Unlike the federal government, local governments can’t just print money when they’ve got a hole to fill. We’ve already started looking at the public-pensions time bomb, which threatens to crowd out spending on normal functions — an issue exacerbated by declining stock portfolios. But what about governments that are just straight up insolvent, screwed from having gotten drunk during the good times.
NYT: On a snowy day two years ago, the school board in Whitefish Bay, Wis., gathered to discuss a looming problem: how to plug a gaping hole in the teachers’ retirement plan.
It turned to David W. Noack, a trusted local investment banker, who proposed that the district borrow from overseas and use the money for a complex investment that offered big profits.
“Every three months you’re going to get a payment,” he promised, according to a tape of the meeting. But would it be risky? “There would need to be 15 Enrons” for the district to lose money, he said.
You probably don’t even need to read the rest of the article after a lead like that. Not that it’s much good advice now, but anytime someone justifies something by talking about “15 Enrons” or a “1000-year flood” or a 9-sigmas event, you should just tell them to shut up and explain what they’re talking about. Otherwise you’re just asking for trouble.
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