Monday, August 06, 2012

Bankruptcy, Please

While banks are still being persecuted for lending too much and not lending enough, too many still are getting money they shouldn't.  Case in point, a San Diego school district
In 2008, voters had given the district permission to borrow more money to finish its modernization, and they had received a big promise from the elected school board in return: No tax increases.
.. the district got creative. 
With advice from an Orange County financial consultant, the district borrowed the money over 40 years in a controversial loan called a capital appreciation bond. The key point for the district: It won’t make any payments on the debt for 20 years. ... 
"We could have authorized more taxes, it would just have been breaking the promises we made to the community," said school board member Todd Gutschow.
This works great if you plan on dying within 20 years, but otherwise it's not very smart. As Reason writers Veronique de Rugy and Nick Gillespie write in The Hill, neither party is working honestly to tackle the nation’s fiscal issues, in large part because it doesn't sell to voters. I see a train wreck, and so the sooner it happens the less disastrous it will be.


Anonymous said...

"The sooner [the train wreck] happens, the less disastrous it will be." Bingo. That's the principle that should be front and center in current policy debates, but it is not. I was initially trained doing reorgs and bankruptcies. "Do it fast, early and decisively" is the first thing you learn. The same holds for governmental entities, but we are ignoring the rule.

Mercury said...

Now you guys are thinking like me!

I know it will hurt to pull the lever but guess which presidential candidate is the "sooner" one?

Eric Falkenstein said...

Merc: I'm sympathetic to that, though I'm afraid we won't bounce back like Germany after Hitler, but rather slog into the abyss like Argentina. Perhaps kicking the can down the street will make us like the fall of Rome, a multi-century long slide.