California is a greater risk than Greece, warns JP Morgan chief

[xav]

Jamie Dimon, chairman of JP Morgan Chase, has warned American investors should be more worried about the risk of default of the state of California than of Greece's current debt woes.

Mr Dimon told investors at the Wall Street bank's annual meeting that "there could be contagion" if a state the size of California, the biggest of the United States, had problems making debt repayments. "Greece itself would not be an issue for this company, nor would any other country," said Mr Dimon. "We don't really foresee the European Union coming apart." The senior banker said that JP Morgan Chase and other US rivals are largely immune from the European debt crisis, as the risks have largely been hedged.

California however poses more of a risk, given the state's $20bn (£13.1bn) budget deficit, which Governor Arnold Schwarzenegger is desperately trying to reduce.

Earlier this week, the state's legislature passed bills that will cut the deficit by $2.8bn through budget cuts and other measures. However the former Hollywood film star turned politician is looking for $8.9bn of cuts over the next 16 months, and is also hoping for as much as $7bn of handouts from the federal government.

Earlier this week, John Chiang, the state's controller, said that if a workable plan to reduce the deficit and increase cash levels is not reached soon, he will have to return to issuing IOU's, forcing state workers to take additional unpaid leave and potentially freezing spending.

Last summer, California issued $3bn of IOU's to creditors including residents owed tax refunds as a way of staving off a cash crisis.

"I can't write checks without money; that's against the law. My main goal is to keep the state afloat, but I won't be able to do it without the help of new legislation," said Mr Chiang.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7326772/California-is-a-greater-risk-than-Greece-warns-JP-Morgan-chief.html

[Synthe]

And the most easy solution to california's woe's is to repeal prop 13.

[Nano]

And the most easy solution to california's woe's is to repeal prop 13.
Wrong try again. Easy money always seems easy, but the cost of that "easy tax" money will be something beyond your wildest dreams. If California is in a deficit now expect California's economy to grind down faster than that first property tax money is ever received. Easy political ideas involving the vampire/leeching off the life blood of the populace are not conductive to improving California's budget deficit. The most efficient and responsible solution is simple layoff/fire California state workers and/or cut their pay benefits.

[Panchito12]

Have the Feds put California in receivership and start cutting the fat, the bloated state gov, and end the wasteful spending in worthless programs.

[Ordie]

Will Jerry Brown's 1992 signature issue, flat tax, rise again in 2010?

Former GOP presidential candidate Steve Forbes (http://www.forbes.com/fdc/bios/steveforbes.html), a longtime proponent of the flat tax, tells us that California State Attorney General Jerry Brown "was ahead of his time" in floating the then-revolutionary concept of that simplified tax system during 1992 Democratic presidential campaign.
Today, with California in its toughest financial crisis yet, Republican Forbes said he and Democrat Brown have "compared notes over the years" on the idea -- and it may be back to the future: the flat tax could be an answer for California's current economic malaise.
"If done right, it would profoundly and positively change the economy in California," said Forbes, who insists "a low single digit rate would unleash creativity," as well as pump up the economy in a state desperately in need of economic reform.
That's why "I'm looking forward to (Brown's) campaign: what he proposes on taxes, and on the public unions," said Forbes, who is making the media rounds as author of the recently-published book, How Capitalism Will Save Us: Why Free People and Free Markets are the Best Answer in Today's Economy. (http://www.forbes.com/2009/11/03/capitalism-save-us-opinions-forbes_land.html)"
With just four months until the June 8 gubernatorial California primary, Brown -- the sole 2010 gubernatorial candidate on the Democratic side -- has run a largely under-the-radar campaign and been mum on his position regarding what was once his signature issue.
"He hasn't said anything more about it recently," his campaign manager, Steven Glazer, said in response to questions on his current position.
Forbes, on his current book tour, has mentioned Brown's past position promoting the flat tax as one that is both current - and credible.
"He's been around as long as I have," said Forbes of Brown, in a recent interview with the Chronicle. "His (flat tax) proposal is a little different than mine, but the concept of basic simplicity is the same."
As a 1992 Democratic presidential candidate, Brown advanced the idea of a flat 13 percent tax rate for all Americans. Brown took some criticism from the media back then for allowing no low income exemptions for the poor in his plan -- but the Democratic presidential candidate insisted then that "with it, stock markets will go through the roof, businesses, will thrive and millions of Americans will get back to work."
As a 1998 and 2000 GOP presidential candidate, Forbes made nearly the same claims for his own flat tax plan, which was slightly different: it called for a 17 percent across the board flat tax, while exempting the first $36,000 in income for a family of four.
Glazer, asked whether Forbes' current characterization of Brown as a proponent of the flat tax was correct, said the former two term governor "did propose radically simplifying the federal income tax code in 1992."
But "since that time, there have been a lot of different changes to the tax code..and it's not the same circumstances," he said.
Brown's 1992 election flat tax proposal was "offered up in the context of the federal tax code and not the state," he said. Asked if that means Brown is against the flat tax, Glazer said, "He's not saying that."
The closest that Brown has come to in outlining his current position was in September 2009, when journalist Joe Mathews specifically asked him in the American Prospect (http://www.prospect.org/cs/articles?article=see_jerry_run_again)about the a hallmark of his 1992 presidential effort; Mathews noted the flat tax proposal at the time earned Brown the endorsement of conservative economist Arthur Laffer. Brown told Mathews he is today for a "simpler" tax.

In more recent times on raising taxes, Brown told us (http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?blogid=14&entry_id=54712)in January that he would "never approve of a tax increase unless the voters themselves called for it and voted on it."

Stay tuned.


Read more: http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=57019#ixzz0hAYI9U2e

Jerry Brown formally announce his canidacy for governor as the sole Democratic contender.
It will be expected that he'll campaign as a populist.

Expect H&R Block and the Tax preperation lobby to spend millions to oppose the flat tax.

[TheKiwi]

If during the good times (say from the mid 1990's onwards), California's government had restricted it's growth to that of the rate of inflation plus population growth, they'd still be sitting on a big fat surplus today. Instead they spent all the money they had coming in during the good times and then some. If there was ever a case of chickens coming home to roost, California is it.

[Ordie]

If during the good times (say from the mid 1990's onwards), California's government had restricted it's growth to that of the rate of inflation plus population growth, they'd still be sitting on a big fat surplus today. Instead they spent all the money they had coming in during the good times and then some. If there was ever a case of chickens coming home to roost, California is it.

Prop 13 only encouraged local municipalities to rubber stamp urban sprawl, big box stores and auto-mall projects for its sales tax revenues.
Prop 13 also encourage more borrowing through bond measures which only need a simple majority to pass vs. the super majority needed to pass a tax increase.

Thanks to Arnie, the state raided the local municipal coffers to balance the budget. Much of which was generated through sales and property taxes.

Fact: California is the only major oil producing state without an extraction tax and yet has the highest fuel prices in the country.

[TheKiwi]

What encourage borrowing was local and state governments having pet projects they didn't have the money for. It's a pretty simple equation for you and me as regular citizens. If you spend more than you make, you will go broke. So I spend less than I make and I put some aside for a rainy day.And if I have a pet project (whether a new car, a big screen TV or a desire to go back to university), I save up and maybe even sacrifice some other things. Local and state governments always have this thought at the back of their minds that if they screw up badly, they can always get bailed out by the Feds. The main thing the California (and other) governments need to realise is that there is no such thing as a free lunch. The money has to come from somewhere.

[Ordie]

What encourage borrowing was local and state governments having pet projects they didn't have the money for. It's a pretty simple equation for you and me as regular citizens. If you spend more than you make, you will go broke. So I spend less than I make and I put some aside for a rainy day.And if I have a pet project (whether a new car, a big screen TV or a desire to go back to university), I save up and maybe even sacrifice some other things. Local and state governments always have this thought at the back of their minds that if they screw up badly, they can always get bailed out by the Feds. The main thing the California (and other) governments need to realise is that there is no such thing as a free lunch. The money has to come from somewhere.

I agree with you.

Californian voters want the quality of life without paying for it.
If the city said to its residents, beacuse you are not willing to pay for cops, fires, parks and schools through your property taxes, we are going to cut the services.

The residents will in turn protest that it would invite crime and de-value thier property.

What the city to do? but to rubber stamp Big Box stores and Borrowing.

[TheKiwi]

Always the first thing county and state governments threaten to cut is services, rather than the amount they pay their employees.


Approximately 85% of the state's 235,000 employees (not including higher education employees) are unionized. As the governor noted during his $83 billion budget roll-out, over the past decade pension costs for public employees increased 2,000%. State revenues increased only 24% over the same period. A Schwarzenegger adviser wrote in the San Jose Mercury News in the past few days that, "This year alone, $3 billion was diverted to pension costs from other programs." There are now more than 15,000 government retirees statewide who receive pensions that exceed $100,000 a year, according to the California Foundation for Fiscal Responsibility. [...]

A 2008 state commission pegged California's unfunded pension liability at $63.5 billion, which will be amortized over several decades. That liability, released before the precipitous drop in stock-market and real-estate values, certainly will soar. [...]

State Treasurer Bill Lockyer, another prominent liberal Democrat, told a legislative hearing in October that public employee pensions would "bankrupt" the state. And the chief actuary for the California Public Employees Retirement System has called the current pension situation "unsustainable."

This situation, which is playing out all over the country, is definitionally untenable: Something will have to give.

In related news, a cover story on California's "savage budget cuts" in The Nation, written by Inside Obama's Brain author Sasha Abramsky, does not contain the words "pension" or "retirement," and the only mention of "unions" comes in a protest-banner exhortation to "respect" them. As ever, a thick chunk of the California commentariat refuses to grapple with the zero-sum reality of pension spending crowding out favored social programs.

And as always, it's important to remember this salient fact: If states had limited their budget growth to the growth rates of inflation plus population during the salad days of 2002-2007, instead of jacking up spending by 80 percent in real terms, they would have been sitting on surpluses when the economic crisis hit, instead of scratching at the door of the federal government.

[Abolith]

we are the most heavily taxed state in the country, they they are STILL crying for yet more.
We had job growth in the government by 20+ jobs A DAY for the last 15-20 years.


a few good chops to the government workers we don't need, drop the "initiative" BS and go to a part time legislature.
It's not that hard to come up with the solutions and everyone knows what they are... no one in government has the stones to make it happen, s instead we will run around playing the magic shell game until the state collapses completely.

[skyrock]

What encourage borrowing was local and state governments having pet projects they didn't have the money for. It's a pretty simple equation for you and me as regular citizens. If you spend more than you make, you will go broke. So I spend less than I make and I put some aside for a rainy day.And if I have a pet project (whether a new car, a big screen TV or a desire to go back to university), I save up and maybe even sacrifice some other things. Local and state governments always have this thought at the back of their minds that if they screw up badly, they can always get bailed out by the Feds. The main thing the California (and other) governments need to realise is that there is no such thing as a free lunch. The money has to come from somewhere.

They indeed have reasons to think so. Wall Street crooks got bailed out after bringing the whole world into this sh1tty situation. Some of them even get fat bonuses when the tax payers are paying the bill.

[TheKiwi]

Wall Street was(is) indeed full of crooks. But they didn't do it alone. As far back as the mid 1990's I was reading articles in the Economist pointing out that Fannie Mae and Freddie Mac were a bad idea that was going to pull a lot of people down with it. Did anyone in the Federal Government take any notice of the cautions raised? Yeah right! Even when told explicitly that there was no Federal Guarantee on either of them, people still used them as if they were guaranteed. And when it all hit the fan, suddenly they were "too big to fail" as well.

[Ordie]

Always the first thing county and state governments threaten to cut is services, rather than the amount they pay their employees.

Blame the unions for the greed of Wall Street again who still get bonuses.

Union government workers in California is the last bastion of the middle class. Many are in government for the pension. If it wasn't for that, we would be dependent on rent-a-cops.

I'm a union rep in my local.

I'm okay with layoffs as long as they address the institutional waste within of the company, work rule concession, wages and benefit concession first.

[Breerman]

So what happens if California defaults?

[xav]

So what happens if California defaults?

http://www.youtube.com/watch?v=d73K5h7ofVQ