Thursday, June 10, 2010


As if state and local governments didn't already have enough financial problems ...

State and local governments regularly raise $400 billion a year through taxes, which are used to build needed infrastructure projects. The money raised is used to build schools, hospitals, roads, parks, and all the good stuff that makes communities work. Voters and elected officials understand this, which explains why they will vote to fund certain measures. It makes good community sense to invest in things like parks and roads.

Now, thanks to the same banksters who brought down the market by gambling on useless derivatives, billions in taxpayer funded infrastructure project money was illegally siphoned off because of bribes and inside kick back schemes orchestrated by money managers from Goldman Sachs, Bank of America, etc. In effect, the banksters stole taxpayer dollars, even before they facilitated the 2008 market collapse and got a taxpayer funded bailout!

Here's how it happened.

Imagine that a community or a state needs money to build schools, parks, or some roads. Voters and elected officials like the idea and will vote to fund infrastructure projects with taxpayer money. Money is secured through taxes, but in most cases can't be spent immediately. As a result, state and local governments must find financial institutions to "hold" the money. With billions at stake, you can imagine that financial institutions want a piece of the action. This is where the trouble begins.

* Municipalities and other governments send their money to financial institutions to hold taxpayer money, where it can earn interest before public agencies spend it (the process operates like a CD would).

* Many financial institutions who got these funds, to hold in trust, paid government "advisors" to steer deposits their way. Court documents show that payoffs ranged from $4,500 to $475,000 per deal.

* After the financial institutions got the money (cheaply) they then lent it out at higher rates (or used it to gamble on derivatives), and then paid off the financial advisors for their efforts.

To recap. Advising firms, working with firm like Goldman Sachs and Bank of America, colluded with each other and then deliberately withheld information from municipalities and other governments about higher paying programs. This cost taxpayers and governments in the form of lost interest income.

Or, as put it, "Wall Street’s biggest banks were cheating cities and towns during the same decade in which they were setting the stage for a global economic collapse." Nice.

- Mark

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