US And Greek Cities Refuse To Service Debt As Next Stage Of Solvency Crisis Shifts From Sovereign To Local Governments

Tyler Durden's picture

Now that the Greek striking truckers have been placated and the obliterated critical tourist season can attempt to salvage itself with just one month left as gas is finally once again (partially) available, some were hoping for at least a brief return to normal in the ECB/IMF-subsidized country. Alas, no such luck, as Greece has now become an accelerated version of the US' own slow progress to all out insolvency. As the country's foreign debt hole has been plugged for the time being with limitless cash infusions, and the financial system lives day to day as Greek banks are allowed to pledge whatever trash they find in the dumpster to the ECB, the next flash point are defaulting local governments, the equivalent of our own state and municipal crisis. Late last week, Kathimerini disclosed that the Athens port town of Piraeus has decided to stop "all payments following a central government decision to stop funding the debt-ridden authority. Having seen the kind of moral hazard allowed to his sovereign equivalents, the mayor Panaytois Fasoulas essentially says he believes he is owed a preferential debt restructuring: "Fasoulas said his municipality was not seeking privileged treatment but
wanted to renegotiate the payment of its debts, paying larger
installments at a lower interest rate." Surely, he is fully entitled to his ludicrous demands after what happened in Europe in the first half of 2010, and in the US in the past two years. We are only surprised that our own bankrupt cities haven't figured out that the right approach is precisely this: refuse payments unless demands are met. In fact, as reported in St. Louis Today, the near bankrupt city of East St. Louis, which just laid off 30% of its police force, has announced it would not make a scheduled $500,000 payment. "On Friday, the city approved a proposal to defer bond payments until next year in order to free up $500,000." In realizing that creditors don't really have a loaded gun pointed at their heads, US cities are finally waking up to what has been all too obvious to Europe for many months now. Look for the domino chain of state and municipal failures to really pick up in earnest over the next several quarters now that the creditor vs debtor battle lines have been openly set.

More from Kathimerini:

Addressing a press conference, Fasoulas requested a meeting with government officials to find a solution that will allow the municipality to make good on its obligations - to citizens, employees and creditors. The mayor did not rule out the possibility of strike action - without determining what form this would take - to demand the monthly disbursement of some 1.6 million euros.

Piraeus City Hall currently owes some 210 million euros in debts amassed over the past 20 years. Over the past three years, the government has withheld state grants from Piraeus municipal authorities. Fasoulas yesterday described the government's stance as «provocative,» noting that a total of 44 million euros had been spent on paying off municipal debts during his three years as mayor, while only 12 million euros had been spent during the eight years that his predecessor, Christos Agrapidis, had held the post. Fasoulas said his municipality was not seeking privileged treatment but wanted to renegotiate the payment of its debts, paying larger installments at a lower interest rate.

In a related development on Wednesday, municipal workers on the Ionian island of Zakynthos launched an open-ended walkout to demand three months in outstanding wages they claim to have been denied by cash-strapped authorities. The employees handed over the keys to the regional office for the Ionian islands in a symbolic gesture and said they would not return to work until authorities paid their outstanding salaries. The protesters accused their superiors of «whiling away their time in chic cafes while hundreds of municipal employees struggle to make ends meet» and called on Interior Minister Yiannis Ragousis to intervene and ensure they get paid.

It is unclear if the IMF will take on the burden of bailing out insolvent Greek cities before the specter of televized violent escalations once again is considered. And just because our own back yard is in such fine shape, we are confident US taxpayers will be all for taking their tax money and saving cities thousands of miles away, even as police forces across the country are decimated for lack of minimal funding.

h/t Mike and Neal

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Tense INDIAN's picture

love to see the market crash on august 6...the cardinal Climax

Oh regional Indian's picture

From one Indian to another, I agree, though "love" is not the emotion I get.

Cardinal climax. Climax.....hmmmmmm..... interesting visual (now! now!).

Zonal risk (like EU) to Country risk (like U/UK/Iceland etc.) , to state risk, to city risk...

Am I seeing a pattern?

People are last in that chain and the hardest hit.

Ring a ring of roses.........

 

ORI

http://aadivaahan.wordpress.com

 

RockyRacoon's picture

I hope we don't have any tense regional Indians here in the U. S..

They go on the warpath and burn things down.

Tic tock's picture

" In realizing that creditors don't really have a loaded gun pointed at their heads,"

That depends entirely on whether one has to work for a living, or whether one gets free central bank money...this society is beholden to money, work doesn't matter - nice one, stonecutters.

powersjq's picture

You do realize that we're talking about governments, not individual persons, right?  False analogy, comparing gov't debt to personal debt.

papaswamp's picture

Well I was wondering when this woud start. Will it just be a few little towns and cities or will we see a major metro area or perhaps a state in the next month? That will be the big signal to me to start warming up the 'bunker'....unless AL91 goes hurricane on me.

Fascist Dictator's picture

I've been waiting (and preparing) for over 30 YEARS for the STHTF. If the market does crash big time during the astrological cardinal climax, I can breathe a sigh of relief, but I'm STILL waiting for the dollar collapse. Something tells me that it won't happen, I don't know why, but after waiting for sooooo many years with nothing happening, I'm weary and leary.

Crisismode's picture

Perhaps the snowball will fly down the ski ramp, achieve small-planet girth, achieve excape velocity, and hurtle into orbit.

 

Perhaps all entities will refuse payment, down to the smallest HELOC owner and we all initiate a vast Jubilee.

 

Wouldn't that be the ticket?!?!

 

.

pc_babe's picture

The corrupt poitician is so predictable ... scare the sheeple and fire the line police officers, teachers & firemen first and very loudly.  Meanwhile, the chief of police, the shcool superintendant, and fire chief with their proverbial army of overpaid staff remain.  Matters not, for the unions have insured a lifetime annuity and benefits package worth more than unemloyed actually worked.  

My brother works for the state of CA.  In the lifespan of his employment he will earn roughly $1.5MM.  When he retires, the state and his union have promised him a package worth almost $4MM.

Where my kids go to school, the front line teacher to admin ratio is 13:1.  In the county here, the public school system is 5:1.  Dollars spent per pupil for my kid's school, approx $28K.  The county's public schools is $47K.  

How long before the real problem is fixed?

   

SWRichmond's picture

amen, sister.  The bottom of the bottomless pit of free taxpayer money has been found.  Back to a production-based economy, please.  The hard-lefties don't like production, as they believe it isn't earth-friendly, so they've facilitated the creation of a society where almost nothing is produced domestically: the "service" economy.  Onto the back of this non-productive economy they've foisted an army of public (local, state, federal) employees, paying them exorbitant salaries and guaranteeing they'll vote for bigger government.

It's over.  Back to work.

MachoMan's picture

Simply put, the demand for education has to be reduced to match the availability of jobs as well as their requirements.  Most of these people are just nonperforming assets on the governments books that pray on our lactating teets (at gunpoint).  It's over, but not without a fight...  same for police and firemen really...  as homes are worth less, why do we need to keep them from burning?  Or burning the neighbors?  When there is less property to protect, why do we need police?  Especially at that salary.

Everyone thought the inflation target with the economy was an iron law of organic growth...  states and municipalities acted accordingly...  at the very least, I expect plenty of tar and feathering.

The awesome part about it is that even though we have sat back on our hands all these years and watched it happen, we don't have to lift a finger to watch it implode.  Eventually, their benefactors can't find funding.  Welcome to the party public sector, we've been waiting for you for a couple years now...  all the cake and decent booze is gone though...  maybe you can watch the stripper fuck the donkey later.

Frank Owen's picture

The hard-lefties don't like production, as they believe it isn't earth-friendly, so they've facilitated the creation of a society where almost nothing is produced domestically: the "service" economy.

What? So shipping from halfway across the world is more earth-friendly than producing domestically? That scrapping the production-based economy was a left-wing driven plot is a crock. Both sides made tons selling out their population's futures. We've chased lowest cost per unit and ignored the long term costs (jobs, wages, lost tax revenues, less re-investment, etc) associated with it, and the people who made those decisions made a lot of money doing it - it wasn't a left or right wing phenomena.

powersjq's picture

The hard-lefties don't like production, as they believe it isn't earth-friendly, so they've facilitated the creation of a society where almost nothing is produced domestically: the "service" economy.

Um, the "left" refers, as it has always referred, to the workers' parties.  As in, the workers who make stuff.  You can use the word "production" if you want, but then you'll sound Marxist.  As long as that's OK with you.

The hollowing out of the US's manufacturing core--probably the greatest injury done to the US's future in the past 40 years--was driven by the cost concerns of big business.  Big business is, and always has been, the "right."  I know that things have gotten wonky in the US since GOP started the culture wars in order to redfine itself as not just the party of the well-off and well-born.  Maybe we should just drop the whole left-right thing?  It's just confusing everyone.

I know that the meaning of words drifts naturally, but really, it's like people no longer have any idea what they're talking about. 

SWRichmond's picture

Um, the "left" refers, as it has always referred, to the workers' parties.

Do you mean the "government workers' parties"?  I think maybe you do.  Yes, they are partying on my back.  Their unholy alliance with the environmentalists, color-counters, the dependency class-advocates, FMLA etc and others helped push costs up and production offshore.  I'm not excusing the right; the right did it for purely profit motives.

MachoMan's picture

Aside from the fact that Americans don't work anymore...  I don't know what the fuck party could represent "workers".  This goes doubley true for governmental "workers"...  not only do they not work, but they also keep you from working.

I think what the guy meant was we need to do away with the concept of the left and right and implement a "magic" party because that's ultimately the lion's share of both their platforms.

Hungry Hungry Hippos

Helix6's picture

Re: "The hard-lefties don't like production, as they believe it isn't earth-friendly, so they've facilitated the creation of a society where almost nothing is produced domestically.."

WTF?!!  Is this historical revisionism?

It was not the hard left but rather the hard right that sold out the American worker.

But you already knew that, so I waste my breath...

Kreditanstalt's picture

"...decimated for lack of minimal funding"??

Sounds like rubbish.  If they were paid $10/hour, with few or no benefits but also very little in tax deducted, this problem would go away.

It's all about excessively high American living standards, standards which are going to come down one way or another.

Do you want EVERYONE to take a substantial income haircut but keep their jobs?  Or do you want a two-tier society of wealthy public-sector employees and the rest of the peasantry?

East St. Louis SHOULD have imposed a 35% across the force pay cut instead of laying SOME off...

Miles Kendig's picture

I never knew before that 35K a year was wealthy in an area where the poverty level is nearly 50K...  Indeed, supervision of convicted terrorists should only pay $10.00 an hour while private contractors collect 250K a year to accept human donations for fresh cash at various global collection points.  I have properly schooled.  Thanks.

aint no fortunate son's picture

"As the country's foreign debt hole has been plugged for the time being with limitless cash infusions, and the financial system lives day to day as Greek banks are allowed to pledge whatever trash they find in the dumpster to the ECB"

Man, I would take Tyler over ANY of the late night "comedians" any day of the week. Why not a guest spot on Jon Stewart Tyler?

Methinks those half eaten Greek pizzas are being devoured as we speak at 33 Liberty right now, since we know where the ECB got all those little pieces of rectangular green paper in the first place.

Gordon Freeman's picture

Sorry, TD--I will not be crying that "police forces across the country are decimated for lack of minimal funding".  Boo-hoo-hoo--fuck those overpaid fascist parasites

Hondo's picture

As a side note....the city coulp not meet its pension payments decades ago and gave the city fire pension place the building that houses city hall in place of payment.

caconhma's picture

<In realizing that creditors don't really have a loaded gun pointed at their heads, US cities are finally waking up to what has been all too obvious>

Here goes the entire municipal bond market. Why to pay?

Why should it be any different from mortgage market? Just walk away.

 

It is becoming more and more obvious that the Obama Administration and our courts brilliantly succeeded in destroying the US economy. US economy has a metastasizing cancer that spreads. The only question left: how soon will it kill the patient (the USA)?

luigi's picture

Now this is the time where need makes one creative.

Suppose I (greek State or municiaplity) were to pay my emploies and suppliers with "debt notes" issued in exchange for cancelled debt stock and I make people accept them "at gunpoint" if necessary. These kind of bills would then be used as currency and primarly used to pay, totally or in part, taxes and or other public services. The bills coming back to the city (or State) treasure are trashed and the debt cancelled. This should go together with a real policy of balance surplus, of course. Thoughts? (don't just push "flag as junk" please :D)

MacedonianGlory's picture

Fasoulas, Mayor of Piraeus, is a Socialist Party member. Four years were enough for Piraeus to turn in to a dump. The most dirty city in Greece.

The conditions around the main train station and the port are disappointing. Everywhere is dirty, and lots of African and Pakistani refugges who created an open sale market create a scenery that is simmilar to Mogadishu or Karatsi. The spirit of Greece is totally abcent.

 

Zina's picture

Interesting... Piraeus had an important role to human civilization 2500 years in the past, as the main port to Athens, and now it can play an important role again, as a catalyst to a world local government debt debacle...

MacedonianGlory's picture

Piraeus was not the main port of Athens in antiquity. Faliro was.

Piraeus was a city state, sort of vassal to Athens.

Zina's picture

Sorry, I think my sources on Ancient Greece history were inaccurate on this point.

 

RRat's picture

East Saint Louis is perhaps the most dysfunctional, crime-ridden, broke and hopeless city in the USA. To think that East Saint Louis is a trend setter is really scary!

vote_libertarian_party's picture

...aaaand equities love the prospect of nation wide municipal defaults...

...or is today the day they love Chinas mfg index went negative

...or Euro banks spiked profits by the same acctg gimmicks WS banks used last month

...or oil is over $81

Interesting, I spent all that money on an education and those econ classes were completely worthless.

vote_libertarian_party's picture

I guess the floor traders will be glad to have the extra day off.  I mean, they aren't trading today afterall.  It will all be bot vs. bot all day long.

americanspirit's picture

Isn't it just possible that behind all the chaos the Greeks are actually re-inventing some of those old, lost ideas like liberty, freedom, and democracy. Rising up and collectively throwing off the chains of unbearable debt - however acquired - may be the new definition of freedom. I know they are profligate, lazy, Uzo-drinking street-rioters, but behind all that there is definitely a spirit. I'm not sure that spirit is still alive in America. I sure don't see any American sheeple dancing in the streets while burning down the banks. At least not yet.

luigi's picture

Don't underestimate the work capability of mediterranean people: german industries ran for decades on the back of PIGS' worker (where I doen't stand for Ireland...).

Choice given they are'nt lazier than any beach stranded budweiser drinking detroit-worker-on-vacation... ;)

Mariposa de Oro's picture

Whaaaat? Burn down a bank??? But
Dancing with the Stars is on!
And American Idol, etc. No way!
Obama will fix it. He just needs
time.
/sarc off

Miles Kendig's picture

American cities, like individual American citizens have only one duty.  That is to SPEND.  Spend for all they're worth.  Spend more than they're worth.  Spend more than they can ever hope to repay.  Spend to keep everyone else busy producing worthless crap and trading it for worthless bits of paper.  It is about time cities & counties learned the greatest lesson of the GFC.  That is that debt is never expected to be repaid so why bother pretending?  Just as long as the government entity in question papers over the nuisances of property rights and just debts with national/regional security whatnot then it's all good.  Just ask the apparent new member of the SCOTUS, she'll spell it out plainly as I am sure BBG v FRB will demonstrate quite clearly. 

powersjq's picture

This just highlights the simple fact that in insolation, it is the debtor and not the creditor who has the upper hand in the short run.  If the debtor simply refuses to pay, the creditor gets nothing right now and faces a difficult battle to recoup what it can in the future.  Whatever punishment the debtor may eventually face, the creditor is screwed now and forever.

All systemic credit problems originate with foolish creditors.

MachoMan's picture

Right, but you don't pump the inflation bubble until you've capture the political class...  whatever punishment the debtor may face is determined by the creditor...  if enough people are going to default, then you tax them for the shortfall.  Pretty simple.  Great business plan if you can get it.

All systemic problems originate with apathetic citizens.