The Oligarchs and Public Debt
Shlok hits it on the head:
The Rise of the Corporate State
In order to preserve the portfolios of bondholders, Michigan is ramrodding this legislation:
The new law would allow emergency managers to terminate labor contracts, strip local ordinances, hold millage elections, dissolve a government with the governor’s approval, and merge school districts.
It would allow managers to remove pension fund trustees or become a sole trustee if a pension fund is less than 80% funded. It allows managers to recommend that a local government file for Chapter 9 bankruptcy, but leaves the final decision to the governor.
State legislatures, the bush leagues of American politics, can often be bought up by a special interest for less than one million dollars in campaign contributions. Governors are slightly to moderately more expensive ( a good bit more expensive in large states). A fantastic ROI when it yields control of billions of tax dollars. Better than anything comparable in the private sector except, perhaps, the illegal drug trade.
Acquisition and divestmentment of public debt under what terms by municipalities, counties and local government entities are political decisions. The Republican governor of Michigan, Rick Snyder, has whored himself out to the oligarchy to thwart the ability of local, elected, governments from making smart and perfectly legal business decisions – as contracting parties in a bond market – regarding their public debt so that the taxpayers of Michigan can be farmed as long as possible and at the highest rates, for the benefit of the financial oligarchy. No risk for them but serfdom for you.
This is about as anti-democratic, pro-big government, pro-high taxes and anti-free market as it gets and it is being promoted by a Republican.
We need a new major political party if liberty and democracy are to have anyone to speak for them.
March 14th, 2011 at 3:48 am
I’m not convinced you are correct, for this reason. Though the Federal government constantly pushes demands, mandates and prohibitions on the States, and attempts to force the States to do the will of the Federal government, the States are not actually subsidiary government of the Federal government. They have their own Constitutional order and in many cases preexist the Union itself. The local governments, on the other hand, are the creations of the State governments. The State is legally bound to honor the debts of its local governments, while the Federal government is not bound to honor the debts of the States. This gives a State entirely different options regarding local governments than the Federal government has to the State, presumably including the right to reorder local finances to prevent the State from incurring obligations it cannot meet.
March 14th, 2011 at 4:26 am
Hi Jeff,
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The return of a strange loop 😉 Hope that you are well!
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I agree with you that the Federal government has undermined Federalism. I will also concede that a State government has legal authority under it’s own state constitution to regulate activities of the municipalities which exist within it’s borders so long as the actions do not violate the US Constitution ( I think this law may have several points of challenge related to due process, the fifth amendment and SCOTUS decisions regarding contract, but set that aside).
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Substantively, rather than procedurally, though, I have to stand by my comments. No one put a gun to the heads of investors and forced them to buy Michigan municipal bonds. Nor is it written that bond market investors, having assumed foolish risks, are entitled to be rescued by a larger (statewide) set of taxpayers so that they are guaranteed to profit if their investment goes south. If moral hazard is good for the borrower to act as a deterrent to bad decisions, it is equally good for the creditor to encourage wise investments. Changing the rules after the fact amounts to a special-pleading form of game-rigging and a shifting of costs rather than accepting a market consequence. If you bought $ 30 million of Detroit public school district bonds at above market rates of interest, you accepted the risk of default that the higher interest rate implied. That’s why investors enjoyed a higher return – more risk. The governor is letting the bondholders keep the cake they are eating.
March 14th, 2011 at 12:44 pm
Its been observed that the formation of the free-market in 19th century Britain was only brought about by the massive exercise of State Power, and the fire sale of commonly held assets. Now we have a firesale due to debt, the result will be the same, the shirking of the public space. This is the free market in all its glorious action, creative destruction, to imagine that the free market can function without massive state power is misguided. This process will continue until it becomes historically irrelevent.
March 15th, 2011 at 12:30 am
If people do not think this is an example of corporate rule I wonder what exactly do they expect it would look like. Don’t the explanations of why this isn’t looting seem a little strained at this point?