Chris Christie Hoist a Wee Bit on His Own Petard (Schadenfreude Watch)

As New Jersey governor Chris Christie found out the hard way, saying bad things about union pensions at the wrong times can lead to egg on one’s face and higher costs to taxpayers. From Bloomberg:

New Jersey Governor Chris Christie has learned that talking about state insolvency may have a cost.

About 20 minutes after Christie, 48, told a town-hall meeting in Paramus today that health-care costs “will bankrupt” the state, the New Jersey Economic Development Authority cut its tax-exempt school-related bond offering by more than half to $712.3 million.

“It doesn’t help to try and sell a $1 billion deal on the same day the governor is talking about the state going bankrupt due to health-care costs,” said Mike Pietronico, who oversees $360 million as chief executive officer of Miller Tabak Asset Management in New York….“The market is very sensitive to the word ‘bankrupt.’”

Cutting the size of the bond offering presumably means the Garden State will have to go to the well again. That almost certainly means more transaction fees (big deals generally have lower charges as a percent of the offering) and likely higher interest rates (given the increasing nervousness about the muni market generally in combination with the yet to be resolved NJ pension fight).

The only people Bloomberg could find to argue that the sudden reduction in the size of the bond deal had nothing to do with the governor’s unfortunately timed remarks were members of his team.

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  1. killben

    So what is Mike Pietronico suggesting .. extend and pretend is the only policy that will work …

    Keep it up Mike!

  2. Rich

    Price is a function of risk, right? Unless Christie mis-spoke, the price is simply reflecting the risk. Swap the concept of “cutting its offering” to “pricing its offer correctly” and it changes the connotation.

    At the point of going bankrupt, there would be only one thing worse than having $712.3 million debt and that would be having $1,400 million debt. This is the way finance is supposed to work.

    1. Yves Smith Post author

      Draw the classic supply-demand curves

      Move the demand line substantially to the left to reflect the fall in demand

      The resulting intersection is both at a lower price (higher bond yield) and lower quantity than before.

      We only got the quantity part of the story. They may have decided to sell even less to preserve the pricing (as in not pay higher yields).

      Christie wanted to sell $1.4 trillion, I assume he actually needs to sell $1.4 trillion. So his remarks cost him. The supply reduction was not what he wanted to happen.

      1. eric anderson

        Billion, not trillion. At least, not yet. States won’t be borrowing trillions until Bernanke reaches the “final solution” stage of Quantitative Easing — the complete extermination of our currency through printing. I wonder what the interest rate would be for Jersey to borrow 1.5 Trillion…


        1. Yves Smith Post author

          I was also writing a drafting a post on Citi, where trillions is the right order of magnitude. Gotta watch that, particularly when in the midst of AM drafting.

  3. Parvaneh Ferhad

    So an acting governor is talking down his state thereby making it more difficult and more expensive for his state to borrow money, which in turn will hasten the result the governor is speaking about?
    Now the obvious question is, is he just inept or does he have an agenda?

    1. Yves Smith Post author

      The denials of his staff suggest inept. Otherwise you’d get the “starve the beast” spin.

      1. Gentlemutt

        Christie is about half as smart as he thinks he is, true enough. But he is also not nearly as interested in actually governing New Jersey as he is in becoming President. So, in his perverted personal calculus, if he has to burn down his own house to move into a mansion so be it.

        Of course, the current occupant of the mansion Christie lusts after is kind of showing him just how one puts personal political “success” ahead of the interests of one’s constituents…

      2. Paul Tioxon

        After his kill the light at the end of the tunnel from NYC announcement, he shows a clear lack of being held in thrall of construction unions, cement suppliers and real estate development on his side of the river. All normally good things to have going your way in NJ. But, with this speaking ill of your own state, undermining your ability to raise money and govern shows the starve the beast in full campaign mode. The anti government conservatives do not do nuanced well when in public. He seems more and more, an out of his league knuckle dragging prosecutor who has reframed public servants as the new criminal class.

        1. Dibbles

          “reframed public servants as the new criminal class.”

          Yes that is the jist of the new republican mantra isn’t it?
          Dine-and-dash republicans telling everyone else to belt-tighten.

        2. Mike M

          “construction unions, cement suppliers and real estate development on his side of the river.”

          You do know that he was a prosecutor, don’t you? That he may have had much of his staff investigating all of these people you speak of. I’d be a bit more worried if he was very friendly to the cement bosses with crooked noses.

    2. monday1929

      As the Depression deepens, politicians will have to balance the need to make dire (ie realistic/truthful)statements in order to make drastic cuts with their fear of causing panic.
      Something like that tension is what caused Hank Paulson to throw up on the Capitol (see his book) steps before warning Congress that without TARP martial law would be needed, and that we were on the “brink of collapse”. Like the Japanese head spokesman stating last week that Japan was “at the edge of a cliff”.
      Ironic that when they finally tell the truth, no one believes them.

      1. sherparick

        As Dean Baker often points out in his blog, “Beat the Press” one should take with a grain of salt what politicians say and look at what they actually do and desire, which is to win elections, wield power, punish enemies, and award friends. Despite the calls about New Jersey bankruptcy, Christie wants to cut the taxes on the rich and near rich who are his core constituency (all those Goldman bond traders, hedge fund managers, and the like who live in affluent New Jersey suburbs to the west of New York City). And he wants to break and demoralized the public employee unions who he sees as the heart and soul of the New Jersey Democratic Party. (I actually think this is not a correct belief since Democratic politicians in New Jersey seem to be rather indifferent to the fate of the unions and their workers who seem to be the scape goat of the moment.) Rather, the Democrats seem to want to say property tax relief will be their principle issue as they look to the moderate income home owner as the key swing constituency that can keep them in power.

        1. Mike M

          “Christie wants to cut the taxes on the rich and near rich who are his core constituency (all those Goldman bond traders, hedge fund managers, and the like who live in affluent New Jersey suburbs to the west of New York City)”

          Please. Are you from NJ? First of all, you are talking about a teeny weeny voting block when you refer to rich investment bankers. NJ is probably last on the list for places to live within commuting distance of the office. Try Manhattan and Greenwich first, Westchester after that, and maybe some of the lower rung of the food chain actually think living in Montvale or Chatham is cool. Sure, they’re good for the campaign chest, but don’t think they hold much sway over such an ethnically and economically diverse place as New Jersey when it comes to election day. The people of New Jersey are a little smarter than you give them credit for. Paying nearly 20,000 property tax on a little cape that is an hour or two of stalled traffic to the office over expensive tolled roads while you’re wondering if the little 2.5 kids are being taught to at least read and write without getting beat up by the new thug in class can make a voter think twice about spending even more for the pleasure of living in such a nice place.

          1. Mike M

            You’re not getting it. “Votes Bought” has been SOP for over a century, and, look where it’s gotten us. If he wanted to buy votes, he should have said, “Yeah, sure! Let’s build a tunnel to Manhattan! No, No, How about two! and, hey, a bridge would be nice, too! Call in the accountants, I’m sure we can make this work. WTF, it’ll be 30% done when I’m outta office and working for some construction company.” Think of the thousands and thousands of votes that would have bought. But, he’s the first guy who actually said, nope, we can’t afford this. Game Over. I like that. Because, it’s true, if you believe we are headed into a great deflation with millions of Boomer public workers cashing in on pension and health care promises in retirement at the same time.

            The last thing you should buy is a New jersey Muni bond of some sort these days.

          2. borkman

            Sorry, I don’t buy it. Christie nixed a millionaire’s tax. Even though it won’t make a big dent in the budget, the symbolism is important. You can’t welch on contracts (funny how “sanctity of contract” applies to CEO and trader comp but not union pensions) and not also demand shared sacrifice.

    3. sandy

      chrisie is telling the truth- which has become anathema in the current climate.

      don’t shoot the messenger!

      the markets react to the mess that new jersey has become and all the government promises that statistically cannot be kept. how long do you think extend and pretend would work, anyhow?

  4. dearieme

    I had assumed you’d be against bond salesman lying about the financial robustness of the issuer.

    1. RalphR

      Exaggerating how dire things are is also lying. New York City nearly went bankrupt. “Bankrupt” implies imminent collapse. New Jersey has a huge fiscal problem, but calling it “bankrupt” is a great political tactic, but not factually accurate. In fact, calling NY bankrupt is tantamount to Christie saying he will fail in making progress on the budget gap. Forward looking statements and all that.

      1. monday1929

        The entire system is Bankrupt. It is only a question of when that fact becomes broadly recognized.

  5. Brian

    Well wait a minute here. Do we want politicians to start speaking more truthful about the situations they face or should they keep pandering in the media? Some might answer that sometimes they should speak open and honestly and sometimes they should speak more guarded; but then we’re back to where we started because then how does one decided when it’s suitable to do one rather than the other.

    In this particular case, I would be more inclined to defend Gov. Christie’s words had his office just said: that’s the truth, and that’s how we intend on talking to the public. Of course at that point we could argue the mathematics and financial aspects in a more objective way.

    However, these debts concerning public worker pay and benefits appear to be extremely black and white enough to provoke suspicion that objectivity has left the room and the positions are in such an extreme either/or that the entire discussion has become absurd: either one side is using strawmen attacks to destroy public workers from pure malice or public workers are nothing more than minions of the Devil himself sucking us all dry in order to destroy God’s precious creation: mankind.

  6. W.C. Varones

    This is why I prefer Yves’ commentary on banks to her commentary on government finances.

    She’s against bank Ponzi schemes, but apparently in favor of denying reality to perpetuate government Ponzi schemes.

    1. attempter

      I think the point is that Christie, like all system politicians, is a borrow-and-spender. As a Republican, his shtick is to decry big government spending even as he increases it. So that means he must want bond issues to succeed, at least while he’s still in office. But in this case the tightrope act didn’t work.

      It’s just like how anyone in government who suggests Social Security is in solvency peril and needs to be cut is actually threatening a voluntary government default. But he doesn’t actually want the market to believe what he’s saying. It’s all supposed to remain understood as a political Big Lie.

      But unlike the federal government, which is solvent in its own currency, a state can go involuntarily bankrupt so long as it continues to conform to this currency system. Christie seems to have lost sight of that, and that he doesn’t have as much room for political lies as a federal politician does.

      1. W.C. Varones

        Au contraire. Christie is the furthest thing from a system politician or a borrow-and-spender that we have in high elective office.

        He is an outspoken reformer, and has been caricatured by the left as a slash-and-burner, with some justification.

        It seems some here are so viscerally opposed to Republicans that they don’t look at the facts of the issues or the individuals.

        1. Elliot X

          Rush Limbaugh said: “Ladies and Gentleman, is it wrong to love another man? Because I love Chris Christie!”

          Well, despite such a ringing endorsement from none other than El Rushbo himself, I’m afraid I have side with the attempter on this one, color me skeptical.

        2. attempter

          1. Nobody even passingly familiar with me thinks I oppose Republicans any more than I do Democrats. Both are criminal enterprises which are proper targets for RICO.

          At the New Nuremburg I’d indict not only all Rep and Dem leaders, but the two organizations themselves.

          2. For a prime example of that, hasn’t the Christie family been up to their criminal necks in some “deferred prosecution/early intervention” scam for corporate worngdoers? Instead of being prosecuted, the white collar criminal gets to go into a “counseling” program. The “counselor” is a just a crony paid with public money whose only job is to rubber-stamp the rehabilitation of the malefactor, who thus gets off scot free.

          That’s exactly the kind of capital crime we’re talking about. Wasn’t Christie a prime referral service for this scam, and wasn’t his brother a favored recipient?

          And criminal swine like that’s who you call a “reformer”. That says a lot about your (lack of) character.

          1. Elliot X

            Well done, I couldn’t have said it any better.

            Whether they call themselves Democrats or Republicans, they all work for the same organized crime syndicate known as the US government.

            “Whoever makes two ears of corn, or two blades of grass to grow where only one grew before, deserves better of mankind, and does more essential service to his country than the whole race of politicians put together.” – Jonathan Swift

      1. eric anderson

        Yes, eventually all government debts will be paid back with interest. Will they also, as a courtesy, give along with the interest free wheelbarrows to take your dollars to the grocery store for a quart of milk?

      2. monday1929

        Ignorance is forgivable in the young. See Jamie Dimon’s comments this week predicting muni-bond defaults. They are his only truthful statements ever made, so savor them. Or see Meridith Whitney’s similar call. She is the one who was threatened by Citi’s security apparatus when she accurately predicted that Citi would cut its dividend. For that she received death threats.
        Class Warfare indeed.

      3. RalphR

        He’s right. Aside from industrial revenue bond disasters like WPPSS (pronounced “whoops”), the worst you see in muni/state issuer crises is one or two missed payments. Completely different than corporate or personal bankruptcy. That’s why being an old monoline insuring muni credit was a good business. Even when they go bad, they don’t go very bad.

  7. W.C. Varones

    “The only people Bloomberg could find to argue that the sudden reduction in the size of the bond deal had nothing to do with the governor’s unfortunately timed remarks were members of his team.”

    How selective. How about this?

    “The only person Bloomberg could find to argue that the sudden reduction in the size of the bond deal was related to the governor’s remarks was a single money manager who gave a lukewarm endorsement of the thesis.”

    Been watching the muni market at all lately? Christie’s been talking like this for months, and the muni market is a mess not only in New Jersey but across the country.

    Reality bites.

    1. Mike M

      And I third your observation. Let’s just fast forward to, oh, 2020, when some large institutional buyer of those bonds is interviewed on CNBC whining that, “hey, the powers that be told us everything was cool, or, well, hardly as bad as they were when we bought those bonds! mew, mew, and hey, sorry dear pensioniers, I don’t think we’ll be able to pay you next month.” Or, for better effect, an elderly woman from Hackensack crying on the news that her bonds are now worthless, and her broker told her that the Governor at the time said they were a great buy! sob sob.

      I’m an old hippie failed Democrat born and bred Jersey boy, but, I find it quite ironic that Change I Can Believe In is coming from the Republican governor of my former Garden State, while a sophisticated gangster like Daley has just been put in charge of the control room at the White House. Just imagine the “cost over runs” that may have happened if that tunnel that Christie killed ever happened. The Irish gangsters up in Boston would have blushed as they still count the obscenely profits from the Big Dig when they saw the final numbers. I’m keeping my eye on this guy, and, if he doesn’t sell out or say something REALLY stupid, I’ll definitely consider him for the White House.

      1. Paul

        What, so we ran 2.5 billion into 20 billion? Gangsters got to eat too you know? ( Did I mention the shoddy work, at Mercedes prices that will require repairs forever? ) Besides, have you driven the Big Dig? Look at the wavy tiles, snakey lights, a road bed worse than Baghdad.

      2. Helas

        Then he shouldn’t be selling bonds at all. You can’t say he’s honest if he really believes the state is bankrupt and is offering bonds to the public. You just don’t get how inconsistent your position is.

    2. Yves Smith Post author

      If you know anything about bond underwriting, a 50% cut in deal size in a short time period is unheard of. You don’t need much commentary when the facts are this obvious.

  8. Rick Caird

    It seems pretty silly to think the bond purchasers were suddenly surprised to find there were financial problems in New Jersey. These must be the dumbest bond purchasers of all time.

    I suppose, then, since these people are so dumb, Christie should just have kept quiet in the hopes of fleecing them. That sounds like a good business plan.

    1. Yves Smith Post author

      Munis are a retail product. They ARE sold to the dumbest investors. Even muni bond funds depend on end retail demand.

      And if he’s really fleecing investors, per your logic, he should not be selling bonds at all. Yet you claim that he’s honest. You ignore the contradictions in your own position.

      1. Siggy

        I don’t think muni investors are categorically dumb. I do believe that muni salesmen are prodominantly larcenous.

        About 35 years ago my largest private investor came into meaningful money. The query, I really don’t want to work. How do I get an income that will let me travel and engage in my photgraphic hobby?

        A ladder of muni’s was created and a tax free income of just over $2,000,000 per year was established. That level of income lasted for 32 years. At the end of the 32 years we created a set of trusts that provide an annual tax free income of just over $600,000 for each of three children.

        Over that same period the corpus of the portfolio has grown by 4.5 times. A little due diligence, modest return objectives and you get a very nice bit of investment performance. As much as size is the enemy of performance, greed is the destroyer of performance.

        I do agree that most muni buyers are a bit daft, but most assuredly not all.

  9. Simon Grey

    Is Mike Pietronico really suggesting that Gov. Christie shouldn’t disclose the fiscal standing of New Jersey? Businesses are required to disclose their financial state to those who want to buy stocks or bonds. Why not apply this standard to state governments as well?

    1. Yves Smith Post author

      New Jersey is not bankrupt. I suggest you check the definition of the term. It has a huge future fiscal problem but is current on its obligations and default is not at all imminent.

      There is plenty of disclosure of the government’s budget and outlook for those who want the facts. This has nothing to do with disclosure.

      What Christie engaged in was not an honest accounting of New Jersey’s problems (which as we set forth in a recent post at length, were over a decade in the making, and started on the Republican watch), he was engaging in theatrics. It blew back on him.

  10. eric anderson

    If Christie can cut enough government in New Jersey so as to require NO more borrowing (which is the logical end they must aim for), I would not only vote for Christie for President, I would vote to make him King. The alternative is to kick the can down the road, until the road ends in a cliff edge.

    1. ScottW

      Does NJ have a defense budget to deal with? Trust me, in less than a year the honeymoon will end as he teams up with whatever group of corporate thugs he figures lines the streets to the White House.

  11. monday1929

    “The market is very sensitive to the word bankrupt”.

    Bankrupt. Bankrupt. Bankrupt. Bankrupt. Bankrupt.

    Bankrupt. Bankrupt. Bankrupt. Bankrupt. Bankrupt.

    No, just checked the futures.

    But very soon the word will be on everyones lips.

  12. long john slivers

    So Christie gets reamed for telling the truth? That tells you all you need to know about the state of US finance. It’s strictly a confidence (con) game and we dare not utter the truth

    1. ScottS

      A self-fulfilling prophecy is truth? He said that the state couldn’t pay back bondholders because there isn’t enough revenue, so bondholders decided not to buy the bonds, so now they don’t have revenue to cover the expenses.

      If he were in charge of Citi, he’d be fired. Why is he such a hero to the Wall Street apologists suddenly?

  13. monday1929

    Any fiduciary putting clients money into these bonds after the Governor’s comments will be found derilect and will have to re-imburse his/her customers when these bond default.
    Any pension fund manager putting money into these bonds will be facing jail time when the enraged electorate demands justice.

    Not too late to sell them, guys. And you DO read Yves.

    1. Dibbles

      Last I checked, it was the republican conservatives that entered the White House with a balanced budget, then waged 2 wars, off balance sheet, but on the credit card. Does the military with it’s unauditable Pentagon budget count as part of big government in your world?

  14. Bill G

    Christie is one of the few politicians trying to do the right thing and willing to make hard choices to reign in out of control government spending. Chritie told the truth although his timing may have been unfortunate for the bond offering. He can be excused for a small tactical error like this although the libs will latch on to any straw they can find to smear him. The libs fear Christie more than anything. The libs live and die by big government programs and spending and will do anything to protect it.

    1. Yves Smith Post author

      He’s NOT making tough choices. He’s willing to sock it to unions and taking nothing from the rich. You are way off base here. He nixed a milloinaires’ tax. This is about making sure his backers suffer no pain while everyone else does. That is the antithesis of a tough choice.

      1. Mike M

        His “backers” are ultimately the voters of NJ. Maybe a lot of rich funded his campaign (who can get elected these days without them?), but, you’re forgetting that he ran against a former CEO of Goldman Sachs. Talk about backers.

        I’ve ranted elsewhere in this response section about this, but, I’ll say it again. He is taking the hard road, practically swimming upstream in the history if NJ politics. It would have been so much easier to have that tunnel built, play sleazy bond salesman, have some kid on his staff write some confusing and opaque BS about the future of education in NJ as the teachers union gets another raise. He isn’t, and, that’s why he has the eyes of the nation on him. So he didn’t tax the rich. Big whoop. Personally, I’d like to eat the rich with some fava beans on the side and wash it down with some fine Chianti, but, what would that solve? There’s so much more of us than them. We’re the problem, and we have to fix this.

        1. Yves Smith Post author

          If you think Christie’s backers are average NJ voters, you are more naive than I thought.

          I’m not a fan of Corzine, but he did take steps to reduce the pension underfunding, but not enough. So your characterization of Christie as the first to take any sort of “against the tide” measures is a distorted reading.

          And the rich in the US (meaning the top 1%) get over 20% of the income and control 40% of the wealth. The top 1% got 2/3 of the income gains in the last expansion. To exclude top earners from the remedy when they’ve been able to jigger the system so the benefits flow disproportionately to them is nuts.

  15. TR_Populist

    The long and the short of it is that Christie was talking out of both sides of his mouth and he and his state got burned for it. He and his staff spun two different yarns about New Jersey’s fiscal health, one to foment outrage against the state employee’s unions and generate support for attacking the pensions of state workers and another to blow happy smoke up the anuses of the bond underwriters.

    Apparently a low level analyst must have picked up and read a newspaper at some point and informed a higher level manager that the spreadsheets scrawled with sunshine and rainbows they were receiving from the state didn’t quite match the rhetoric about the impending union imposed financial Armageddon being flung fast and thick at the general public.

    Something had to give and in this case it will be the state of New Jersey and it’s citizens due to the higher transaction fees and almost certainly higher interest payments on the debt the state issues, provided isn’t forced to cut the planned expenditures.

  16. Jim Haygood

    No one asks why a state with a relatively static population needs to raise $1.5 billion for school construction.

    I only quibble with Christie’s claim that health care costs will bankrupt New Jersey — educational costs are at least as good a candidate.

    New Jersey’s loony-tunes Supreme Court has in fact ordered tens of billions worth of school capital construction, in the long-running Abbott v. Burke drama extending back to 1973. There is no scientific evidence whatsoever of any connection between this massive institutional pyramid-building project and educational quality or achievement.

    However, the overhead costs of keeping these educational palaces heated, maintained, staffed with unionized teachers and administrators, and paying interest on the debt, will insure that New Jersey remains NUMBER ONE in crushing, confiscatory property taxes, which sends its elderly fleeing to Florida when they complete their terms of corporate indentured servitude.

    Did educational bankruptcy produce New Jersey’s addled Supreme Court, or was it the other way round?

    1. TR_Populist

      I can think of a few reasons:
      1. Replacement of old buildings with newer, up to code structures.
      2. Upgrading of existing structures in need of repair.
      3. Support the building of new schools in growing districts. (even in a state with a stable population some districts are likely growing and an empty building in Patterson does not translate to classroom space in Trenton.
      4. Capital investments to decrease yearly operating costs.

      1. ScottS

        5. Teachers have been making due with a student/teacher ration of 40:1 for decades, and now the state is finally doing something about it.
        6. Schools have been doing without sports fields, structures, and auditoriums and are now finally getting them.

    2. Jim Haygood

      You’re right, of course. But in New Jersey, such routine capital investments and upgrades are included in local school budgets.

      The state agency doing the massive borrowing — the School Development Authority (SDA) — exists because of a 37-year ‘Robin Hood’ school funding lawsuit called Abbott v. Burke. An article from Jersey City explains:

      The fate of the capital plan has been a major concern for the 30 urban districts with projects on the list. From Jersey City and Newark to Camden and Vineland, the districts fall under the Abbott v. Burke school equity rulings that demanded billions in new construction and renovations in their schools.

      The SDA has been under a cloud for much of its history, facing questions of waste and mismanagement as it spent down $8 billion in initial funding without completing a vast majority of it promised projects.

      Among his first tasks, [SDA director Marc] Larkins said, is to review the 2008 capital plan to insure all the projects should remain on the priority list or whether others should be moved up.

      He said population and enrollment needs had changed in some communities that may make other projects more important. He also said the review would look at how the projects get completed, whether each is designed from scratch, whether even new policies for grade configurations of the schools should be weighed.

      As one might have anticipated, an $8 billion [ultimately to exceed $20 billion], top-down, command economy capital project proved to far exceed the state’s management capacity. And as director Larkins is hinting, some of these costly projects may end up being white elephants before their doors even open, because of demographic changes.

      The SDA is a gigantic judicial/ideological project involving serious money. It is one hundred percent predictable that it will result in massive malinvestment, if indeed anything is actually built at all.

      Hopefully New Jersey’s Stalinist educational bureaucrats will name one of their educational palaces for Romanian dictator Nikolai Caeusescu, and perhaps even glean some design cues from his immense Palace of the Parliament.

      Because we all know, in this age of internet distance learning, that costly bricks and mortar guarantee educational achievement — NOT!

  17. Jason

    I can hear a pin drop on the liberal side of the blog today which is usually out in force. Perhaps they’ve been chastened a bit by their ridiculous over the top rants that conservatives caused the Tucson horror?

    1. Jim Haygood

      The liberal/conservative polarity isn’t very illuminating anymore, I feel. But to your point about consistency, this blog has a definite tilt against austerity. And the massive tax hike in Illinois is the closest US equivalent to the growth-killing, tax-and-slash policies of Greece and Ireland. Logically, if one opposes austerity, one would also oppose a huge state tax increase in the midst of recession … errr, excuse me, ‘early recovery.’

      Illinois-based blogger Mish Shedlock is organizing a recall campaign against Illinois governor Pat Quinn. No bulls-eyes … just working within the system to turf out a public enemy.

      1. Yves Smith Post author

        Austerity does not work. As I said below, go have a look at what is happening in Latvia and Ireland. I’m being empirical, you are the one with a bias here. That does not mean that wasteful spending is a good idea, but cutting your legs off to save on the cost of shoes isn’t smart either.

        1. nonplused

          Austerity is going to work because it is the only thing left.

          Systemic government borrowing does not work.

          Another way to address the issue is raise taxes until the budget is balanced (even if it takes tax rates over 100%) and then watch the public support for actually addressing spending come stampeding in.

          1. Yves Smith Post author

            We should be so lucky as to have what is happening in Japan, whose bubble was far worse relative to GDP than ours and has far worse demographics, versus what is happening in Ireland and Latvia. Be very careful what you wish for.

    2. ScottS

      Can you please define “liberal”? That word gets tossed around a lot and I have no idea what it’s supposed to mean.

      From the context, it sounds like a person who opposes the wholesale looting of the lower and middle class by the generationally wealthy.

      What on earth that has to do with Giffords shooting, I have no clue. Why someone who thinks income should correspond to social contribution should be “chastened” by that, I don’t know.

      As for the issue in the post, I have to say that the cognoscenti recognize the as a colossal cock-up. He didn’t actually want to lose the money, but his big mouth lost it in an attempt to put public unions in their place.

      Maybe Chris Christie can parlay this into proving his point that the state government really is insolvent, and cram austerity down NJ’s throats. But if anyone in the news doesn’t copy-paste his press releases the next time he beats the austerity drum, then he just shot himself in the foot. Because next time he says “NJ is insolvent!” everyone will know exactly who’s responsible.

  18. Jason

    Jim H, in addition to anti-austerity, the blog has a strong whiff of “raise taxes on the rich” sentiment. I come here for the Yves perspective but lets not pretend she doesn’t bring her own biases to the discussion and the posters generally have a left lean to their comments. But again, on this issue we find them strangely silent.

    1. Yves Smith Post author

      Taxes need to be increased on the rich. Look at the income distribution tables. That’s where the money is. Trickle down has been shown not to work. Austerity does not work either. Go see what is happening in Ireland and Latvia now. Austerity had led to a collapse in both economies (Ireland’s nominal GDP, which is what matters in ascertaining the level of the debt burden, has fallen 20%, making its debt to GDP ratio worse).

      So who exactly is biased here? The facts are on my side, but you engage in an ad hominem attack.

      1. Dibbles

        My philosophy is that when conservatives start calling for austerity on banker bonuses and CEO perks, then I’ll take the economic armageddonists with more than a grain of salt. (I’ll add a margarita to it.)

    2. ScottS

      What bias? People in monopoly positions tend towards rent-extraction, and do nothing productive. The Naked Capitalist’s goal is to match income with contribution.

      The theory behind laissez-faire capitalism is that those who take the risk and work hard to produce something beneficial should reap the rewards. The current financial industry:
      a. Has no risks. If you are big enough and fail, your failure will be paid for by the middle class who had nothing to do with it.
      b. Produces nothing of value. The goal is to take in money and contribute less than nothing. Commodity speculation, real-estate speculation, and defrauding pensions is not beneficial to anyone outside the FIRE sector.

      The supposed givens of laissez-faire either need to be restored, or we need to find a new way of compensating people for their contribution.

  19. Chris


    I have been surprised in the last couple to find that I am considered among the rich! Quite a revelation.

    I read your posts often and enjoy them immensely. Thank you for your efforts.

    With regard to taxing the rich the following are true:

    1. Higher taxes result in strategies to lower those taxes.
    2. If you taxed the rich at 100% you could not solve any of the problems we currently face.

    Simplistic but irrefutable. Therefore we need more aggressive solutions that unleash the power of the individual.

    Unfortunately the humanitarian in me knows the pain, suffering and death that would ensue from such a plan.

    But we clearly cannot trust Government to properly regulate our darker commercial sides.

    I don’t know if there is an answer or not. But it seems pretty clear that raising taxes on “the rich” won’t accomplish anything.

    With great respect.

    1. Helas

      This is a straw man. Taxing the rich at higher marginal rates does not mean taxing them 100%

      And the highest marginal tax rate was under than commie Eisenhower, 90%. The economy performed well then. That was a different era, but you can’t say high taxes stifle individual effort. That’s an interesting view with not much backup. You’ll have status competition in whatever social and arrangement a society has, which means whether taxes are low or high.

      Look at how one of the most productive creations ever, the penicillin vaccine, was given away by Jonas Salk. He thought it was wrong to take money for something important to public health.

      We as a society have set out to sell the idea that money is the only thing that motivates people. It isn’t true but the authorities are laboring mightily to make it true (for instance, by the necessity for most students of going heavily into debt to get an education. If student loans weren’t so easy to obtain, it would have put a brake on rising higher education costs).

  20. alan

    Someone said that two/thirds of national income gains over the past decade has gone to the top 1%. If this is so, then it seems to me that this is where we’ll find the largest new source of tax revenues. Everyone else is pretty much tapped out.

  21. Gregor

    Our neighbor is employed by Washington State Department of Transportation and typically works 2-3 days a week, leaving at 8am and coming home by 3pm (maybe a 6 hour workday minus whatever time she takes for lunch, so she’s probably putting in 5.5 hours x 3 days = 16.5 hours per week). I’m pretty sure she gets paid full time for her efforts. Not exactly endearing. She’s a nice lady and very much a hippie, but I don’t think it would be unfair for her to take a haircut on her pension when the time comes, especially if it’s one of those deals where people pretend to work all kinds of overtime in their last few years before retirement and then have a pension payout tied to their gross salaries from those years.

  22. Bernard

    Greed is not really a pretty sight. it is real force here, lest some undeserving steal one copper penny from those fearfully rich looters. It is just so paramount that not one penny goes to a lazy, good for nothing hippie.

    the story is the same and the lines always come to the same point. Horror oh Horror. it does get old. and besides it is not even true.

    just seeing the greed and envy of helping others at a cost. how the rugged individual must die alone. the theme that society is evil and a curse the rich are now disassembling to get every last dime.

    Business used to be about working to find ways to facilitate the supply and demand of people’s wants, needs and desires. now it’s about nickel and dime-ing every last cent from people, society, countries, economies, in a revenue stream that produces only wealth for the owners. taking money and producing nothing but profits for the rich and poverty for the rest.

    theft for the sake of theft. and the glorious name of MONEY shining above it all.

    the baseness of the greed always astounds me.

  23. John Locke

    Yves: Foisting your “progressive” political views once more on this reader will result in my terminating any future visits to your website. That article about the consequences of the murders in Arizona last week-end was exhibit ‘A’ on poorly researched, blatently partisan, low value-added work. This is exhibit ‘B’. Have your sources of funds been depleted to the point where you are now contemplating a future with the Democrat party?

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