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Wednesday, March 24, 2010

More Money For Wall Street Bankers Bonus Programs

It's no secret our elected officials of all stripes love to keep us all in debt and here is the latest and greatest ways to make debt attractive.

Build America Bonds are fattening up the Wall Street Bankers Bonus programs. The Wall Street Journal has run a series of articles this week on the front page as well as the opinion sections about debt in America.

The first part of the week was devoted to cities who could not get enough debt before the economy tanked. Now they are sitting on high interest debts, falling assessed values, mortgage defaults and retail/commercial vacancies. Bond underwriters are unwilling to rewrite high interest bond debts.

Unlike traditional munis, Build America bonds aren't tax exempt but they do carry a federal subsidy of one-third of the interest. On a 7% bond the feds (all taxpayers) pick up 2.5% of the interest and the issuing city/county (property taxpayers) pick up 4.5% of the interest. 800 state and local governments have recently picked up $58 billion of these bonds.

Meanwhile, the average taxpayer is trying to "deleverage" themselves from all the crushing debts.
"Total credit-card debt is about 7 percent lower than it was a year ago, with Americans paying down more than $100 billion in credit-card loans since October 2008. And household "deleveraging" seems to be intensifying, not slowing down."

Cities and states who have lined up to take on more debt we all get to pay off. WSJ today cited in bond debt at $2.5 trillion since 2008 and another $2.0 trillion in 2010.

Wall Street loves Build America bonds with a underwriting cost of $8.20 per $1k of face value vs. $6.00 per $1k for tax free munis. Over the life of the bonds federal taxpayers can expect to pay $90 billion in interest charges.

In 1980 total outstanding municipal debt stood at $360 billion. In 2009 the figure is $2.8 trillion! Some of it we voted on and approved but a large percentage we got no say whatsoever.

All of this debt will be paid back by our children and grandchildren. Mr. Bernanke assures us he has a handle on the prospects of runaway inflation or devaluation of the dollar. He nor anyone in government can assure we don't see deterioration of the dollar worldwide and not accepted for repayment of debts. If this happens it will wipe out what remains of everyones retirement and personal savings. Contagious optimism will not satisfy creditors.

Wall street bankers borrow money from the federal reserve for nearly nothing. Then they loan it out at very high interest rates. They sanctimoniously give themselves billions in bonus money for doing something that takes no effort or talent.

Spendthrift cities and states love BUILD AMERICA BONDS! These bonds are the very same type the Commishes was to issue for a jail expansion project. These bonds typically do not have a call provision on them so they can be paid off early.

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