By this point, most people are aware of the egregious salaries of several senior employees of the city of Bell, California. The Sheriff, the city manager and the deputy (!?) city manager all received more base pay than Pierre Thomas of the New Orleans Saints last year. While Thomas will likely earn more in the future as the market dictates in the NFL, these people have unfairly poached the taxpayers and will likely end up losing their unearned pay and pensions. There is justice in the world sometimes.
However, like many stories, this obscene violation of the public trust is only the tip proverbial tip of the iceberg. The City Journal recently posted an article outlining the massive amounts of public debt racked up in Bell, beginning in the late 1990s and continuing all the way to the bust of the housing markets several years ago. The article sums up well the debt to revenue ratios and a historical timeline of decisions made by elected officials, career bureaucrats and the voters of Bell over a ten-year period.
What is unmistakable in the article is how various aspects of the financial services industry kept coming up with products allowing Bell (and who knows how many other municipalities in California and around the country) to circumvent negative credit ratings to keep the reckless borrowing growing when any 10th grade economics student could easily see the cliff around the bend. Why did underwriters, guarantors, bond holders and elected officials conspire in such a fashion that would make drunken soldiers stand up and take notice?
The non-existent US media dares not go there, university flacks for the ruling class will not go there, nobody in the Obama Administration or the current Congressional leadership will dare answer the question. Why? Because just like Bell, California, a similar, albeit massively larger pond called the US government was going to ultimately guarantee all this debt. Savvy and devious hedge funds, bond traders, brokerages and investment banks all played along and then ended up driving certain aspects of the train because they knew in the end, the US taxpayers would be the backstop if something truly calamitous happened. It was as if I went to Harrah’s for years playing with taxpayers’ money but if I won, I kept the money and if sometime down the road I lost, well the house would keep me whole. Obviously I would make wagers that I never would contemplate under normal circumstances.
The LA Times expresses outrage (years after warnings) about six figure salaries in Bell – but what about the fifty and hundred million dollar pay outs to people like Jamie Gorelick and Franklin Raines at Fannie Mae? What about the untold billions in damage the US taxpayer will continue to pay because of Fannie (and Freddie Mac)? What about the trillions in lost housing equity while these purveyors of privilege skate off with more money than Pierre Thomas will likely make in his whole career? What about the bail out of AIG at zero discount while thousands declare bankruptcy?
Not every city went haywire over the past decade although many times it was average voters who stepped in to keep the sanity.
Thank goodness for the Tea Party folks and their loose affiliates who overrode the Baton Rouge equivalent of the ruling class at the ballot box last year. The overwhelming defeat of Mayor Holden and the Baton Rouge Advocate has likely prevented crippling debt at a time when dozens of cities will go the way of Bell, California.
I expect the thank you bouquets to arrive just after George W. Bush receives a Nobel Peace Prize for the surge in Iraq.