Transcript PowerPoint Presentation - The Global Financial Crisis and

The Global Financial Crisis
and Municipal Budget Crises:
Philadelphia and Trenton
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
By Scott Pinkelman
Philadelphia Budget Crunchers
http://budgetcrunchers.wordpress.com
What is happening?
Is The Economy In Crisis?
Will Obama Fix The Economy?
Is The Economy Heading Into
the Great Depression 2.0?
Capitalism
Capitalism


An economic system with private ownership
and profit.
Profit - Money or wealth that is more than
the costs of production and is paid to the
owner or investor.
Finance
Finance


The field of financing business by providing
credit
Bankers, brokers, traders, etc.
Financial Crisis
Root Causes
Stagnation
 Financialization
 Deregulation

Stagnation




Early 1970s: End of ‘Keynesianism’
Deindustrialization
Declining Wages
Stagnation
 1978-2008: Industrial utilization:
81%
 2003-2008: Industrial utilization at
77%
 Post 2001 ‘jobless recovery’
(Magdoff and Foster,
2008)
Financialization
Financial Sector Debt
1973: Total Debt 140% of GDP
 Financial Sector: 9.7%
 1989: Total Debt 234% of GDP
 Financial Sector: 18.7%
 2005: Total Debt 329% of GDP
 Financial Sector: 31.5%

Debt as % of Income
The Price of Debt
The Price of Debt
Deregulation
1999-2000
 Repeal of Glass-Steagel Act
 Commodity Futures
Modernization Act
 Securities

Recent Causes

Post 2001 Federal Reserve
Interest Rates
 Speculative
Real Estate Bubble
Rise in home prices after 2001
 Second mortgages
 The rise of 'subprime' mortgages

QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
Homeownership
Timeline
2007-08
March 2007: Mortgage companies
begin to seek to sell subprime
lending arms
 August 6, 2007: American Home
Mortgages files for bankruptcy
 August 10, 2007: LIBOR sets .5%
higher
 August 17, 2007: Federal Reserve
cuts discount rate by .5%

Timeline Sept. 2008






Sept 6 - Fannie Mae and Freddie Mac placed
under government conservatorship
Sept 14 - Federal Reserve decides to let
investment bank Lehman Brothers Fall
Sept 14 - Merril Lynch sold to Bank of
America
Sept 16 - Federal Reserve ‘liquidity
injections’ into money market funds
September 21 - Investment banks Goldman
Sachs and Morgan Stanley become ‘bank
holding companies'
Sept 19 – Troubled Asset Relief Program
(TARP) Bailout Announced
Bailout





Officially $700 billion
With loan guarantees: up to $8.56
trillion
Video
Massive outcry; initially voted down
in the House
'Largest transfer of wealth from
taxpayers to stockholders in history'
What's it being used for?





Given to get banks lending to one
another
No stipulations / little oversight
$18 billion in Wall St. bonuses
Bank of America: Lobbying against the
Employee Free Choice Act
Bank Consolidation
 4 superbanks: Bank of America, JP
Morgan Chase, Citigroup, Wells
Fargo
Philly Budget Crisis
City Budget $4.03 Bn annually
 Nov 2008: $1 billion deficit over
5 years
 Jan 15, 2009: Projected deficit
raised to $2 billion
 $108.1 million in cuts by 2009

Libraries
Essential Services
Causes

5 year Shortfalls In:
 Pension Fund: est $498 million
decline
 BusinessTax: $119 million (down
$33m from last year)
 Real Estate Transfer Tax: dropped
37.3% 158m
 Property Tax: $180 m less
Pension




Pension Fund has lost 22% as of
mid January
Covering these losses will cost the
city $359 million
Unable to issue bonds 5 year bonds
- $140 million to defer pension
payments
Pensions cost 252 million in 1998 –
will cost est. 613 million in 2012
FY 2010 Budget
Temporary increases in sales
and property taxes
 Two-tier pension plan with
municipal union
 Sliding scale at health centers

Trenton
FY 2010 New Jersey Shortfall
 100 million
 Gov Corzine’s proposal to allow
municipal gov’ts pension
contribution deferrals
 6.8 million in Trenton
 4 million dollar shortfall

Water Sale






Sale of Trenton Water Works
pipelines to NJ American Water Co
Estimated at $20 million; State
allowing City to count $7.7 million to
city
Estimated to help shortfalls to two
years
Petition Drive to stop sale
Privatization of public infrastructure
“Sale vs. tax hikes”
Property Taxes
29% increase in Trenton
 19% (FY 2010) followed by
14.5% (2011) in Philadelphia
 Major source of revenue this
budget year
 Philadelphia FY2010: $9.87 cents
per $100
 Trenton FY2010: $2.74 cents per
$100

Neoliberalism
Global Neoliberalism
Neoliberalism
 The current stage of capitalism.
 Starts around the early 1970s
 Public services for sale
 “No borders”
 Dominant ideology in economics.
 “Modern Imperialism”

Structural Adjustment Program
SAP
Structural Adjustment Program
SAP
International Monetary Fund in the
1980s
 Characteristics
 Privatization
 Free trade
 Cutting capital controls

Philly and Trenton in Context

'Financialized' city budgets
 Dependent
of stock and bond market
 Only growth strategy is attracting
outside companies through tax cuts or
land deals



Needs of the population aren't met
More taxes, reduced services
Public services are being privatized