sums of cash that the majority of city's having financial problems have had DEMOCRATS in charge of their management for much of the time
quite possibly.

Or corrupt or over micomanaged city jobs.

It's tough to say.

I know lots of cities struggle to keep up wih the times and stay modernized to attract homeowners and businesses, and that takes money. So they take out loans or lure outside investors.

Many cities used the late 90's and early 2000's after the bush recession to invest in their infastructure, and piled up these loans and projects that went bust when the economy took a dump.

It's a tough call.

we can always say dont spend what you dont have, but many cities in ruts or with small economies or no economies successfully get loans to upgrade their whares and attract new businesses.

Sometimes, timming is everything.
 

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Id bet larges sums of cash that the majority of city's having financial problems have had DEMOCRATS in charge of their management for much of the time
Maybe-- but look at what just happend nationally. dems were set to increase taxes on the rich and the GOP came in and forced an across the board reduction in taxes and even added more pork...It's everyone wanting a free ride. Not just dems.

& Remember

Government Scum

Caused it all,

A Bunch of Communists

All of them :nuts:
It's American's fault everyone wanting good roads, nice parks, a post office within walking distance, etc.. but ask them to pay for it...yeah right!
The politicians are just doing what we ask want them to do.

If we don't make several businesses fail and gov't fail and then assign the blame where it belongs we'll never get the right people back into the right places to govern and manage our economy... no repercussions to failure means the bad ones just keep on ticking....
 

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This is primarily a retirement and medical care benefits problem. For the last 20 years, city councils have been making deals with the devil (public employee unions) that promised ever more generous retirement and medical benefits. The costs were well down the road and wouldn't impact until those elected officials were long gone. Well, the impact is imminent, those officials are gone, and all of us are left to clean up the mess. From what I have read, cities may be able to file bankruptcy and renegotiate these contracts. But under current law, states cannot. California will be one of the first states to have to default, and the rest of us will get to see how they manage it. As I've said before, we are at the very beginning of a major battle between public employees and everyone else over how much we will allow taxing authorities to redistribute wealth from private sector employees to public sector employees.
 

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.
It's American's fault everyone wanting good roads, nice parks, a post office within walking distance, etc.. but ask them to pay for it...yeah right!
The politicians are just doing what we ask want them to do.

Plenty of money for parks, Developers pay for them

Here in California "They Abused The System"

I witnessed some of it,

Most of these people "Produce Nothing"

They bring "Nothing into this economy"

Thus, "They are a Huge Burden on the system"

They are way over paid and compensated

They knew this would all happen But they kept on spending anyway

There's No Surprise Here
 

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quite possibly.
Or corrupt or over micomanaged city jobs.
:agree:
It's tough to say.
It may be tough for you to say, but the reason there's no money is because it's all been spent, many times over, on unfulfilled promises.
I know lots of cities struggle to keep up wih the times and stay modernized to attract homeowners and businesses, and that takes money. So they take out loans or lure outside investors.
Is that why Rangel's district is still an iconic slum?
Many cities used the late 90's and early 2000's after the bush recession to invest in their infastructure, and piled up these loans and projects that went bust when the economy took a dump.
linky?
It's a tough call.

we can always say dont spend what you dont have, but many cities in ruts or with small economies or no economies successfully get loans to upgrade their whares and attract new businesses.
Many cities don't have thier own taxes or income. It comes from the county in the form of property taxes. What's happened in most cases since the economic downturn is property values have crashed, drastically reducing the local tax revenue. You can thank Dodd/Frank/Fanny/Freddie/mortgage backed security traders for this too, still, even. Couple this with the depressed municipal bond values that the crashed property values caused...
Sometimes, timming is everything.
:agree:
But this is about the government being too big, wasteful, and inefficient to run...what happens when you make a problem bigger instead of smaller?
 

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The cost of services and infrastructure are NOT the problem here. The problem is almost 100% underfunded systems for supporting those public employee retirements. The private sector saw this coming and converted almost all retirement plans from Defined Benefit to Defined Contribution - meaning 401(k)'s. It's not great for employees, but it is sustainable where defined benefit plans are not. Public employers have not made the painful and difficult move to Defined Contribution plans, and now there seems no way out. The result is that those services and infrastructure that should be affordable will have to be curtailed to pay for these outsized retiree benefits.
 

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The cost of services and infrastructure are NOT the problem here. The problem is almost 100% underfunded systems for supporting those public employee retirements. The private sector saw this coming and converted almost all retirement plans from Defined Benefit to Defined Contribution - meaning 401(k)'s. It's not great for employees, but it is sustainable where defined benefit plans are not. Public employers have not made the painful and difficult move to Defined Contribution plans, and now there seems no way out. The result is that those services and infrastructure that should be affordable will have to be curtailed to pay for these outsized retiree benefits.
I would happily go to defined contribution- but increase my pay to that of the civilian workforce. To include overtime.
 

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The cost of services and infrastructure are NOT the problem here. The problem is almost 100% underfunded systems for supporting those public employee retirements. The private sector saw this coming and converted almost all retirement plans from Defined Benefit to Defined Contribution - meaning 401(k)'s. It's not great for employees, but it is sustainable where defined benefit plans are not. Public employers have not made the painful and difficult move to Defined Contribution plans, and now there seems no way out. The result is that those services and infrastructure that should be affordable will have to be curtailed to pay for these outsized retiree benefits.
naw...

I'm sure that's a very large sum of it, but not all.
At least not for every city.

Even if it is....

Excessive micromanaging and redundant employees is the root cause of many of that financial burden.

Sooo many things......even no-bid contracts with elevated payouts, excessive pay for upper tier govt employees...

there's almost too much to keep track of.
A total blank check failure at worst case situiations.
 
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