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The Global Financial Crisisand Municipal Budget Crises:
Philadelphia and Trenton
By Scott PinkelmanPhiladelphia Budget Crunchers
http://budgetcrunchers.wordpress.com
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What is happening?Is The Economy In Crisis?
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Will Obama Fix The Economy?
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Is The Economy Heading Into the Great Depression 2.0?
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Capitalism
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Capitalism
An economic system with private ownership and profit.
Profit - Money or wealth that is more than the costs of production and is paid to the owner or investor.
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Finance
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Finance
The field of financing business by providing credit
Bankers, brokers, traders, etc.
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Financial Crisis
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Root Causes
StagnationFinancialization Deregulation
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Stagnation
Early 1970s: End of ‘Keynesianism’ Deindustrialization Declining Wages Stagnation
1978-2008: Industrial utilization: 81%
2003-2008: Industrial utilization at 77%
Post 2001 ‘jobless recovery’
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(Magdoff and Foster, 2008)
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Financialization
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Financial Sector Debt
1973: Total Debt 140% of GDP Financial Sector: 9.7%
1989: Total Debt 234% of GDP Financial Sector: 18.7%
2005: Total Debt 329% of GDP Financial Sector: 31.5%
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Debt as % of Income
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The Price of Debt
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The Price of Debt
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Deregulation
1999-2000 Repeal of Glass-Steagel Act Commodity Futures
Modernization Act Securities
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Recent Causes
Post 2001 Federal Reserve Interest Rates Speculative Real Estate Bubble
Rise in home prices after 2001 Second mortgages The rise of 'subprime' mortgages
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Homeownership
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Timeline2007-08
March 2007: Mortgage companies begin to seek to sell subprime lending arms
August 6, 2007: American Home Mortgages files for bankruptcy
August 10, 2007: LIBOR sets .5% higher
August 17, 2007: Federal Reserve cuts discount rate by .5%
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Timeline Sept. 2008 Sept 6 - Fannie Mae and Freddie Mac placed
under government conservatorship Sept 14 - Federal Reserve decides to let
investment bank Lehman Brothers Fall Sept 14 - Merril Lynch sold to Bank of
America Sept 16 - Federal Reserve ‘liquidity
injections’ into money market funds September 21 - Investment banks Goldman
Sachs and Morgan Stanley become ‘bank holding companies'
Sept 19 – Troubled Asset Relief Program (TARP) Bailout Announced
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Bailout
Officially $700 billion With loan guarantees: up to $8.56
trillion Video Massive outcry; initially voted down
in the House 'Largest transfer of wealth from
taxpayers to stockholders in history'
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What's it being used for?
Given to get banks lending to one another
No stipulations / little oversight $18 billion in Wall St. bonuses Bank of America: Lobbying against the
Employee Free Choice Act Bank Consolidation
4 superbanks: Bank of America, JP Morgan Chase, Citigroup, Wells Fargo
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Philly Budget Crisis
City Budget $4.03 Bn annually Nov 2008: $1 billion deficit over
5 years Jan 15, 2009: Projected deficit
raised to $2 billion $108.1 million in cuts by 2009
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Libraries
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Essential Services
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Causes
5 year Shortfalls In:Pension Fund: est $498 million decline
BusinessTax: $119 million (down $33m from last year)
Real Estate Transfer Tax: dropped 37.3% 158m
Property Tax: $180 m less
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Pension
Pension Fund has lost 22% as of mid January
Covering these losses will cost the city $359 million
Unable to issue bonds 5 year bonds - $140 million to defer pension payments
Pensions cost 252 million in 1998 – will cost est. 613 million in 2012
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FY 2010 Budget
Temporary increases in sales and property taxes
Two-tier pension plan with municipal union
Sliding scale at health centers
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Trenton
FY 2010 New Jersey Shortfall 100 million
Gov Corzine’s proposal to allow municipal gov’ts pension contribution deferrals 6.8 million in Trenton
4 million dollar shortfall
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Water Sale
Sale of Trenton Water Works pipelines to NJ American Water Co
Estimated at $20 million; State allowing City to count $7.7 million to city
Estimated to help shortfalls to two years
Petition Drive to stop sale Privatization of public infrastructure “Sale vs. tax hikes”
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Property Taxes
29% increase in Trenton 19% (FY 2010) followed by 14.5% (2011) in Philadelphia
Major source of revenue this budget year
Philadelphia FY2010: $9.87 cents per $100
Trenton FY2010: $2.74 cents per $100
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Neoliberalism
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Global Neoliberalism
Neoliberalism The current stage of capitalism. Starts around the early 1970s Public services for sale “No borders” Dominant ideology in economics. “Modern Imperialism”
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Structural Adjustment ProgramSAP
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Structural Adjustment ProgramSAP
International Monetary Fund in the 1980s
Characteristics Privatization Free trade Cutting capital controls
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Philly and Trenton in Context
'Financialized' city budgets Dependent of stock and bond market Only growth strategy is attracting
outside companies through tax cuts or land deals
Needs of the population aren't met More taxes, reduced services Public services are being privatized