Fix Pacifica: Bankruptcy warnings in California

Monday, July 16, 2012

Bankruptcy warnings in California

Walking a municipal tightrope to avoid city bankruptcy

.... "Warnings from 8 cities -An additional eight California cities, including Fairfield, which declared a fiscal emergency in April, have officially notified the municipal bond market this year that they are facing significant financial hardship, according to Matt Fabian, managing director of Municipal Market Advisors, which conducts independent research on the municipal bond industry. The notifications don't necessarily mean these cities are headed for bankruptcy court, but they do signal real adversity.

Along with Fairfield, the other cities include Arvin (Kern County), El Monte (Los Angeles County), Grover Beach (San Luis Obispo County), Lancaster (Los Angeles County), Monrovia (Los Angeles County), Riverbank (Stanislaus County) and Tehachapi (Kern County).

.... Cities' common traits - Stockton and San Bernardino share three characteristics that could help people better forecast which cities might be in danger of heading to bankruptcy, said McKenzie of the League of California Cities. Those include cities with tax revenue severely affected by the mortgage crisis, cities that are older and have a significant amount of deferred maintenance, and cities that are unable to persuade public employee unions to agree to deep cuts in salaries and benefits." San Francisco Chronicle/Wyatt Buchanan, 7/14/12, "Red flags over cities bankruptcy filings." Read Article.

"Only about 20 percent, or 43, of the Chapter 9 cases filed in the U.S. since 1981 were by towns, cities or counties. Of those, California, Alabama and Texas led the way, accounting for more than two-fifths of such filings, according to a Bloomberg News review of court filings. ..... All three allow cities and special tax districts to file bankruptcy with few, if any, conditions. While California requires cities to first go through mediation with creditors, a loophole lets officials declare an emergency to shorten, or even eliminate, the talks. Bloomberg/Steven Church, 7/16/12, "Nebraska, not California is king of municipal collapse." Read Article.

Submitted by Jim Alex

Posted by Kathy Meeh

47 comments:

Grant Palmer said...: Where is the prosecution of the banks and investment houses that lead to all of these municipal bankruptcies? Why are they getting off with a minimal penalty? At least after the S&L Crisis we had prosecution. If Obama was really a Socialist you would think he would be prosecuting those guilty of inflating our housing values with mortgages that were meant to fail. These mortgages that were then parlayed into derivatives at ten times their value which caused the collapse of our economy. Why isn't Oama prosecuting these people? Why is he instead going after medical marijuana dispensaries? Hmmm....I wonder why? Our president is a Corporatist. Obamacare is a give away to Insurance and Pharmacuetical Companies. You hear no objection from them, because they know their bottom line will grow as a result of the law. The banks have been borrowing money at 0-.25% for awhile now. Plus they are lending Fannie, Freddie and Ginnie Mae's money not their own. Wells Fargo's mortgage division just posted record profits. At some point we have to say Enough!; July 16, 2012 at 3:34 AM
Anonymous said...: I completely agree with Grant Palmer's comment.; July 16, 2012 at 9:54 AM
Anonymous said...: I wonder how our labor negotiations are going?

We are just one event away from bankruptcy here in Pacifica. Under 1 million in our general fund is nothing.; July 16, 2012 at 10:02 AM
Anonymous said...: 1 million? You dreamer.; July 16, 2012 at 12:48 PM
Anonymous said...: anon10:02 how many times do you have to be told our labor negotiations are none of your damn business? You're worried and you really want to know? Check the state controller's website for a clue. You'll see that talks have gone just fine for city employees throughout the entire well-publicized recession. They show increases to their income every year. Yes, right through the recession. How cool is that? So, once and for all, stop being such a nag about these labor negotiations. Our employees are in good hands. Be proud Pacifica!
Don't forget to check the next update on 2011 city salaries which will be out before the November election and do your salary comparisons. Don't worry about those benefits and pensions, ok? Chump change.; July 16, 2012 at 1:26 PM
Anonymous said...: While we're reading newspaper articles how about the one in Sunday's NYTimes biz section, page 1? It's entitled "Here Comes The Catch In Home Equity Loans". Oh yeah it's a doozy and may prove to be especially meaningful to homeowners in those high-priced areas.
Another good article related to this thread is on page 1 of the news section and concerns criminal prosecution of big banks and associated scum.; July 16, 2012 at 1:40 PM
Anonymous said...: Finding out what's going on at city hall may become more difficult. According to Patch and others, the state legislature in June decided CA cities can now choose whether or not to publish meeting agendas for the public. They can also choose whether or not to report to the public any actions taken during a closed session (labor contracts?). In other words the Legislature suspended some key mandates of the Brown Act. Government is becoming less and less transparent every day. To be clear, oops, it's not mandatory for cities to stop publishing agendas or reporting on closed session actions, it's optional. Might it also be situational? In times like these the idea that no news is good news is all most politicians can hope for. Slippery slope we're on.; July 16, 2012 at 2:09 PM
Kathy Meeh said...: "According to Patch and others, the state legislature in June decided CA cities can now choose whether or not to publish meeting agendas for the public." Anonymous 2:09 pm.

I'm not finding any such recent Brown Act amendment changes. From CA aware forum, something about "rumored suspicion of the Brown Act", and agency reimbursement requirement issues.

"Brown Act amendments for 2012" updates occurred 12/13/12. AB 1344 requires cities to notice meeting agendas on city websites (if a city has a website). Also, special meetings may not discuss local agency executive compensation unless the purpose of the meeting is to discuss the local agency's budget. (Other updates are included in the link).; July 16, 2012 at 3:44 PM
Anonymous said...: Take a look at SFGate from 2 days ago. Might seem to really be no big deal but some fear it creates another loophole for local officials to avoid public scrutiny and controversy. After Bell CA and others, do we really need more loopholes? Since it seems to make compliance optional I guess it depends on how committed local officials are to consistent government transparency. The Brown Act sets minimums. Good gov't strives to exceed those minimums. Time will tell.; July 16, 2012 at 4:37 PM
Anonymous said...: Say what you want about Berkeley but they publish their council agendas 11 days prior to the meeting. Made it part of the city statutes. Seems right, given that what is often discussed are complex issues with long term consequences for the residents. Gives interested parties time to study up and organize.; July 16, 2012 at 5:13 PM
Kathy Meeh said...: "Take a look at SFGate from 2 days ago." Anonymous 437.

Interesting. I'm going to post the article. What's happening is this is an unfunded State mandate since 2005 that is being removed from the 2012-13 budget. San Francisco Chronicle/John King, 7/14/12.

Next time you might consider commenting with your name so credit may be given to you. Or send such an article (with picture if you like) to Fix Pacifica.; July 16, 2012 at 6:56 PM
Anonymous said...: Anon works fine for me. It is an interesting development, isn't it? I'm sure the League of Cities, etc will weigh in shortly. Already lots of other opinions/comments on the web about this apparent loophole. Let's hope Pacifica (Council, School Board, Water District) continues to follow the spirit and law of the Brown Act even if they may no longer have to.; July 16, 2012 at 7:13 PM
Bascom Family said...: Grant Palmer. It was politicians that created the housing bubble.

In a attempt to stimulate the economy and get every american into a home. They lowered interest rates and lowered the lending standards. This is what caused demand to go up for houses thus increasing housing prices. When the banks argued that lending standards where to low and that they would lose money the government said they would back the loans.

Same thing is happening right now in college prices they are going up because government is increasing demand by backing student loans.; July 18, 2012 at 10:01 PM
Anonymous said...: You can't just blame the banks. I have 2 friends who lost houses. Greed played a part in it. They got into loans they knew were too big but they were betting on houses continuing to appreciate. Buyer beware.; July 19, 2012 at 8:05 AM
Steve Sinai said...: The word "greed" is thrown around too carelessly.

I'm sure a lot of the people who got mortgages that went bad simply wanted a place to raise their families, and fully expected to be able to pay the mortgages off. They weren't "greedy."; July 19, 2012 at 10:28 AM
Anonymous said...: That's not true Steve, they all knew that their rates would jump up to an un affordable amount after 5 years. They were counting on homes appreciating and being able to refinance.

The Banks aren't innocent, but people must take some responsibility too. They knew banks were fudging their income and other numbers. And they knew they could never afford the payment after 5 years.; July 19, 2012 at 10:48 AM
Kathy Meeh said...: "...people must take some responsibility too." Anonymous 10:48 AM.

Then again, some people lost jobs, benefits, depleted any reserves. And were unable to secure the same level of income through unemployment or rehire. Hence continuing the same level of house payments or higher was impossible. As Steve said at 10:28 AM, "They weren't 'greedy.'"

Those who were speculating on house value appreciation in what turned-out to be a housing bubble, well? As you say Anon 8:05 AM, they were "betting".; July 19, 2012 at 11:08 AM
Steve Sinai said...: "That's not true Steve, they all knew that their rates would jump up to an un affordable amount after 5 years."

Nonsense. Nobody can accurately predict what interest rates, or even their own personal income, will be five years out. I wouldn't feel bad if speculators got burned, but most of those people who lost their homes simply underestimated the risks. They were more naive than greedy.; July 19, 2012 at 12:02 PM
Anonymous said...: Steve, How can you say they didn't know? Their loan papers clearly said that in five years the interest rate would reset at a substantially higher rate. For the first five years they paid ONLY interest, that's why the payment was so low.

Again, it is mostly the banks fault too. I wold say 60/40.; July 19, 2012 at 12:54 PM
Grant Palmer said...: It is not just politicians. Between 98-08, banks and insurance companies spent over $5 billion on lobbying and campaign contributions. Citigroup and Travelers merged in 1998, when it was still illegal for them to do so. Depression era laws that barred Banks from offering investment and insurance services and vice versa were repealed so the merger could go through. The change in law enabled these firms to speculate by investing in financial derivatives (cdo's, siv's, credit default swaps). They (investment banks, hedge funds and commercial banks) created this financial crisis with the help of our politicians. These firms created exotic investments that no one at these firms fully understood. These firms created maintained and justified the housing bubble. Our elected officials were excellent enablers.; July 19, 2012 at 1:46 PM
Anonymous said...: Whatever the average home buyer knew and understood about the risks is nothing compared to what the banks and Wall Street and other insiders knew about betting on real estate. There's your greed and that should be the target of anyone's outrage, not the people who just wanted nice homes for their families. Too many were preyed upon by these vultures. They corrupted something good into something ugly and we'll be paying for it for many years. There's your greed.; July 19, 2012 at 2:14 PM
Anonymous said...: Come on, you can't always blame the man for everything bad in this world. We as individuals have a responsibility to check the numbers.

You think the banks foresaw this collapse? Maybe a few but most didn't. And most lost their ass on this thing too. Many closed forever.

Borrowers who were told by unscrupulous sales people to just lie and say they made a little more, or not to report all their debts are to blame too.

Would anyone here take an interest only loan now?

I'm not defending the bankers. But if people don't take responsibility for THEIR actions they don't learn.; July 19, 2012 at 2:59 PM
Anonymous said...: Blame the man? Very retro. Here you go. It's like fish. The rot starts at the head. That's how I see it. Let's agree to disagree.; July 19, 2012 at 3:29 PM
Anonymous said...: Hutch, what report is the Tribune referring to on page 1? They say it was discussed in a closed session meeting.; July 19, 2012 at 4:03 PM
Steve Sinai said...: "Their loan papers clearly said that in five years the interest rate would reset at a substantially higher rate."

And they expected to be able to refinance again at a lower rate. They guessed wrong. Why does that make them greedy?; July 19, 2012 at 4:05 PM
Chris Fogel said...: And they expected to be able to refinance again at a lower rate. They guessed wrong. Why does that make them greedy?

Well, they were gambling at the very least -- all aided and abetted by the banks, underwriters, and everyone else involved, of course.

With an interest-only loan, you were either hoping that interest rates dropped to the point that you could refi, or that the property would increase to where you could flip it for a quick profit.

In either case, you were purchasing something you really couldn't afford at that moment in time. Is this greed? Some people might think so.; July 19, 2012 at 4:25 PM
Anonymous said...: It doesn't. It really doesn't.; July 19, 2012 at 4:33 PM
Anonymous said...: Because Steve, most of these people got into houses that were out of their price range and they knew it. The only way many people qualified for these houses was by fudging the numbers at the prodding of the broker. Yes the banks were approving people they never should have. But the buyers were going along with the fraud by stating higher income and less liabilities than they really had.

Greed was on both sides of this mess.

Buyer beware/ You are responsible for your own actions.; July 19, 2012 at 4:33 PM
Anonymous said...: Exactly Chris; July 19, 2012 at 4:38 PM
Grant Palmer said...: Ahhhh, but the banks or "the man" we're bailed out or taken over by the FDIC. Yes, banks had losses but their losses were covered by the government. I do not think individual people should be bailed out or given reduced principal on their loans just because they are underwater. People make bad investment decisions all the time. I have made my share. If our government is going to prosecute Bonds, Clemens or Armstrong for ped's, why can't they go after those that were instrumental in pushing these risky derivatives that have lead to our current economic state?; July 19, 2012 at 4:46 PM
Anonymous said...: Well here we go again. They've got us blaming the little guy for his "greed" in the housing crisis. Sure there had to be some and some ambition, but whatever there was of it is dwarfed by the monumental, soulless, gobbling greed of the banking and investment industry and all its diseased tentacles. Who got bailed out because they were too big to fail? We need to look no farther than that list to know who was calling the shots in the housing crisis, then and now.; July 19, 2012 at 4:56 PM
Anonymous said...: A lot of people got in to the housing market because they were convinced by the experts, lenders, media, realtors, etc that soon they would no longer be able to afford to get in with home prices going upupup. They aspired, they stretched, they didn't cheat. I know several. Once the job losses started only one has managed to hang on by working 5 jobs among the 2 of them. It is contemptible and just plain wrong to fault people like that for trying to buy the dream.; July 19, 2012 at 5:07 PM
Anonymous said...: Hey Grant it isn't our gov't. It's bought and paid for by the PACs and the lobbyists and big industry. Those prosecutions for drug us? Strictly for the sheep.; July 19, 2012 at 5:11 PM
Steve Sinai said...: "Because Steve, most of these people got into houses that were out of their price range and they knew it."

People are not going to take out a mortgage knowing that they won't be able to pay it back.

If you want a home, and taking out a non-conventional loan is the only way to do it - you do it. What's so greedy about wanting to own a home?

There are people in this world, and on this blog, who simply get off on accusing others of being greedy.; July 19, 2012 at 6:48 PM
Anonymous said...: Right, and there are people on this log who blame the government, and there are people who blame business, and there are people who blame "sheeple", and people who create bizarre conspiracy theories. Any simple, black-and-white finger-pointing is almost always wrong, lazy, and simple-minded in my experience.; July 19, 2012 at 6:56 PM
Hutch said...: I have to agree with Chris. People were gambling and were aided and abetted by the banks. The banks put people into loans that never should have qualified. And the people jumped on them betting that either interest rates would go way down or home prices go way up. It was a gamble.; July 19, 2012 at 7:14 PM
Anonymous said...: hey anon656 get the stars out of your eyes and remember this is Pacifica and no conspiracy theory
is too bizarre. As far as simple-minded, black and white finger pointing? Your insistence on blaming the victims raises the bar.; July 19, 2012 at 7:21 PM
Anonymous said...: I just said that blaming any one group is silly, so please try to improve your reading comprehension, 7:21. I forgot to mention that there are also people on this blog who simplistically have to boil down issues to trite cliches like "blame the victim" because they are incapable of comprehending multiple points of view.; July 19, 2012 at 7:41 PM
Chris Fogel said...: People are not going to take out a mortgage knowing that they won't be able to pay it back.

Haha, what?!

Millions of people did take out interest-only loans or ARMs that knew they couldn't afford, but gambled on the market changing to their advantage during the subsequent years.

People got greedy in wanting a home they quite obviously couldn't afford, because... well... they deserved one and so they overstated their incomes or came up with a some bizarre financing scheme to just get the keys in their hands.

All aided by greedy mortgage companies who just wanted to reap the loan fees and commissions, so they wrote up the loan docs as fast and furiously as they could for any warm body that walked through their doors regardless of their financial circumstances.

Worst of all were the banks who greedily shoveled all these crap loans into thousand-mortgage bundles to securitize and get off their books as quickly as possible in order to turn around and finance another thousand mortgages for another bundle and so on.

And let's not forget the greedy investment firms who traded these securities among themselves each and every day in order to pay off the previous days' borrowing and found this not to be producing quite enough lucre for them -- they needed to create fake vehicles such as synthetic derivatives designed to squeeze and extract every last cent, backwards and forwards, from that first wish-and-a-prayer loan the original borrower who believed the world owed him a house took out.

How very American.

But that's just me "getting off," right?; July 19, 2012 at 8:25 PM
Anonymous said...: anon741 I'd have been worried if you left that last part out. Big hug.; July 19, 2012 at 8:28 PM
Anonymous said...: Yes, it's an American trait and it caught on all over the globe. They'll be thanking us for decades in Europe.; July 19, 2012 at 8:36 PM
Anonymous said...: ANON@741 It's not the multiple points of view, it's the multiple anonimi that make me dizzy. Lordy!; July 19, 2012 at 8:40 PM
Anonymous said...: Fogel I love the phrase you used, "crap loans". So perfect.
Textbook. Agree big banks were the worst. When those mobile guillotines hit NY I know where I'd park them.; July 19, 2012 at 8:54 PM
Anonymous said...: People who post anonymously to complain about anonymous posts... Well, isn't that special!?!?; July 19, 2012 at 10:15 PM
Anonymous said...: 1015 You'd appear to be a subject expert on that.; July 19, 2012 at 11:57 PM
Anonymous said...: It's always easy to blame the ones at the top, Blame the Governor salary not the 400,000 State workers salaries. Blame the University presidents wage increase, not the 1000's of professors. And blame the banks and wall street, but don't dare put any blame on poor inocent "victims" who lost their houses.

It's all the banks fault.; July 20, 2012 at 8:18 AM
Anonymous said...: You'd have loved 16th century Europe.; July 22, 2012 at 1:26 PM