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The Scary Future of Municipal Bankruptcy - California Leads the Way

California's municipal governments are systemically set up to be financial disasters. But there are ways out.

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For years, bankers have used municipal bonds from California and elsewhere as playthings. Wall Street has consistently helped elected officials mask budgetary problems with complex derivatives that create the appearance of cash flow today by selling years of future revenue. The only purpose for these securities is to deceive the public and create fees for the financial firms.

Financial chicanery in these realms is demoralizing, harmful, expensive and dangerous. California experienced this type of treachery firsthand in the 1990s when Orange County declared bankruptcy after being sold highly risky securities by Merrill Lynch. That's why it's important to listen to the Vocker-Ravitch task force's call for reforming budgetary systems in the states to make them accountable and transparent and expose financial scams to deter their widespread use. The people of California have a right to know how their fiscal accounts are managed.

Originally appeared in the LA Times.


Thomas Ferguson is professor of political science at the University of Massachusetts, Boston, senior fellow at the Roosevelt Institute, and contributing editor of AlterNet. His books include "Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems" and "Right Turn: The Decline of Democrats and the Future of American Politics."

Robert A. Johnson is executive director of the Institute for New Economic Thinking and a senior fellow at the Roosevelt Institute.