Empire Center for
  Public Policy


Manhattan Institute
  for Policy Research

Fiscal Watch Memos

Payroll Watch Archive


Enter your e-mail address to receive notifications when there are new posts




May 6, 2010

When “the bailouts will finally end”?

Nicole Gelinas

e21 has a good staff editorial up on the now-tragic Greek crisis, with possible implications for New York and California.

The plan for Greece, of course, is for Europe and the IMF to bail out the debt-drenched nation’s bondholders, by imposing austerity measures on everyone else. These measures must be draconian enough “to attenuate the anger of German voters.”

But the Greeks, or at least the most vocal and violent of them, are not cooperating. As the editorial notes:

Whether the Greek unions succeed in quashing the deal, eventually the strings attached to the aid will impose costs on an interest group with sufficient clout to make the interests of creditors [bondholders] seem less compelling. At some point, taxpayers in the “parent” will demand concessions that the bailed out entity will not abide. At this point, the bailouts will finally end.

Here at home, bondholders lend money to states like NY and CA largely because they think that the feds will bail them out in a crisis (I think).

President Obama’s “Build America Bonds” program has solidified this expectation. After all, international bondholders are buying muni bonds labeled “America” itself, giving them extra confidence if they don’t know very much about individual state credits and don’t care to learn.

But what if, when the time for an explicit bailout of American states is at hand, whoever is in charge in DC must make New York and/or California make tough-minded public-sector concessions to get the rest of the nation on board? Then, it may not be worth it, politically, for state governments to serve as the conduits for bailouts of their bondholders.

In that case, bondholders, at the very least, would have to take some losses along with other big creditors, including pensioners — and quite possibly have to take even bigger losses than the better-connected parties.

America may not have to confront such issues this year or this half-decade. But unless heavily obliged American states start to pare back their long-term obligations, the question likely will arise someday.

Please read more on this topic here, too …

March 2, 2010

Will Sen. Moynihan rest in peace, or roll over?

Nicole Gelinas

In a Times piece on Washington’s Wall Street bailouts and New York’s economy, the Fiscal Policy Institute’s James Parrott says that “the magnitude of the bailout has been so great that it will have wiped out whatever cumulative surplus” New York had built up in sending more money to Washington than it got back for decades. (more…)

February 9, 2010

Macquarie may ditch Cali road

Nicole Gelinas

Australia’s Macquarie, responsible for some of the biggest road-infrastructure “private-public partnerships” of the early and mid-2000s, may pull the plug on its stake in one ambitious investment, the South Bay Expressway in San Diego.

TOLLROADSnews reports that a Macquarie entity recently disclosed the following: (more…)

December 23, 2009

Decade of debt

Nicole Gelinas

In 2000, state and local governments collectively owed $1.5 trillion (adjusted for inflation to 2009 dollars). Today, they owe $2.3 trillion, a 53 percent increase.

Over the same time period, American consumers and homeowners hiked their own debt by 55 percent, and pretty much bankrupted the world’s economy doing it. (OK, it wasn’t all their fault.)

Data source: Federal Reserve.

December 11, 2009

NATO for bankers’ bonuses

Nicole Gelinas

The U.K.’s Labour Party surprised the world and maybe itself by taking a tough line on City bank bonuses on Wednesday, according to the press, announcing a 50 percent surtax on banks’ bonus payrolls through next April.

The tax, which the banks themselves would pay, would come in addition to the national and other taxes paid by the workers themselves, already set to rise to 51 percent next year.

Headlines took the bonus sin tax as a bold fait accompli. If so, the tax would be great for New York, at least in the short term.

Banks wanting to cut their payroll could encourage American expats — already annoyed that their kids have developed funny accents, anyway — to move home. British banks like Barclays could move more top people to Lehman Brothers, whose U.S. investment bank assets its purchased last year.

Not so fast, though. Britain still knows that a unilateral punitive tax would be premeditated murder for its financial industry. This may be a staged drama, rather than the real thing.  (more…)

December 3, 2009

IBO: Wall Street bonuses will make up for lost-job income

Nicole Gelinas

New York City’s independent budget office (IBO) thinks that Gotham will take in $1.3 billion more than the mayor is projecting over the rest of this fiscal year and next. The extra cash will alleviate some pressure on the city’s projected $4.1 billion deficit (itself already revised downward once from $4.9 billion by the mayor’s own budget office). (more…)

November 17, 2009

The failing too-big-to-fail state

Nicole Gelinas

Just how ephemeral is Wall Street’s “recovery”?

State comptroller Thomas DiNapoli notes in today’s report that securities firms’ profits are reaching record highs, because “the sharp decline in interest expenses (to $5 billion in the second quarter of 2009 from a high of $76.3 billion in the last quarter of 2007) has allowed net revenues to surge. Additionally, firms reported gains on their own securities trading accounts in 2009 ….”

In other words: the big securities firms are taking advantage of the Fed’s zero-percent interest-rate policy and the government’s too-big-to-fail policy to borrow nearly for free. Then, they use that money to pump up the price of almost every other asset, including their own securities, and book gains on those price increases.

When interest rates go up, some serious pain could ensue.

Here’s another aspect of the state’s longer-term structural failure: between 2003 and 2007, securities-industry salaries (including bonuses) in New York City increased by 73 percent, more than triple the gain in other industries. If such gains were to continue forever, securities industry wages eventually would consume all the city’s wage income.

So, something’s got to stop them. If the federal government won’t do so, by removing the too-big-to-fail guarantee, then, the markets eventually will, because the feds won’t be able to borrow anymore to bail Wall Street out.

Problem is, the state has built its spending on these unsustainable increases in Wall Street profits and bonuses and the tax revenues they throw off — and Albany continues to do so.

September 18, 2009

Wet blanket time

E.J. McMahon

The Federal Reserve is working on a far-reaching proposal to regulate compensation by the nation’s largest banks — including, inevitably, some big New York firms now raking in big profits thanks to government bailouts.

The upshot for Governor Paterson and state lawmakers in Albany: you can’t count on renewed financial sector bonuses to pull you out of your latest patch of fiscal quicksand.


September 11, 2009

JPM report: “global banking profitability will decline”

Nicole Gelinas

Attention New York: on the eve (roughly) of the one-year anniversary of Lehman Brothers’ collapse, a new report from J.P.Morgan in London opines that because of the effects of eight likely financial-regulatory changes worldwide, “what is certain … is that global [investment] banking profitability will decline,” not just temporarily but structurally (that is, even after the recession is over).   (more…)

April 8, 2009

Derivatives: Orange County, redux

Nicole Gelinas

Small towns are losing millions of dollars on derivatives bets just when they can least afford to lose money. Why are we surprised? (more…)

« Newer PostsOlder Posts »



Empire Center for Public Policy
P.O. Box 7113 - Albany, New York 12224
phone: 518-434-3100