With New Jersey Governor Chris Christie and embattled Wisconsin Governor Scott Walker leading the charge of public union pension reform, the subject of municipal finances, at least at the state level, has received no shortage of attention throughout the last year.
But the question remains, where does it all end? Who will ultimately feel the pain and consequences of unsustainable state finances?
The November Issue of Vanity Fair features an article by Michael Lewis which may provide some answers.
For those not familiar with Mr. Lewis, he is the author of the 1992 classic Liar’s Poker, and more recently The Big Short. Readers may also know him as the author of books turned movies Moneyball, and The Blind Side.
California and Bust (the fore-mentioned Vanity Fair article), is not Lewis’ best work, (the piece is quite disjointed) but it does shed some interesting light on the state of municipal finances and takes a peek at where the current road may lead and where the most pain will be felt.
Lewis starts with a second take on the now infamous Meredith Whitney 60 Minutes interview that set the muni world ablaze and makes the case that Whitney’s actual words and warning were twisted into something she didn’t actually say.
Regardless of how or if her words were unfairly turned into a specific prediction she never made, the treatment that Whitney received after the interview was nothing short of astounding. As Lewis points out she was one of the few skeptics who saw through the sub-prime propaganda and went out on a limb to call out the fallacy. One would think that such a hero would be given better consideration than the “shoot the messenger” barrage she faced following the 60 Minutes appearance. And as far as predictions go, even if a specific prediction was made, there is always the Wall Street dilemma: is your opinion wrong, or simply early?
The article includes a look at former Governator Arnold Schwarzenager, and how the financial mess know as California came to b. Lewis then follows up on Meredith Whitney’s theme of where the ultimate pain will be felt; not at the state level , but rather the local level, and takes a look at two San Jose and Vallejo California, two cities at different points on what might be called the Road to Serfdom.
While some may argue that the “crisis” in municipal finance is overstated, the article is a sobering read nonetheless. A vision of disappearing municipal services financed by higher tax rates on falling housing values, is indeed a horror story worthy of the Halloween season.
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