GREG HUNTER: THREE BIG PROBLEMS TO BE DISCUSSED AT G8 AND NATO SUMMITS

By Greg Hunter’s USAWatchdog.com 

The big news is what is coming up over the next four days.  There are two sets of meetings:  one in Camp David with the G8 and one in Chicago with NATO.  Forget the protests in Chicago; that is just noise and distraction.  There are three big problems that will be talked about at these meetings.

1. Syria.  Syria is in the middle of a revolution, and Russia has warned the West to stay out.  Nothing is settled there, and the cease fire was short lived.   Any NATO action, such as what happened in Libya, could spark World War III.

2. The European Debt Crisis.  It’s getting worse, not better.  Spanish banks are in trouble, more than two dozen Italian banks have been downgraded and the Greeks took nearly a billion dollars (700 million euros) out of the banks there.  Germany is under Pressure to come to the rescue, but Angela Merkel is in trouble from all the bailouts.  The fear is if Greece leaves the EU, then other countries will follow, and the banks could all take big losses.

3. The Iranian Nuclear Program.   The last meeting in April between the U.S., Germany, France, Britain, China and Russia ended with nothing more than an agreement for another meeting next week.  Israel is not happy and, basically, has said Iran was free to enrich uranium.  Iran has repeatedly said its nuclear program is for the peaceful production of energy.  The U.S. Senate is working on new economic sanctions on Iran, and word there is that containment of Iran is not an option.

In other news:

JP Morgan’s $2 billion loss will probably turn into a $3 billion loss and may go higher.   It will not sink JP Morgan, but this shows how risky derivatives are, and all the banks are backed by the FDIC.   This is a warning flare that big financial icebergs are ahead.  At some point, the loss might be big enough to trigger another meltdown.  Goldman Sachs, for example, had $44 trillion in derivatives and a little more than $100 billion in assets.  The banks will tell you that this is all hedged risk, it’s called bilateral netting.  This is done to keep losses tiny, if any occur. But we know how well that worked with AIG, Lehman, MF Global and, now, JP Morgan.

Finally, there is a new story on the internet about how President Obama was born in Kenya.  It seems Obama’s literary agent accidentally released it.  Please remember, a few months ago, Arizona Sheriff Joe Arpaio alleged the President’s birth certificate was a forgery.  The MSM ignored the story, but it might be harder to ignore now.

WALL STREET CONFIDENCE TRICK: HOW “INTEREST RATE SWAPS” ARE BANKRUPTING LOCAL GOVERNMENTS

by Ellen Brown

Far from reducing risk, derivatives increase risk, often with catastrophic results. —    Derivatives expert Satyajit Das, Extreme Money (2011)

The “toxic culture of greed” on Wall Street was highlighted again last week, when Greg Smith went public with his resignation from Goldman Sachs in a scathing oped published in the New York Times.  In other recent eyebrow-raisers, LIBOR rates—the benchmark interest rates involved in interest rate swaps—were shown to be manipulated by the banks that would have to pay up; and the objectivity of the ISDA (International Swaps and Derivatives Association) was called into question, when a 50% haircut for creditors was not declared a “default” requiring counterparties to pay on credit default swaps on Greek sovereign debt.

Interest rate swaps are less often in the news than credit default swaps, but they are far more important in terms of revenue, composing fully 82% of the derivatives trade.  In February, JP Morgan Chase revealed that it had cleared $1.4 billion in revenue on trading interest rate swaps in 2011, making them one of the bank’s biggest sources of profit.  According to the Bank for International Settlements:

[I]nterest rate swaps are the largest component of the global OTC derivative market.  The notional amount outstanding as of June 2009 in OTC interest rate swaps was $342 trillion, up from $310 trillion in Dec 2007.  The gross market value was $13.9 trillion in June 2009, up from $6.2 trillion in Dec 2007.

For more than a decade, banks and insurance companies convinced local governments, hospitals, universities and other non-profits that interest rate swaps would lower interest rates on bonds sold for public projects such as roads, bridges and schools.  The swaps were entered into to insure against a rise in interest rates; but instead, interest rates fell to historically low levels.  This was not a flood, earthquake, or other insurable risk due to environmental unknowns or “acts of God.”  It was a deliberate, manipulated move by the Fed, acting to save the banks from their own folly in precipitating the credit crisis of 2008.  The banks got in trouble, and the Federal Reserve and federal government rushed in to bail them out, rewarding them for their misdeeds at the expense of the taxpayers.

How the swaps were supposed to work was explained by Michael McDonald in a November 2010 Bloomberg article titled “Wall Street Collects $4 Billion From Taxpayers as Swaps Backfire”:

In an interest-rate swap, two parties exchange payments on an agreed-upon amount of principal. Most of the swaps Wall Street sold in the municipal market required borrowers to issue long-term securities with interest rates that changed every week or month. The borrowers would then exchange payments, leaving them paying a fixed-rate to a bank or insurance company and receiving a variable rate in return. Sometimes borrowers got lump sums for entering agreements.

Banks and borrowers were supposed to be paying equal rates: the fat years would balance out the lean.  But the Fed artificially manipulated the rates to the save the banks.  After the credit crisis broke out, borrowers had to continue selling adjustable-rate securities at auction under the deals.  Auction interest rates soared when bond insurers’ ratings were downgraded because of subprime mortgage losses; but the periodic payments that banks made to borrowers as part of the swaps plunged, because they were linked to benchmarks such as Federal Reserve lending rates, which were slashed to almost zero.

In a February 2010 article titled “How Big Banks’ Interest-Rate Schemes Bankrupt States,” Mike Elk compared the swaps to payday loans.  They were bad deals, but municipal council members had no other way of getting the money.  He quoted economist Susan Ozawa of the New School:

The markets were pricing in serious falls in the prime interest rate. . . . So it would have been clear that this was not going to be a good deal over the life of the contracts. So the states and municipalities were entering into these long maturity swaps out of necessity. They were desperate, if not naive, and couldn’t look to the Federal Government or Congress and had to turn themselves over to the banks.

Elk wrote:

As almost all reasoned economists had predicted in the wake of a deepening recession, the federal government aggressively drove down interest rates to save the big banks. This created opportunity for banks – whose variable payments on the derivative deals were tied to interest rates set largely by the Federal Reserve and Government – to profit excessively at the expense of state and local governments. While banks are still collecting fixed rates of from 4 percent to 6 percent, they are now regularly paying state and local governments as little as a tenth of one percent on the outstanding bonds – with no end to the low rates in sight.

. . . [W]ith the fed lowering interest rates, which was anticipated, now states and local governments are paying about 50 times what the banks are paying. Talk about a windfall profit the banks are making off of the suffering of local economies.

To make matters worse, these state and local governments have no way of getting out of these deals. Banks are demanding that state and local governments pay tens or hundreds of millions of dollars in fees to exit these deals. In some cases, banks are forcing termination of the deals against the will of state and local governments, using obscure contract provisions written in the fine print.

By the end of 2010, according to Michael McDonald, borrowers had paid over $4 billion just to get out of the swap deals.  Among other disasters, he lists these:

California’s water resources department . . . spent $305 million unwinding interest-rate bets that backfired, handing over the money to banks led by New York-based Morgan Stanley. North Carolina paid $59.8 million in August, enough to cover the annual salaries of about 1,400 full-time state employees. Reading, Pennsylvania, which sought protection in the state’s fiscally distressed communities program, got caught on the wrong end of the deals, costing it $21 million, equal to more than a year’s worth of real-estate taxes.

In a March 15th article on Counterpunch titled “An Inside Glimpse Into the Nefarious Operations of Goldman Sachs: A Toxic System,” Darwin Bond-Graham adds these cases from California:

The most obvious example is the city of Oakland where a chronic budget crisis has led to the shuttering of schools and cuts to elder services, housing, and public safety. Oakland signed an interest rate swap with Goldman in 1997. . . .

Across the Bay, Goldman Sachs signed an interest rate swap agreement with the San Francisco International Airport in 2007 to hedge $143 million in debt. Today this agreement has a negative value to the Airport of about $22 million, even though its terms were much better than those Oakland agreed to.

Greg Smith wrote that at Goldman Sachs, the gullible bureaucrats on the other side of these deals were called “muppets.”  But even sophisticated players could have found themselves on the wrong side of this sort of manipulated bet.  Satyajit Das gives the example of Harvard University’s bad swap deals under the presidency of Larry Summers, who had fought against derivatives regulation as Treasury Secretary in 1999.  There could hardly be more sophisticated players than Summers and Harvard University.  But then who could have anticipated, when the Fed funds rate was at 5%, that the Fed would push it nearly to zero?  When the game is rigged, even the most experienced gamblers can lose their shirts.

Courts have dismissed complaints from aggrieved borrowers alleging securities fraud, ruling that interest-rate swaps are privately negotiated contracts, not securities; and “a deal is a deal.”  So says contract law, strictly construed; but municipal governments and the taxpayers supporting them clearly have a claim in equity.  The banks have made outrageous profits by capitalizing on their own misdeeds.  They have already been paid several times over: first with taxpayer bailout money; then with nearly free loans from the Fed; then with fees, penalties and exaggerated losses imposed on municipalities and other counterparties under the interest rate swaps themselves.

Bond-Graham writes:

The windfall of revenue accruing to JP Morgan, Goldman Sachs, and their peers from interest rate swap derivatives is due to nothing other than political decisions that have been made at the federal level to allow these deals to run their course, even while benchmark interest rates, influenced by the Federal Reserve’s rate setting, and determined by many of these same banks (the London Interbank Offered Rate, LIBOR) linger close to zero. These political decisions have determined that virtually all interest rate swaps between local and state governments and the largest banks have turned into perverse contracts whereby cities, counties, school districts, water agencies, airports, transit authorities, and hospitals pay millions yearly to the few elite banks that run the global financial system, for nothing meaningful in return.

Why are these swaps so popular, if they can be such a bad deal for borrowers?  Bond-Graham maintains that capitalism as it functions today is completely dependent upon derivatives.  We live in a global sea of variable interest rates, exchange rates, and default rates.  There is no stable ground on which to anchor the economic ship, so financial products for “hedging against risk” have been sold to governments and corporations as essentials of business and trade.  But this “financial engineering” is sold, not by disinterested third parties, but by the very sharks who stand to profit from their counterparties’ loss.  Fairness is thrown out in favor of gaming the system.  Deals tend to be rigged and contracts to be misleading.

How could local governments reduce their borrowing costs and insure against interest rate volatility without putting themselves at the mercy of this Wall Street culture of greed?  One possibility is for them to own some banks.  State and municipal governments could put their revenues in their own publicly-owned banks; leverage this money into credit as all banks are entitled to do; and use that credit either to fund their own projects or to buy municipal bonds at the market rate, hedging the interest rates on their own bonds.

The creation of credit has too long been delegated to a cadre of private middlemen who have flagrantly abused the privilege.  We can avoid the derivatives trap by cutting out the middlemen and creating our own credit, following the precedent of the Bank of North Dakota and many other public banks abroad.

Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org.  In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.  The Public Banking Institute’s first conference is April 26th-28th in Philadelphia.

Ellen Brown is a frequent contributor to Global Research.  Global Research Articles by Ellen Brown

CHICAGO MAYOR’S OFFICE BUYS 8,513 MORE FACE SHIELDS FOR NATO SUMMIT

BY FRAN SPIELMAN City Hall Reporter | Chicago SunTimes

Mayor Rahm Emanuel’s administration is buying 8,513 more face shields for Chicago Police officers at a cost of $757,657 — and demanding delivery in time for the May 20-21 NATO summit — to give every officer on the street a shield that fits over a gas mask and prevents them from being blinded by liquids thrown by protesters.

The city bought new waterproof protective shields to protect Chicago police officers confronting protesters during the G-8 and NATO summits. The shields were designe to keep chemicals, acid — or bodily fluids —from getting in officers' eyes.

The supplemental purchase from Colorado-based Super Seer Corp. brings to $954,118 the amount of money spent to purchase 11,570 face shields twice as thick as the old ones with a larger surface and air-tight seal to keep liquids out.

The new contract was piggybacked onto an existing Fairfax County, Va. award with a third-distributor to expedite delivery. It makes it clear the Chicago Police Department is not scaling back its protest preparations even though President Barack Obama has shifted the G-8 summit from Chicago to Camp David.

“It’s an urgent thing. They want ’em by May 15th. Their intent is to outfit all of the officers Chicago Police have with the new face shield for the NATO summit,” said Super Seer President Steve Smith, who is hiring a dozen employees to “ramp up” production.

“Whenever there is a G-8 or NATO summit, it’s a very volatile situation with protesters. In a riot-type situation, they do throw liquid containing urine and feces at police officers. Which is why Chicago wanted an improved face shield with the liquid” seal.

Smith said Chicago is wise not to scale back its preparations just because the G-8 is headed to Camp David. The NATO summit is expected to draw 50 world leaders to McCormick Place.

“Take a look at the Occupy movement website and blogs. Occupy is scheduling a month-long protest in Chicago with demonstrators from around the world. That’s who’s coming to your town. The Police Department knows this, which is why they’re quite concerned,” Smith said.

Fraternal Order of Police President Mike Shields demanded the new shields to prevent his officers from being blinded by bags of urine and feces thrown by “anarchists” and other hard-core protesters.

Shields welcomed the city’s decision to supplement the earlier contract so all officers on the street could have the added protection.

“I don’t know if that means that every single officer is going to be used. But it does make sense to have our officers prepared with facial shields and gas masks prior to the event,” Shields said.

“This is something Chicago Police Department planners of this event overlooked. If it wasn’t for the union prodding the department to get these necessary pieces of equipment for their officers, nothing would have happened. What else have they overlooked?”

Chicago Police Department spokesperson Melissa Stratton refused to say whether the purchase of additional shields means all 11,570 officers would be involved in NATO summit duty.

But, she said, “If there is an emergency, all officers are expected to respond anywhere in the city and all members need to be equipped. We’re seeking to ensure that all officers have appropriate protection.”

Shields also complained that city planners are “not doing an adequate job” of preparing Chicago residents, employees and businesses for the inconveniences they will be forced to endure during summit week.

“If you commute downtown, you need to know how is my week going to be impacted? Where are the security zones going to start? If I drive downtown, where will travel be inhibited? If I take public transportation, how will my schedule and my safety be impacted? Where will I be able to walk?” he said.

The NATO Host Committee has acknowledged that a large security perimeter will prevent motorists from driving and parking on some downtown streets and that motorcades will tie up traffic periodically. But the precise locations and restrictions will be up to the Secret Service and will not be announced until about a month before the event.

The new face shields will be used with powder-blue motorcycle helmets purchased before 2005 at a cost of $89 each. The old shield was smaller, thinner, and could not fit over the gas mask police are now using. There was no air-tight seal, so liquids could get through.

BALTIMORE MAY SELL HISTORIC LANDMARKS TO RAISE MONEY

BALTIMORE (WJZ) — More than a dozen historic landmarks in Baltimore may be up for sale soon.

But as Gigi Barnett reports, the city first wants to know how much they will bring in first.

The city says its historic buildings are a liability, an eyesore and a drain on its pockets.

Baltimore’s Shot Tower was the tallest building in the nation back in 1828 and became a national historic landmark in the early 1970s. The city says it wants to know how much the Shot Tower is worth to a private developer.

“We have some great properties in unique locations and we hope we can find the right kind of marriage to make it work,” said City Director of Planning Thomas Stosur.

The city is weighing the costs of selling or leasing about 15 of its historic sites. Selling the real estate could beef up the city’s cash-strapped budget, as some of the properties are abandoned, old and dilapidated.

Stosur says a consultant is coming in to appraise the sites.

“Real estate is location, location, location. That’s why we’re hiring a specific firm to go in and look because they’re unique properties,” Stosur said.

Some residents say the plan would save city history.

“If they could find a buyer that would do the work and maintain it, I think it would be a good thing,” said resident Durward Center.

Roland Park’s water tower is also on the list. Originally built back in 1905, the tower became defunct in 1930 and in recent years has fallen into grave disrepair. Some Roland Park residents, however, say the tower belongs to the public.

“They’re part of Baltimore. They’re historic landmarks. I don’t think anyone should own them. It should be a Baltimore thing,” said resident Liz Wildt.

Of the 15 sites, 12 of them are protected by a historic landmark designation. That means any developer who buys or leases them must first get their plans approved.

Baltimore Mayor Stephanie Rawlings-Blake recently asked the city’s spending board to approve $46,000 in consultant fees to appraise the historic sites.

THE MUNICIPAL BOND MARKET IS IMPLODING

Chriss W. Street 
Big Government

Moody’s Credit Rating Service just announced the ominous trend that credit quality in the municipal bond market is falling at the fastest rate since the collapse of Lehman Brothers in 2008. Data released showed that 5.3 times as many municipal bonds were credit downgraded over the three last months than were upgraded. Moody’s emphasized that: “Downgrades dominated rating revisions across all public finance sectors except for healthcare,” said Assistant Vice President-Analyst Dan Steed, author of the report. “A rapid deterioration in credit metrics led to a higher-than-average 14 multi-notch downgrades.” Often sold to individuals as “conservative investments with tax free income”, munis in states like California, Illinois, New Jersey, and Pennsylvania are increasingly looking like high risk rolls of the dice.

This credit implosion comes after a sustained period when muni bonds were performing much better than corporate bonds. During the credit crisis; corporate bonds prices dropped by 30%, while muni bonds suffered very modest losses. The main reason for this stability was bail-out money showered on state and local governments by the Obama Administration. But fed money has dried up and property reassessments are falling for the first time since the 1970s. Strains on core operating expenses and revenue sources will likely persist, according to Moody’s: “This will be mostly due to economic stagnation, high unemployment, declining home values, and low consumer confidence,” said Steed. “We expect downgrades to continue exceeding upgrades in upcoming quarters.” This is polite ratings speak for: “duck and cover”.

The state revenues fell by $14.3 billion, even as the national economy has seemed to stabilize. The quarter ending September 30th saw 163 ratings reductions, the second highest 90 total in history. Over 100 of those downgrades were cities and school districts where falling property-tax collection is playing catch-up on the downside to the 30% fall in real estate values.

 

John Dillon, chief municipal-bond strategist at Morgan Stanley, said after a downgrade: “Usually management snaps to attention.” To stay solvent states and localities have tried to cut costs and raise revenues. Most have delayed infrastructure projects, increased garbage collection fees, and even closed parks. But raising property taxes awakens taxpayer vengeance and threats of recalling local politicians. Anne Van Praagh, managing director at Moody’s, said fiscal conditions of some local governments can deteriorate more quickly now than in previous recessions. Moody’s recently cut seven states or localities by three grades or more.

Fresno, California’s fifth-most-populous city, two weeks ago had $477 million of their debt “super-downgraded” three levels by Moody’s and is under a “negative” outlook for the risk of further downgrades. Moody’s emphasized city’s budget gap is so large due to a “weak economic base, with unfavorable demographic and economic trends,” and the city lacks “ability to absorb additional budgetary pressure.” Furthermore: “Like all California cities, Fresno’s ability to raise revenues is highly constrained; its primary budget balancing option is cost reduction”. This is ratings speak for: property collection may fall 20% and the city must fire police and firemen.

The neighboring City of Stockton looks even worse. Following a Securities & Exchange Commission filing; the city admitted they will probably be the first in California to default on redevelopment agency bonds. Long criticized as crony capitalist honey-buckets; developers lavished huge donations across the state to gain access to tax free city financing of mega-projects with no-money-down. After the agency debt was downgrade to “junk”, Stockton optimistically stated they only expect a 3.17% drop in property values for 2012. Good Luck on that number!

With muni bonds generally in the hands of older citizens, there has not been the panic selling by institutions when bonds are downgraded. But many individuals have their entire life savings in municipal bonds. When defaults become a reality, the press will run endless stories of tearful traumatized seniors and cringing corrupted politicians. Then there will be panic!

UNABLE TO PAY BILL, MICHIGAN CITY TURNS OUT THE LIGHTS

HIGHLAND PARK, Mich. (AP) — As the sun dips below the rooftops each evening, parts of this Detroit enclave turn to pitch black, the only illumination coming from a few streetlights at the end of the block or from glowing yellow yard globes.

It wasn’t always this way. But when the debt-ridden community could no longer afford its monthly electric bill, elected officials not only turned off 1,000 streetlights. They had them ripped out — bulbs, poles and all. Now nightfall cloaks most neighborhoods in inky darkness.

“How can you darken any city?” asked Victoria Dowdell, standing in the halo of a light in her front yard. “I think that was a disgrace. She said the decision endangers everyone, especially people who have to walk around at night or catch the bus.

Highland Park’s decision is one of the nation’s most extreme austerity measures, even among the scores of communities that can no longer afford to provide basic services.

Other towns have postponed roadwork, cut back on trash collection and closed libraries, for example. But to people left in the dark night after night, removing streetlights seems more drastic. And unlike many other cutbacks that can easily be reversed, this one appears to be permanent.

The city is $58 million in debt and has many more people than jobs, plus dozens of burned-out or vacant houses and buildings. With fewer than 12,000 residents, its population has dwindled to half the level from 20 years ago.

Faced with a $4 million electric bill that required $60,000 monthly payments, Mayor Hubert Yopp asked the City Council to consider reducing lighting. Council members reluctantly approved it, even in an election year.

“We knew it was going to hurt,” Councilman Christopher Woodard said. “We’re all hurting.”

In late August, contractors from DTE Energy Co. began rolling through the streets, taking out two-thirds of the light poles.

“It is a winning proposition, but that doesn’t make it a winner with the citizens who find themselves in the dark,” Woodard added. “We had to watch our backs when we got out of our cars before. Now we have to watch them even more closely.”

Unless the government gets an unexpected infusion of cash or sees an uptick in its dying tax base, many parts of Highland Park will remain beneath a shroud every night.

The city’s monthly electric bill has been cut by 80 percent. The amount owed DTE Energy goes back about a decade, but utility executives hesitated to turn off the juice.

“We are extremely concerned with public safety,” said Trevor Lauer, vice president of marketing and renewables for the Detroit-based utility. “We recognize that street lighting is something that contributes to public safety.”

Now, he said, the company has “a municipal lighting customer I’m confident can pay its monthly bill.”

Most of the 500 streetlights still shining in Highland Park are along major streets and on corners in residential areas. DTE Energy has listed the city’s overdue bill as an uncollectable expense.

The leader of a nonprofit group that works to reduce energy costs for low-income families said he’s not heard of any other communities becoming so desperate to save money that they turned off streetlights. It might be a sign of things to come.

“If it works in Highland Park, I could not imagine other cities not looking at that as one option,” said David Fox, executive director of the National Low Income Energy Consortium in Alexandria, Va.

In its heyday, Highland Park was one of Michigan’s urban jewels, with large yards, spacious homes and tree-lined streets.

Henry Ford put his first moving assembly line here, and his factory eventually churned out a car every minute. By 1930, the city had grown to 50,000 people.

Ford later moved his primary manufacturing operations to River Rouge, southwest of Detroit, in search of room to expand. Highland Park survived that loss. But it never recovered from Chrysler’s decision in the 1990s to move its world headquarters 50 miles north to Oakland County.

“That took away $6 million” in taxes, Woodard said. “That was a lot of money to not have anymore. It was a major industrial operation moving out of here. When Chrysler moved out, things started to happen.”

Small businesses catering to Chrysler workers began to fail, and the city struggled to pay its bills. And like Detroit, which lost 250,000 residents from 2000 to 2010, people moved out, leaving hundreds of abandoned houses.

In 1980, the census counted 27,000 people living in Highland Park. By 2010, that number had fallen to 11,776.

The median household income is $18,700, compared with $48,700 statewide. And 42 percent of the city’s residents live in poverty.

“It’s pretty ghetto,” Cassandra Cabil said from her front yard. Voices drift in the darkness from down the street, but the speakers can’t be seen.

The 31-year-old short-order cook works odd hours and sometimes makes it home late at night. She watched recently as crews removed the streetlight and pole from in front of her rented home.

“It’s really dark unless people have their lights on,” she said. “There’s a lot of vandalism going on, people breaking into these houses.”

CHICAGO MAY DECRIMINALIZE MARIJUANA

Chicago pot smokers may soon be able to light up without fear of jail time.

Several Windy City councilmen said Thursday they plan to introduce a local law that would decriminalize possession of small amounts of marijuana in order to cut costs and free up police to handle more serious crimes.

Chicago police make about 23,000 arrests each year for possession of the drug, a misdemeanor which nevertheless carries stiff punishment of up to six months in jail, a $1,500 fine and a criminal record.

Under the new law set to be introduced next week, people caught with less than 10 grams of marijuana would instead face a $200 fine and up to 10 hours ofcommunity service.

Marijuana has already been downgraded to a lesser offense in several Chicago suburbs and areas of Cook County patrolled by the sheriff’s department.

Some 11 US states have also decriminalized possession of small amounts of pot and 18 states allow its use for medical purposes, according to the pro-marijuana group NORML.

Enforcing marijuana prohibition costs US taxpayers $10 billion and results in the arrests of 853,000 people a year, NORML said.

Cook County Commissioner John Fritchey told reporters that the proposed law makes sense.

“It is not time to act tough on crime; it is (time) to be smart on crime. We need our resources spent somewhere else,” he said.

16 SIGNS THAT YOUR CITY HAS BECOME A HELLHOLE

Michael SnyderThe Economic Collapse

All across America there are cities and towns that were once prosperous and beautiful that are being transformed into absolute hellholes.

The scars left by the long-term economic decline of the United States are getting deeper and more gruesome.  The tax base in many areas of the nation has been absolutely devastated as millions of jobs have left this country.

Hundreds of cities are drowning in debt and are desperately trying to survive.  Last year, city government revenues in the United States fell by another 2.3 percent.

That was the fifth year in a row that we have seen a decline.  Meanwhile, costs associated with health care, pensions and virtually everything else continue to explode.

So what are cities doing to make ends meet?  Well, one big trend that we are now witnessing is that many U.S. cities have been getting rid of huge numbers of employees.

If you can believe it, 72 percent of all U.S. cities are laying workers off this year.

Social services and essential infrastructure programs are also being savagely cut back in many areas of the country.  The cold, hard truth is that most of our cities are flat broke and things are going to get even worse in the years ahead.

16 Signs Your City Has Become a Hellhole

#1. When most of the street lights get repossessed because of unpaid electric bills.

#2. When it announces that it will no longer prosecute domestic violence cases in order to save money.

#3. When it simply stops sending out pension checks to retired workers.

#4. When it rips up asphalt roads and replaces then with gravel because gravel is cheaper to maintain.

#5. When it eliminates the entire public bus system.

#6. When nearly half of all the people living there can’t read.

#7. When one out of every ten homes sells for under $10,000.

#8. When you can literally buy a house for one dollar.

#9. When you have hundreds of people living in the tunnels underneath your streets.

#10. When three of your past five mayors have been sent to prison for corruption.

#11. When nearly half of the public schools in the city get shut down because of a lack of money.

#12. When you have dozens of young people rampaging in the streets that are thristy for revenge and that are armed with bats, pipes, and guns.

#13. When it is considered to be one of the 10 most dangerous cities in the world.

#14. When thieves defecate in the back seat after they have broken into your car and taken your things.

#15. When prostitution and drug dealing are two of the only viable businesses that remain in the city.

#16. When the police chief announces that the police department will no longer respond to calls about burglary and identity theft due to very deep budget cuts.

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THE NEW REALITY FOR U.S. CITIES: NO MONEY FOR STREET LIGHTS, ROVING PACKS OF WILD DOGS AND OPEN-AIR DRUG MARKETS

The Economic Collapse

If you want to know what the early stages of an economic collapse look like, just walk around some of the downtown areas of our major cities.


Today, nearly all large U.S. cities are either flat broke or they are on the way to being flat broke.  Yes, New York City and Washington D.C. (and a few others) are still doing fairly well, but for most U.S. cities economic reality is catching up with them very quickly.  Right now, there are a number of major cities that are so broke that they cannot keep the street lights operating.  Down in St. Louis, parents in some areas are carrying golf clubs with them as they walk their kids to school in order to fend off roving packs of wild dogs.  In other major U.S. cities, open-air drug markets conduct business without fear.  All over the United States, cities that used to be clean and prosperous and full of hope are now being transformed into post-industrial wastelands.  We are certainly not in “Mad Max” territory yet, but it doesn’t take too much imagination to see where all of this is headed.

I have previously written about how Detroit is literally coming apart at the seams.  Well, now in many areas of the city they can’t even keep the street lights on anymore.  There simply is not enough money, and even if there was, thieves are stealing the copper wiring out of the street lights faster than the city can repair them.

At this point, there are some neighborhoods in Detroit where up to 50 percent of the street lights are not functioning.

The following is from a recent article in The Detroit News about this crisis….

The war to keep the lights on in Detroit is a serious one. Thieves, antiquated equipment and a lack of funding have made it impossible for city officials to catch up to the problem.

City officials estimate 15-20 percent of the 88,000 lights in the Motor City are not working, and they acknowledge that figure could be as high as 50 percent in some neighborhoods.

But it is not just Detroit that is having a major problem.  Over in Highland Park, Michigan the majority of the street lights have been repossessed because the city was not keeping up with the electricity bill.

So what are residents of Highland Park supposed to do?

Are they supposed to lock themselves in their own homes at night?

In Fresno, California the theft of copper wire from street lights has become a total nightmare.  At this point, the loss of copper wire and the cost of repairing the street lights is costing Fresno about $50,000 a month.  So far, approximately 2,500 street lights have been stripped of their wiring.

Down in St. Louis they are having a different problem.  In some of the worst areas of the city, roving packs of wild dogs are a serious threat to children that are walking to school.

A recent report by the local CBS affiliate in St. Louis described the situation this way….

…Lewis Reed is sounding the alarm. “I’ve witnessed packs of dogs, 10 and 15 dogs running together, and I’ve seen all these dogs I’m talking about they don’t have collars, they don’t have tags, these are truly wild dogs,” he said.

Reed says stray dogs are terrorizing the north side. “It’s obscene that parents have to walk their kids to school, in some parts of the city, with a golf club to fend off wild dogs.”

Can you imagine that?

They say that they are going to try to put more money into animal control efforts if they can find it.  But like most major U.S. cities, St. Louis is a financial basket case.

Moving west a bit, Las Vegas is a different kind of a problem.  It was once a mighty symbol of American luxury and decadence, but now it is a microcosm of everything that has gone wrong with our economy.

The following description of the decline of Las Vegas comes from a recent article in The Telegraph….

But Las Vegas’s days as a boom town are long gone. At 14 percent, unemployment is the highest in America (the national average is 9.1 per cent). House prices have fallen 58.1 per cent since their 2006 high – the biggest losses of anywhere in America, while according to the website RealtyTrac, which specialises in foreclosed properties, Las Vegas is the nation’s foreclosure capital. Some 70 per cent of homes in Las Vegas are thought to be ‘under water’, or in negative equity, meaning their value is worth less than the amount owed on the mortgage, while foreclosure notices have been served on one in 16 properties. A survey last year by the local Las Vegas Review-Journal and Channel 8 News Now found that 34 per cent of locals would leave Las Vegas if they could find a job elsewhere, or if they weren’t underwater on their home loan.

Last year, I wrote a piece entitled “The Death of Las Vegas“.  Since then, things have gotten even worse for the city in many ways.

Today, there are hundreds of people living in the tunnels underneath the streets of Las Vegas.  You can see CNN video of some of these people right here.

But at least the “tunnel people” have a “roof” over their heads.

Over in “Lost Angeles”, homelessness is absolutely exploding and there are thousands of people living in the streets.

The following is from a recent article by Nick Allen….

In Skid Row, a grimy pocket of downtown Los Angeles, the prostrate forms of homeless people lie strewn across the pavements.

The lucky ones have tents for shelter but others make do with a sliver of cardboard for a bed and a supermarket trolley to carry their rags.

At the last police count 1,662 people live on these streets, twice as many as a year ago.

And now amid the drug addicts and the drunks there are families who not so long ago had homes and ordinary suburban lives.

Wait, wasn’t the economy supposed to be getting better?

So why has the number of people living on Skid Row doubled over the past year?

Los Angeles, like much of California, is rapidly falling apart.  Decades of very foolish policies have turned the “California Dream” into the “California Nightmare“.

Unemployment is rampant, crime is seemingly everywhere and the gangs appear to be getting bolder by the day.  For example, 21 machine guns were recently stolen right out of an LAPD training facility.

But there are cities in California that are in even worse shape than Los Angeles is.  If you go east of Los Angeles about 100 miles, you will come to the city of San Bernardino.  34.6 percent of the residents of San Bernardino are currently living below the poverty line.  Among major U.S. cities, only Detroit has a worse poverty rate.

Heading back to the east coast, the city of Camden, New Jersey is representative of the post-industrial hellholes that you will find all over the mid-Atlantic region and up into New England.

In an extraordinary article entitled “City of Ruins“, Chris Hedges did an amazing job of documenting how bad things have gotten in Camden.  Today it is estimated that the actual rate of unemployment in Camden is somewhere around 30 or 40 percent.  For most young people in Camden, there are very few legitimate opportunities for a better life, so many of them have resorted to selling drugs or selling their bodies in a desperate attempt to survive.

The following is a brief excerpt from “City of Ruins”….

There are perhaps a hundred open-air drug markets, most run by gangs like the Bloods, the Latin Kings, Los Nietos and MS-13. Knots of young men in black leather jackets and baggy sweatshirts sell weed and crack to clients, many of whom drive in from the suburbs. The drug trade is one of the city’s few thriving businesses. A weapon, police say, is never more than a few feet away, usually stashed behind a trash can, in the grass or on a porch.

The era of “American exceptionalism” is over.  We have rejected the things that made us great.  We have forsaken the truth and now we are paying the price.

At this point, we are rapidly becoming a joke to the rest of the world.

You know that things are bad when headlines such as this start showing up in major international publications: “America Must Manage Its Decline“.

Is that what we are going to tell our kids and our grandkids?

Are we going to tell them that we must “manage” our decline?

Most Americans also realize that something is fundamentally wrong.  According to a recent Time Magazine poll, 81 percent of the American people believe that the country is on the wrong track.

So why don’t our cities just spend more money and fix all of these problems?

Well, it is because most of them are drowning in a sea of red ink.  Instead of spending more money, most of them are desperately searching for more places to cut.  If you can believe it, 72 percent of all U.S. cities are laying workers off this year.

The federal government has been pumping massive amounts of money into state and local governments in recent years, but that can’t last much longer.  As I wrote about yesterday, the federal government is in debt up to its eyeballs.  In fact, the national debt has become so large that it threatens to collapse our entire financial system.

Sadly, the cold, hard truth is that we are now going to pay the price for decades of financial foolishness.

We thought that it would be our children and our grandchildren that would pay the price for our financial recklessness, but the reality is that we are going to pay the price too.

America is in a serious state of decline and things are going to get a lot worse in the years to come.

Take advantage of the relative prosperity that we are enjoying now to prepare for the lean years which are ahead.

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BUDGET CUTS CLAIM HUNDREDS OF THOUSANDS OF COUNTY, CITY JOBS

By Paul Davidson, USA TODAY

Local governments, once a steady source of employment in tough economic times, are shedding jobs in unprecedented numbers, and heavy payroll losses are expected to persist into next year.

The job cuts by city and county governments are helping offset modest private-sector employment gains, restraining broader job growth.

“They’ll continue to be a drag on the overall (employment) numbers and the economy,” says Wells Fargo economist Mark Vitner.

Localities have chopped 535,000 positions since September 2008 to close massive budget deficits resulting largely from sharp declines in property tax receipts. That exceeds the 413,000 local government jobs cut from 1980 to 1983, the only other substantial reduction in local government employment, according to federal records that go back to 1955.

Christopher Hoene, research director for the National League of Cities, estimates an additional 265,000 or so jobs could be eliminated by the end of 2012.

The cuts so far have mostly come since the recession ended in mid-2009, although they do not yet top those made in manufacturing and construction during and after the recession.

Local government budget woes are continuing even as state layoffs have eased amid a modest rebound in consumer spending that has lifted state sales tax revenue.

Since January 2010, states have trimmed 51,000 positions, less than 1% of their workforce of 5.1 million, while localities have slashed 406,000 jobs, or nearly 3% of payrolls then totaling 14.5 million.

Cities and counties largely depend on property tax revenue, which has plummeted as home values have continued to decline. Also, the effects of lower property values on taxes are typically delayed, because many jurisdictions do assessments every other year or average appraisals over several years to figure taxes, says Hoene and Kim Rueben, senior fellow at the Urban Institute.

At the same time, states are reducing aid to local governments in an effort to balance their own budgets. The 2009 federal economic stimulus made up some of the gap, but that money ran out this year.

Among localities cutting jobs:

•Chicago Mayor Rahm Emanuel, who unveiled his first budget last week, proposed 517 layoffs and the elimination of 2,000 vacant positions to close a $636 million deficit.

•In New York, Nassau County Executive Edward Mangano is proposing to lay off 700 workers in 2012 after leaving 300 jobs unfilled this year to wipe out a $310 million budget gap. Besides lower sales tax revenue, the county faces rising pension and health care costs mandated by union contracts. “The county executive is committed to not raising property taxes,” says spokeswoman Katie Grilli-Robles.

•The city of Venice, Fla., is laying off its fire marshal, deputy fire chief and fire inspector as part of a plan to cut 23 jobs next year, or about 9% of its workforce. The fire chief will conduct inspections, says spokeswoman Pam Johnson.

•The city of San Jose, which pared 588 jobs in the current fiscal year, will have to ax up to 800 positions next year and shut down all libraries and community center programs unless it caps soaring pension costs, says spokeswoman Michelle McGurk.

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