2013 November 09 Saturday
Capital Appreciation Bonds

Democracy fail: Several months ago the NY Times reported on another way that local governments have found to burden the future with costs from the present.

So in 2009, the Santa Ana Unified School District borrowed $35 million using an inventive if increasingly controversial method known as capital appreciation bonds, which pushed the cost of the construction on to future taxpayers. Not a cent is owed until 2026. But taxpayers will eventually have to pay $340 million to retire that $35 million debt.

Democracy in America is becoming more dysfunctional and destructive. It is incredibly unfair to burden people who haven't been born yet with the impulses to spend of current elected officials.

Share |      By Randall Parker at 2013 November 09 06:46 PM 


Comments
radical centrist blogger said at November 10, 2013 6:04 AM:

it is not that democracy is dysfunctional, it is that there is less and less of democracy.

Don't you find it strange that given all the millions and millions of words written about politics by americans in the media and online bloggers that so little discussion actually focuses on what democracy really is and how it is defined and how it is implemented in america as compared to how it is implemented in those nations that are most like the USA in national character and culture and race. I am talking about our cultural cousins --the other white nations.

Why is it that the political discussion in america is so constrained and narrow?

Why is it that not ONE SINGLE person (outside of myself, as far as I can tell) has ever said that american democracy is weak because of the structure of the federal government, which is a governmental structure that was designed from the start to dampen and weaken democracy? Out of all the millions and millions of sentences written in media articles in the media and blogs online no one has ever said something like this: the other white nations have stronger democracy because 1) their parliamentarian govt structures were designed to enhance democracy as opposed to the american fed govt structure which was explicitly designed from the start to weaken democracy, and 2) the other white nations are smaller, and larger nations like the USA have more factions and are therefore less democratic, and 3) the other white nations have less nonwhite population (look it up; I did) and are therefore more homogeneous and therefore more democratic because they have fewer factions due to those aforementioned characteristics, and 4) why don't we make america more like those other white nations by breaking up the federal union and installing parliamentarian governments in the states?

Show me ONE SINGLE INSTANCE in the media or blogs where someone wrote something like that. Outside of what I myself have written. Show me.

What an amazing statistical anomaly. Surely one of those monkeys in all those years must have cranked out a little Shakespeare, right? Nope. Never happened.
Why not?

Answer: because americans are propagandized to the max and homo sapiens is not really capable of logical and original thought.

You write about what the ideas and concepts that are given to you from on high, from those at the top, and you write about what you are given to write about, no more and no less, and exactly that....nothing more or less....because that is what homo sapiens is evolved to do. You are a species of ant-like primate, and getting out line is just not done.

Wolf-Dog said at November 10, 2013 6:09 AM:

The reason for the enormously ruinous deficits in the US is simply due to the desperate efforts to compensate for the trade deficit.

Here is a recent article by Paul Krugman, about Germany's trade surplus, which he emphasizes as follows: measured as a share of G.D.P., Germany’s surplus was more than twice as large as China’s."

http://www.nytimes.com/2013/11/04/opinion/krugman-those-depressing-germans.html?adxnnl=1&partner=rssnyt&emc=rss&adxnnlx=1384091398-ZkpQ39/ZMxsAstiE0eta+A

If the US decides to stop the trade deficit, unemployment will decline to the levels in Germany, and there will be prosperity.

http://abcnews.go.com/Business/wireStory/german-trade-surplus-widens-record-high-20825251

bbartlog said at November 10, 2013 10:52 AM:

It's also possible that the people of the Santa Ana Unified School District are betting on future inflation. In general I would tend to view a bond issue like that as an attempt to convince some bagholder that this bond-backed security is actually worth anything, whether via S&P bond ratings or default insurance or repackaging. I suspect that if you had to actually sell that specific debt to individual buy-and-hold investors, rather than use it as grist for some bonds-and-securities sausage factory, you wouldn't find any takers. It's only because it gets sliced up and stuffed in to a thousand index funds that it ends up selling.

bbartlog said at November 10, 2013 10:57 AM:

@ radical centrist: maybe the reason you haven't seen your thesis put forth before is because it's incoherent. Just saying. Some (maybe all) of your individual points have been made elsewhere by John Emerson, Noam Chomsky and others. If you haven't seen your particular combination out there previously, that's not in and of itself grounds to think you're an awesome original thinker.

radical centrist blogger said at November 10, 2013 12:34 PM:

@bbartlog --> maybe it's "incoherent" because some people cannot understand anything that cannot be put forth in 10 second tv sound bite.

SOBL1 said at November 10, 2013 5:18 PM:

Here's an article that follows the money: http://www.ocregister.com/articles/bonds-496091-school-bank.html

The bank of Geroge K. Baum out of Missouri underwrote the bonds, sold them to some institutional investors and then the bankers on Wall street firms like Citigroup advised clients to scarf them up. This is an outcome of the FED's ZIRP policy where everyone is hunting for any yield at nearly any risk.

WJ said at November 11, 2013 7:54 PM:

In a rare outbreak act of good governance in that otherwise profoundly irresponsible body, the California Assembly recently passed, and Gov. Brown signed, a law limiting the issuance of CABs.

http://www.reuters.com/article/2013/10/02/municipals-california-capitalappreciatio-idUSL1N0HS1R420131002

The new law limits total payments to 4x principal, and they have to be repaid within 25 years. Pity the law doesn't force the refinancing of non-compliant CABs.

These types of bonds are especially common in California and Texas. I wonder, ahem, what those two states have in common? Hint: California and Texas are both about 38% Hispanic. Well, that's not really a hint - that's the answer.

WJ said at November 11, 2013 8:09 PM:

These bonds were passed by politicians who didn't want to run for re-election having voted for a tax increase. It's time we had specific taxes for each department or program, as we do with social security, medicare and roads. We need a tax for food stamps, a tax for ag subsidies, a tax for defense, a tax for NASA, a tax for foreign aid, a tax for education, etc. When people file their income taxes each year they will be able to see exactly how much they are paying in taxes because of war, the food stamp program, international charity, or whatever. Taxpayers need to see how much each program affects their bottom line, and politicians need to know that every time they vote to enlarge a government program, they're voting for a tax increase, and every time they vote to cut a government program, they're voting for a tax cut.

Randall Parker said at November 11, 2013 9:43 PM:

bbartlog, I think you are romanticizing voters when you say this:

It's also possible that the people of the Santa Ana Unified School District are betting on future inflation.

Occam's Razor says stupidity and selfishness are to blame.

Wolf-Dog said at November 13, 2013 2:23 PM:

On this occasion, it's worth emphasizing that education still pays off because according to this article, despite the skyrocketing costs of education, the lifetime increase in income that is due to college education, even after defraying all the costs, is very substantial:

http://www.nytimes.com/2013/11/13/business/rethinking-the-income-gap-and-a-college-education.html

EXCERPT:
"
On a pure dollars-and-cents basis, the doubters are wrong. Despite a weak job market for recent graduates, workers with a bachelor’s degree still earn almost twice as much as high school graduates. College might be more expensive than ever, but a degree is worth about $365,000 over a lifetime, after defraying all the direct and indirect costs of going to school. This is a higher payoff than in any other advanced nation, according to the Organization for Economic Cooperation and Development.

"
Certainly there are fraudulent college degrees and even graduate degrees that are totally worthless, but if you choose your major carefully, there are a lot more employment possibilities for college graduates than people who only have a high school education

Randall Parker said at November 16, 2013 9:11 PM:

Wolf-Dog,

Such studies usually do not adjust for two things:

- Most college majors teach few useful skills. So why do employers choose college grads? Employers use a college degree as a socially and legally acceptable IQ test and also self discipline test.

- Most college graduates are much smarter than people who only get a high school diploma. They will be more productive in work even if employers ignore their degree in the initial hiring phase.

Smart people can learn many useful skills online at lower cost. So online education will continue to grow and bricks and mortar colleges will shrink.

Namon said at November 18, 2013 11:56 PM:

One word needs to become much more popular: default.


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