Guest Post: Snapback - Stockton, Calif. And All The Cities To Follow

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Snapback: Stockton, Calif. and All the Cities to Follow

Government promises to public employees have created "zero-risk" Wonderlands protected from the market forces of risk and consequence. These islands of privilege are snapping back to join the real economy.

Every government entity that reckoned it was moated from the market economy will be snapped back to "discover" risk and consequence. Let's lay out the dynamic:

1. Every government can only spend what its economy generates in surplus.

2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.

3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.

4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.

5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.

6. The Federal government and the Federal Reserve have pursued a policy of inflating serial speculative credit-based bubbles.

7. These bubbles inflated assets, profits and taxes, creating the illusion that blow-off speculative tops were "the new normal."

8. Speculative credit-based bubbles misallocate capital and incentivize malinvestment on a spectacular scale.

9. Once the bubble deflates, the capital is lost or trapped in illiquid malinvestments.

10. As a direct result of the dot-com bubble, Stockton's tax revenues (general fund) leaped to $139 million in 2001. As a direct consequence of the housing bubble, it jumped to $186 million in 2007.

11. This "new normal" encouraged the belief that the stock market would double or triple every decade into the future, generating 8%+ annual returns for public union employee pension funds.

12. The city government granted employees open-ended guarantees of lifetime healthcare coverage.

13. This meant that there was no limit on the cost of each employee's benefits.

14. As noted here many times, healthcare costs rise by 7%-10% every year, even as the economy which supports healthcare grows by 2% on average.

15. Healthcare alone will bankrupt the nation, and the bankruptcy of entities that promised open-ended healthcare is merely one manifestation of the coming bankruptcy of the entire sickcare/entitlement Status Quo.

16. Once the stock market reverts to the mean and is revalued to the "new normal" of global recession and low earnings growth, it will decline by 40% or more and yields will remain around 2%.

17. Pension funds earning 2% at best based on expectations of permanent 8% returns cannot sustainably pay the benefits promised.

18. If the city attempts to make up the shortfall annually, the services provided to the citizenry will be gutted. The risk and consequence of malinvestment and favoritism has been offloaded onto the citizens while those protected by the government moat live "risk-free" lives of guaranteed pensions and benefits.

19. The public-employee pension and healthcare benefits were separated from the market economy with this government guarantee: regardless of what happens in the real economy, you will be paid pensions and benefits that have zero exposure to the market economy and private-sector pensions/benefits.

20. In effect, the government has placed its employees and vested interests in a moated "risk-free" zone outside the market economy. The risk that is distributed to all participants in an open market (i.e. a democracy) is transferred to the citizens and taxpayers.

21. Any government that siphons off an increasing share of its taxpayers' disposable income (to distribute to the privileged few) in return for declining services will eventually be overthrown by the citizenry and taxpayers who must bear the full consequences of the city's mismanagement of their capital and income.

22. Every city, county and state in the U.S. which has secured a risk-free wonderland for its favored few will "snap back" into the real economy and face the discipline of the credit market and the "discovery" of price and value.

23. Risk cannot be eliminated by government mandate, it can only be transferred to others. No government entity can maintain a "risk-free" fortress outside the market forever. The moat around Wonderland will be drained or filled, regardless of what promises were made.

24. Government has no mechanism to transparently price risk, value and return on investment. The market will "discover" all these and re-set government services and salaries accordingly.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
camaro68ss's picture

I live 20 min from Stockton, what a S*** hole that place has become. theres a rule in our area, dont get gas in stockton unless you want to get jumped.

MillionDollarBonus_'s picture

It's all about "public-private" initiatives. This is the compromise that we're all looking for. Successful public-private initiatives include:

1. The emergency financing of AIG and General Motors

2. Government financing of green technologies

3. Public hiring of construction contractors to build roads and bridges

4. Congress working with health insurance companies to make sure that everyone gets good quality healthcare

5. The CIA working with companies like GOOGLE to track and monitor potential domestic terrorists

The thing I love about 'PP' initiatives is they appeal to people from all parts of the political spectrum. Let's stop arguing and AGREE on something for once. What kind of public-private schemes do YOU want to see? I want to hear YOUR ideas.

Bicycle Repairman's picture

Let's see what's possible.... fees for every single service..., increase and collect fines like crazy....add new enforcement e.g. red light cameras, parking meters .... raise property taxes (for the children) .... increase asset seizures ... frack for gas ..... increase water and sewer fees me out here, I still haven't balanced the budget.

Sofa King Confused's picture

Everybody can and will do what Scranton, Pa just did.  The mayor just cut over 400 city employees down to $7.25 per hour ( minimum wage) .  Thats police, firefighters, public works and even himself.

DutchR's picture

And what happens next you ask?

Scranton's police, fire, DPW unions file lawsuit against salary cuts:



Sofa King Confused's picture

I am not advocating that this is right or wrong but in my opinion they just need to go bankrupt write off the debt and start over.  I have mixed feelings on this.

EscapeKey's picture

Fucking LOL, one of your better ones imo. I especially like

Government financing of green technologies

Dr. Richard Head's picture

MDB did a wonderful job of listing absolute failures of PP, otherwise known as fascism. 

TruthInSunshine's picture

I can hardly await the embarrassed silence of Joe Weisenthal, wanna-be-professional-fertilzer-spreader and proxist mouthpiece of TPTB, just like his hero, Paul Krugman, when Meredith Whitney proves to be correct but merely early on her call (just as Michael Burry was on his 'Big Short' on MBS) regarding the mass bankrupties of cities, townships and villages from coast to coast (their revenue is still plunging even after 5.2 trillion in fiat conjuring in just 4 years, and another 7 trillion in fiatski pledges to back the loans of others to whom they may actully belong; grand total thus far in direct conjuring creation of fiat = 12+ trillion in 4 years).

Dr. Richard Head's picture

The arrogance of Joe and Peter Schiff in a debate would make for interesting times.  Keiser has had Printing Pants Joe on his show, but I don't recall Joe and Schiff ever chatting in a forum. 

Popo's picture

Agreed.  Joe Weisenthal is one of the more pathetic weasels on the web.   Someone, somewhere apparently convinced him he was a professional journalist and not low paid employee of a cheesy, sensationalist clickbait blog.   Love the shades though, duuuude.

If you're going to suck up to TPTB at least do it for the money.  What's his excuse exactly?

DaveyJones's picture

very nice

6. regulatory, criminal, and financial industries working together to mend and discipline the financial industry

7.  petroleum and military agencies cooperating to discover new, affordable, and peaceful energy 

8. inteligence and psychological agencies harmonizing constitutional and accurate methods of extracting information  

TrainWreck1's picture

I would like to see some sort of robot Al Gore that would monitor us for planet abuse.

Fleets of these Gorebots could be made in idled factories (Perhaps where the Chevy Volt is supposed to be made?) stimulating the economy.

Given TSA-like powers, every citizen will demand their own Gorebot, to ensure their safety from, well whoevver it is that is trying to get us, and save GAIA in the process.

It would be win-win-win-win-win.


Kayman's picture

I want to see a public flogging of a private troll.

francis_sawyer's picture

I'd like to see a public trust fund started so that I may obtain private lap dances from Katie Holmes whenever the mood strikes me...

Pool Shark's picture



John Travolta is Xenu,

Tom is a Body Thetan.

Oh, and Paul is the Walrus...



victor82's picture

Can we see Krugman and Tom Cruise flogged at the same time as Al Gore?

TruthInSunshine's picture

I believe Paul Krugman is a scientologist.

That's probably how his proposed 177 trillion USD Hostile Alien Invasion Earth Defense Network Stimulus Plan was hatched, with visions of Xenu and all that...

johnjkiii's picture

How does "none-of-the-above" sound?

Hugh_Jorgan's picture

Private entities that merge with Government arms (BTW, it's called Socialism, which always leads to Communism) have a serious problem. These entities have a Devil as their partners, one that is guaranteed to devour them eventually.

You can play around with a tame wild bear or swim with a great white shark for awhile, but eventually they get hungry and you get eaten, law of the jungle. The Government is force, nothing less.

blunderdog's picture

    Private entities that merge with Government arms (BTW, it's called Socialism, which always leads to Communism) have a serious problem.

Our "private entities" which manufacture weapons merged with Government back in the 40s, but it hasn't led to Communism yet.  Are you suggesting government should stop propping up Boeing/Grumman/Xe/etc?

daveeemc2's picture

6. Cities partnering with companies like synagro (CG subsiderary) to spread human sh!t on unsuspecting rural folk

Yip - a proxy transfer of risk from muncipality sewage to a local farm field where your food is grown.

Risk will be reflected back when rural folk get smart and sue, just as these folks have done.

PP arrangements can backfire - this is one example.

You can always have faith that eventually, we will do the right thing...after we've attempted and tried everything else.


Panafrican Funktron Robot's picture

Holy fuck.  Was not previously aware of the existence of this.  Holy fuck.

Cathartes Aura's picture

indeed, and the article is over 2 years old. . .

Sewage sludge, or “biosolids,” is the viscous brown chemical byproduct of municipal wastewater treatment systems. According to Public Justice, it contains bacteria, viruses, pathogens, heavy metals, prescription drugs, and toxic chemicals from both domestic and industrial wastes. The U.S. generates over seven million tons of sludge per year, mostly from plants in heavily urbanized areas, and about half of that is dumped on land as fertilizer. 

once again, incentive for growing your own food.

this made me smile,

Houston-based Synagro is the nation’s largest sludge hauler.

'cause everything's bigger in Texas. . .

NeedtoSecede's picture

+1 Million Dollar Sarcasm!  Nice work again MDB.  I don't know how you were able to limit the list to just these few examples.

Silver, lead and brass (not that I own any guns trolls).

orangedrinkandchips's picture

no shit.

Kinda like the west side here in Chicago....

Cathartes Aura's picture

oooh, the plot/sludge thickens!

[...]why don't you go after the Carlyle-Synagro group? You can convict underlings like [Synagro executive] James Rosendall or [Synagro consultant] Rayford Jackson. They're nothing. Deal with people on the board, like the Bush family, and then see where you get.

The Carlyle Group's founders, who include CIA veteran Frank Carlucci and government advisor David Rubinstein, have had intimate ties with every presidential administration since that of Richard Nixon, Briody says in his book, the only one published on Carlyle.

The company includes both former Bush presidents in its ranks, as well as many other retired U.S. government officials. From Britain to Saudi Arabia to the Philippines, numerous world leaders also occupy its upper eschelons.

spreadin' that "Texas gold" all over the place. . .welfare queens, eh?

world_debt_slave's picture

Thanks for the tip, I'll be sure to avoid that city on my way out of Cali in a couple of weeks.

jonan's picture

when i was living in CA, some thugs from stockon came to my town 30 miles away to jack my honda civic...fuck you stockton!

GMadScientist's picture

Well it was either that or make meth, they only have two home ec classes.

smiler03's picture

Was your Honda Civic the best they could find? /sarc


Jay Gould Esq.'s picture

Municipal bankruptcy has been Meredith Whitney's admonitory theme for several years now. Stockton may provide some vindication for her aging call.

GMadScientist's picture

There isn't anything within 20 min of Stockton that isn't a shithole.


Cow's picture

Kinda like Detroit and Dearbornistan

GMadScientist's picture hometown. Big loss of pride with losing the murder capital designation to Bal'mer (or was it Oakland).


TruthInSunshine's picture

East St. Louis & The Big Squeezy are murders all the time, too.

Every night is like the 4th of July.

boogerbently's picture

It's not about Stockton.

It's about corporate bonuses being at all-time highs, and them cutting our Soc. Sec. and pensions.

Boxed Merlot's picture

Been here over 30 years and I still maintain Stockton's a great place to be from.  We're adjacent to some of the most fertile soil on the earth and at sea level, have paradise conditions for agriculture.  Dopey politicos forget the connection food has on maintaining life and if our bankruptcy can shed the light back on the necessary basic structures, i.e. sound currency, prudent lending/borrowing and trust used to build a vibrant society on once again, then so be it.   

Bankruptcy is not the problem.  It is the solution.  It's nothing more than fulfilling legal obligations in a lawful and systematic fashion that draws an end to the control fraud conducted by the unholy alliance of politicians, financiers and their henchmen. 

HoofHearted's picture

Between Austrian business cycle and "There Ain't No Such Thing As A Free Lunch," bitchez.

Woodyg's picture

Think stockton will get a refund on the overpaid amount of their bonds that were manipulated by the libor scam?

Hell no

There aint no justice in the financial, judicial or political world.....

Apply the rico laws and fill those fema camps with banksters already -

Freaking crooks allowed to continue to plunder - i might as well do the same i guess since the rule of law is dead ....

And wait til TPP passs then we are all freakng screwed!

For christ sakes many of you will STILL vote for one of the 2 named corporate parties plundering the world and THEN saying "its the poor peolle fault - Austerity is the Only way'

I say Hanging is another preferred way..... It caused these cockroches to scurry back into the walls for a few generations.......

Why not try it again?

Antifaschistische's picture

bingo....why wouldn't they be compensated for the fraud that's be used. That's why we have laws.

Stockton should be compensated for the fraud that has happened.  A corporate clawback, then the fraudsters at the top who've received billions in compensation and bonuses should have asset ceased pending trial.