Buffett Predicts the Next Crisis

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Dateline: Dow 10,000 and change.

With the stock market finally bouncing back from its double-digit percentage drop, investors want to know: Was that the long anticipated "technical correction"? Is it over, and are we now headed back into a sustained bull market?

According to two of the sharpest minds in investing -- Warren Buffett and George Soros -- the answer is no, the bull is not back. To the contrary, "Financial Crisis, Part II" may be coming soon to a theater near you.

Something wicked this way comes
Testifying before Congress last week, Buffett warned that we could be standing on the brink of the next financial crisis. A brink which begins, as it turns out, right at your city limits.

Congress had asked Mr. Buffett to testify about the role that credit raters Moody's (NYSE: MCO  ) and Standard & Poor's played in the last financial crisis. But in the course of doing so, lawmakers couldn't resist the urge to pick Buffett's brain. And so it was that Financial Crisis Inquiry Commission chairman Phil Angelides asked: Where's the next big risk to our economy? Buffett's reply:

If you are looking now at something where you could look back later on and say, "These ratings were crazy," [municipal bonds] would be the area. I don't think [Moody's or S&P] or I can come up with anything terribly insightful about the question of the state and municipal finance five or 10 years from now except for the fact there will be a terrible problem and then the question becomes: will the federal government bail them out?

Buffett's backing up his views with actions. In 2009, Berkshire only insured $40 million in new muni bond issues versus a whopping $595 million than in 2008. So if you were wondering why you're hearing how so much state and municipal debt has been "sold short" by way of credit default swaps in recent months, then you have an answer: Investors think munis are going down.

Roadmap to the next bailout
How did the states and municipalities get in their current fix? Take your pick(s): Runaway entitlement spending. Massive unfunded liabilities in public pensions. In short: Debt loads that more resemble a mountain than a molehill. Unless something happens quickly to slow and reverse the tide, we're going to see a lot of states and municipalities go broke. In fact, up in Rhode Island, one town took the unusual step of having a receiver appointed, as an alternative to bankruptcy in a state that doesn't allow towns to file for it.

Of course, the governments that issue muni bonds will tell you this is all just bunk. They'll cite historical statistics showing that municipalities hardly ever default, and argue that their bonds should enjoy high ratings from the raters to reflect that fact.

But here's the thing -- quoting now from Buffett's letter to shareholders in Berkshire's 2008 annual report: "[T]hat record [of low default rates] largely reflects the experience of entities that issued uninsured bonds. Insurance of tax-exempt bonds didn't exist before 1971, and even after that most bonds remained uninsured." Indeed, as recently as 1980, only 3% of new bond issues were insured; by 2007, that number had climbed to 60%. Today, more than half the estimated $2.8 trillion worth of municipal bonds floating around out there carry some form of insurance.

As for who's doing the insuring, the biggest player in the municipal bond insurance industry today is Assured Guaranty, but there are several others. Berkshire Hathaway (NYSE: BRK-B  ) , of course. But also, CIFG Assurance, Syncora Guarantee, and specialized subsidiaries of Ambac Financial (NYSE: ABK  ) , PMI Group  (NYSE: PMI  ) , and MBIA (NYSE: MBI  ) all play a role here.

Playing with fire
But if you are considering playing in this market, beware: You could get burned. You see, it used to be that default by a state or municipality would mean massive losses for the "citizens and businesses" who had bought those bonds -- "citizens and businesses" who often were the very taxpayers who supported the local community.

When a government's default threatened to ruin its own citizenry, that made for a strong disincentive to do so. But the same doesn't hold true when there's a far-away insurer with (presumed) deep pockets backing the debt. Sure, California might balk at the idea of stiffing its own citizens. But default and let MBIA and Ambac pick up the tab? Why not?

As Buffett explains, the introduction of insurers backstopping government spending excess has changed the game. The "belt-tightening, tax increases, [and] labor concessions" he cites as saving NYC from bankruptcy in 1975, for example, are no longer needed. Today, any city or any state that's forced into bankruptcy, and that's already paid good money to have its debt insured, is going to want payback for their bondholders. The insurers will be forced to, in Buffett's words, "share in the required sacrifices."

Don't sacrifice yourself on the altar of municipal excess
According to Buffett, the cost to repair municipal balance sheets today is "simply staggering." George Soros agrees. Discussing the related issue of massive short-selling of collateral default swaps back in April, Soros warned that: "Going short on bonds by buying a CDS contract carries ... almost unlimited profit potential."

That's great news for the hedge funds that invest in such things. It's pretty good news, too, I suspect, for banks like JPMorgan Chase (NYSE: JPM  ) and Citigroup (NYSE: C  ) , that have been making a market in selling municipal CDS lately. But for investors in the debt insurers themselves and the taxpayers who may be called upon once again to bail 'em out, it's nothing short of The Next Financial Crisis. And it's coming soon to a town near you.

Fool contributor Rich Smith has no position in any stocks named above, but Berkshire Hathaway and Moody's are recommendations of both Motley Fool Inside Value and Motley Fool Stock Advisor. Motley Fool Options has recommended writing puts on Moody's, and The Fool owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.

Read/Post Comments (48) | Recommend This Article (153)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 11, 2010, at 8:21 AM, caballote77 wrote:

    The TMF needs a product / newsletter that helps us (ordinary investors) profit from these possible future opportunities.

    A bond / CDS newsletter is the right product right now (and a nice hedge agaisnt the equities newsletters in case the stock market continues to struggle.

  • Report this Comment On June 11, 2010, at 8:33 AM, plange01 wrote:

    one day of increase in stocks is not a bounce back the US remains leaderless and in a depression.americas incredible school spendin alone is enough to bankrupt what is left of the ecomony.the time for this to stop is finally here...

  • Report this Comment On June 11, 2010, at 11:07 AM, XXX222 wrote:


    At my high school one only has to go to the parking lot to observe ill spending. For every economy model car you will see at least 2-3 SUVs. A substitute teacher told me that subsititutes get paid $25/hour (for just minding the class). We have three paid librarians when the job is hardly enough for one to do. The school's teacher union got a 2.5% raise. I could go on and on.

  • Report this Comment On June 11, 2010, at 11:13 AM, Schwaggz wrote:

    teachers can also retire at 80-90% of their max salary, then get another job and still collect that pension income.

  • Report this Comment On June 11, 2010, at 11:20 AM, TMFDitty wrote:

    @MichaelMolenaar: Where do you *live*? When I was subbing, just out of law school, our rate was $50 a DAY.

    $25 an hour... now that's good eatin'.


  • Report this Comment On June 11, 2010, at 11:26 AM, patrickthickey wrote:

    Keep in mind Mr Buffet is skewed by two rather significant issues pertaining to bonds...

    * he is heavily invested in the rating services

    * he is heavily invested in the insurance of the same bonds.

    So I take this recent commentary as opportunistic, insincere and self-serving.

  • Report this Comment On June 11, 2010, at 11:29 AM, saunafool wrote:

    Anyone notice that it is written as a negative that municipal bond insurers will need to "share in the pain," during a time of budget crisis? Yet, we can only assume the bond insurance companies were perfectly happy to write the insurance and take the profits when there was no crisis.

    What has the economy evolved to? Insurance companies sell the insurance and then cry if they ever have to pay out?

  • Report this Comment On June 11, 2010, at 12:03 PM, TMFDitty wrote:

    @patrickthickey: "opportunistic, insincere and self-serving" -- three words that are so often applied to Mr. Buffett. ;)

    Seriously, P, healthy skepticism is... healthy. It's commendable. But consider the last time such a charge was leveled at the Oracle:


  • Report this Comment On June 11, 2010, at 12:06 PM, Turfscape wrote:

    MichaelMolenaar wrote:

    "A substitute teacher told me that subsititutes get paid $25/hour (for just minding the class). We have three paid librarians when the job is hardly enough for one to do. The school's teacher union got a 2.5% raise. I could go on and on."

    Yeah...that's this country's problem. The stupid teachers make too much money! If only we didn't waste so much on education!

  • Report this Comment On June 11, 2010, at 12:13 PM, mathteacher14 wrote:

    @MichaelMolenaar--another case of misinformation. NO school district is going to pay a substitute teacher 25 per hour, 8 hrs per day. That's 200 per day! Are you counting 8 hrs? Check your facts and verify this for me, please. I work in one of the highest paid districts in California, and our subs earn a max of 100-115 per day. You obviously have no idea what you are talking about. And why would you have to go to the parking lot to look at the cars? The majority of those cars would come from students, not teachers. Was that your point? You could go down to the local grocery store and see the same thing. Are you SERIOUSLY going there? Most districts are getting a pay cut this year, NOT a raise. Once again, check your facts before you "go on an on".

  • Report this Comment On June 11, 2010, at 12:23 PM, grant224 wrote:

    Anyone know of any funds that short this market?

  • Report this Comment On June 11, 2010, at 12:26 PM, StarWitchDoctor wrote:

    computers for the illiterate, while michael is perhaps a bit colored with the facts, he is not wrong that spending and sucess in academies do not necesarily go hand in hand. Americans have allways overspent and the result will be painfull. Note that michael specifies individual spending (SUV's) and government spending (substitute teachers are just a waste of money altogether, regardless of the rate, if the teacher is not available for any given day, put em in study hall, with one "teacher" to 200 students. Thats what we were doing at indianola junior high in 1970. Has education gotten better or worse because all the toys are on the desk ("computers" that have nothing to compute), and under the desk (iPhones, that the parents bought instead of books).

  • Report this Comment On June 11, 2010, at 12:33 PM, catoismymotor wrote:

    October sounds like a likely month for things to hit the fan again.

  • Report this Comment On June 11, 2010, at 12:35 PM, StarWitchDoctor wrote:

    Another thing, the crying teachers here are just crying about a decision they made a long time ago. The desire to contribute to society as a teacher should be tempered by an ability to accept a rate of pay much less than a similarly educated directly productive employee. If you wanted to earn money, your decision should have been to enter industry, not public service.

  • Report this Comment On June 11, 2010, at 1:04 PM, ETFsRule wrote:

    "A substitute teacher told me that subsititutes get paid $25/hour (for just minding the class). "

    She was lying.

    Here in Connecticut, subs are paid about $75 per day. If you think they're overpaid, then by all means, become a sub. You'll make about $14,000 per year, with no benefits. And that's assuming you can actually find a subbing job 5 days each week (which is unlikely).

  • Report this Comment On June 11, 2010, at 2:04 PM, jmangs wrote:

    One part of the problem (education in America can't be solved with a single paragraph mind you) is that teachers are vastly underpaid and not respected. In Finland, we pay our teachers in the range of doctors and lawyers and they're very well respected. We also have much higher standards for teachers and still manage to have 2-3 teachers in a classroom.

    Anyways, money isn't the only difference. Culture plays a huge role in Finnish education. The population is much more monolithic; immigration is very low compared to the US.

  • Report this Comment On June 11, 2010, at 2:08 PM, Drummerhawk wrote:

    This whole debate on public employee entitlements have swung way too far to the right. Look, my wife taught school for 34 years and her pension is about $30,000 a year. Because she taught school as a public servant she gets no social security. (Many school teachers don't pay into it.) If she were on her own making a pension of $30K in California she would be below the poverty level. Not only that but she'd have to pay 1/3rd of her pension towards health insurance. Get real everyone and stop blaming public employees. This country's problems are spread through every economic sector - especially the financial sector.

  • Report this Comment On June 11, 2010, at 2:22 PM, armslink wrote:

    Regarding Mr. Buffett's comments on munis, look back at the record of his own insurance company, in 2008, they insured $595 million, in 2009, only $40 million. That translates that these are now higher risk financial instruments. Based on property taxes being difficult to collect and many businesses failing and few new business start-ups, the local governments can not sustain continued growth in payroll and benefits.

  • Report this Comment On June 11, 2010, at 2:33 PM, stew0250 wrote:

    "This country's problems are spread through every economic sector - especially the financial sector."

    Drummerhawk, you hit the nail on the head.

    "What has the economy evolved to? Insurance companies sell the insurance and then cry if they ever have to pay out?"

    Saunafool sees where the problems lie. When was the last time you heard your friend, family, neighbor say "Boy, my insurance company really has my back. They encourage claim submissions and want to provide an honest service to their customers?"

    This country's leadership needs to focus on attacking the greed found in the financial and insurance sectors, while upholding the idea of capitalism. An impossible feat? I hope not. Political suicide? probably...

  • Report this Comment On June 11, 2010, at 3:18 PM, TMFDitty wrote:

    @catoismymotor: When I was living in Russia, it was common wisdom that bad things always happen in October -- the Revolution, the shelling of Parliament, the Moscow Theater massacre. So... you may be onto something.


  • Report this Comment On June 11, 2010, at 3:24 PM, henryking54 wrote:

    "Testifying before Congress last week"

    The FCIC is not Congress. It is an independent commission.

  • Report this Comment On June 11, 2010, at 4:05 PM, plange01 wrote:

    buffetts next crisis is his own.buying norfolk southern in a depression and paying far over its value will put his already declining hedge fund even futher behind....

  • Report this Comment On June 11, 2010, at 4:16 PM, cgaakks wrote:

    @MichaelMolenaar--another case of misinformation.

    you are very misinformed. I have a Bachelors, two Masters and a Doctorate degree my school district in Indiana pays forty dollars a day...that is barely five dollars a hour. I also have fifteen years of fulltime teaching experience in private and public schools. Many private and parochial school teachers barely make eight thousand dollars a YEAR. You better check your information before you pass the word that teachers are overpaid. Most teachers work many hours outside the classroom grading and writing assignments, They are not paid for the hours they work outside the classrrom. As a matter of fact some school districts in SC and other states are cutting school back to four days a week and cutting teachers salaries accordingly. Perhaps you should try teaching . It is a multi-task job and very demanding. I love teaching that is why I worked for such low wages. Teaching salaries are public information. Please do your homework.

  • Report this Comment On June 11, 2010, at 4:24 PM, cgaakks wrote:

    @Drummerhawk, you hit the nail on the head. MichaelMolenaar--another case of misinformation.

    yes, drummerhawk is correct. Teachers who earned a state retirement and federal employees who earned a federal pension and who also paid the maximum number of years into social security are denied the benefits they paid for in social security., The goverment says no double dipping. In other words if you earned a teacher or a postal governement retirement and worked extra jobs and social security as are denied the right to the socail secirity you earn. The social security office calls that double dipping. No other workers are treated that way!!!!!!!!!!!!!!MichaelMolenaar, do you get to collect your social security if you earn it???????Teachers are not allowed that privilege!!!!!! neither are some other government employees.

  • Report this Comment On June 11, 2010, at 4:33 PM, cgaakks wrote:


    You should try watching 200 students in a classroom all day long. Students in 1970 had more fear...and did not do the things students in the classroom try now. Besides substitute teachers do make assignments, grade homework , take roll and teach. It is not just a babysitting job. Babysitting pays better than substitute "teaching".

  • Report this Comment On June 11, 2010, at 4:40 PM, cgaakks wrote:


    Yes, My husband bills out 36 dollars for a chiropractic adjustment. He collects the 25 dollar co-pay from the patient. The patient's insurance company writes down the doctor's charge to 26 dollars and mails the doctor a dollar check. You would not believe it until you see it with your own eyes..Sometimes he receives a penny check from the insurance company. Who is making the money here? The insurance company.

  • Report this Comment On June 11, 2010, at 4:47 PM, cgaakks wrote:

    @MichaelMolenaar--another case of misinformation

    My sister taught for thirty-seven years in inner city schools. Believe me she worked hard and often spent her own money to buy her students books. Her retirement was about 20,000 a year. Last year she suffered from glioma-blastoma. Since she turned sixty-five and retired teachers are forced ot give up their health insurance they earned and go on medicare at age 65 years old. She was no longer able to afford treatment. She died in the hospice. sad story......

  • Report this Comment On June 11, 2010, at 5:50 PM, DBrown7 wrote:


    Where did Buffett say the bull stock market is not back as you make reference to in your first couple of paragraphs? The quotes you attribute to Buffett refer to municipalities and muni bonds. As far as I can see, he didn't say anything about the stock market.

  • Report this Comment On June 11, 2010, at 6:15 PM, JestYourFool wrote:

    I'm amazed that an article about municipal bonds has become a discussion on teacher salaries. What about other state and federal employees? Some of the highest paid people around are in the House and the Senate. They have their own pension fund - not social security. They take several long breaks a year. They are not required to show up each day. AND they can vote themselves a raise!

    As for some of the comments -

    @Michael - I'm not sure where you got your information. A typical school day is 6 hours and a typical school year is 180 days. Therefore, even at $25 an hour, a substitute would make $27,000 a year. However, most school districts pay only about $50 a day - no benefits, no guarantees as to future work.

    @ 881500 - I certainly hope Engish is not your first language! If it is, you definitely did not get a very good education.

    How about some capital letters - at the beginning of sentences and with proper names? "Painful" and "always" only have one "l." "That's" is a contraction for "that is." As for run-on sentences, you are the king!

    I was a substitute teacher for many years. However, I make much more money as a technical writing consultant in business.

    Some teachers should definitely not be teaching. Others are woefully underpaid. However, I do not understand how cutting back on education will improve our economy or keep us competitive in the world market.

  • Report this Comment On June 11, 2010, at 7:28 PM, eigenpirate wrote:

    @ 881500, "Another thing, the crying teachers here are just crying about a decision they made a long time ago. The desire to contribute to society as a teacher should be tempered by an ability to accept a rate of pay much less than a similarly educated directly productive employee."

    ... you're an idiot.

  • Report this Comment On June 11, 2010, at 9:03 PM, rmb0000 wrote:

    my father is a high school PE teacher. He makes about $70K a year w/ summers off. Not a bad gig.

  • Report this Comment On June 11, 2010, at 9:30 PM, AvianFlu wrote:


    Your dad is also probably averaging about 40K in benefits, which is putting his salary at $110K.

    I was once a college math teacher. In my view, the government should get out of the "education" business. Private schools are the way to go.

    And think about this: if you have your kid in private school you are paying double tuition. You pay the private school as well as taxes to support the government re-orientation camp. This is an excellent case for the voucher system, which is not only more fair but also benefits poor and minorities the most while introducing the parents to a strange new concept: FREEDOM TO CHOOSE A SCHOOL.

  • Report this Comment On June 12, 2010, at 12:35 AM, goalie37 wrote:

    Consumers loose their credit...check.

    Businesses loose their credit...check.

    Municipalities loose their credit...coming.

    The only entity left that is able to borrow will be the federal government. How long can that last?

  • Report this Comment On June 12, 2010, at 12:36 AM, goalie37 wrote:

    LOL. Spelled lose wrong three times. Sorry about that. Long day.

  • Report this Comment On June 12, 2010, at 1:02 AM, TMFDitty wrote:

    "Hello, IMF? This is Arnold Schwarzenegger, governor of California. We need a loan, and...

    "What's that? You're closed on Saturday? Your normal hours of business are 9-3, Monday to Friday? Oh, okay...

    "I'll call back."

  • Report this Comment On June 12, 2010, at 6:03 PM, Znaki wrote:

    This all started with a predicted second economic crisis. The discussion became personalized and finally settled on the public school teachers. “Don’t tax me, don’t tax him, tax that guy behind the tree.” If political axiom Numero-Uno (a little Spanish lingo as Rush would say) is “No one ever freely gives up an entitlement,” and reality tells us that in a democracy the majority can’t resist voting itself wealth, then lie down and enjoy it. Keynes famously said, “tomorrow we will all be dead,” indicating that we who are living now should do whatever we can to improve our present condition, and let the future worry about it self. After all that is what debt and deficit spending is all about. Znaki

  • Report this Comment On June 12, 2010, at 7:49 PM, easynow7 wrote:

    The whole first crisis started off in a similar way with sub prime. Governments are doing the same thing. Its the same thing on a grander scale. Financial crisis part 2 here we come. Sorros predicted the first one so i think he has an idea of what is going on.

  • Report this Comment On June 13, 2010, at 10:47 AM, TMFBreakerTAllan wrote:

    ""Going short on bonds by buying a CDS contract carries ... almost unlimited profit potential"

    Interesting take on this. After the AIG meltdown, the bailouts etc. that resulted from the sellers of CDS's going broke; who is selling CDS's on municipal bonds? Isn't that who we would be looking to go short on? Oh yeah, there is no marketplace on these derivatives, so we don't know.

    T. Allan

    RB Home Fool

  • Report this Comment On June 14, 2010, at 12:43 AM, Johnnicash wrote:

    Who are you morons talking about teachers when CEOs and Corporate Executives are bleeding every company dry via the payroll??? Teachers!??? WTF Planet are you living on...idiots...

  • Report this Comment On June 14, 2010, at 1:04 AM, underdone wrote:

    What are banks doing writing credit default swaps? At least insurance companies maintain reserves against future losses.

    Clearly if banks are doing so it is perhaps the strongest argument possible for a CDS derivatives exchange with standard CDS terms and an adequate margin requirement to ensure that reserves are maintained or the position closed.

    Although frankly I thought banks were for lending depositors funds not speculating with their clients money.

  • Report this Comment On June 14, 2010, at 10:15 AM, Optionsforfun wrote:

    Teach salaries vary greatly. Back when I was in middle school, and the teacher's union wanted raises, the parent's group would pass out flyers with the teacher's salaries.

    This was back in the mid-1980s. An average (not righ) community on LI (NY).

    My social studies teacher was the head of the department. His salary was 130k.

    My math teacher, sequence I, was 90k.

    Her husband, my social studies teacher, was I think just a little higher (may have been a little lower).

    One of my social studies teachers in high school was a lawyer, but didn't practice law. Why? Because he could make more teaching with less effort.

    Some teachers, I am sure, make very little. But, in the right district, ridiculous salaries are the norm.

  • Report this Comment On June 14, 2010, at 10:15 AM, Optionsforfun wrote:

    (not righ) should be (not rich)

  • Report this Comment On June 14, 2010, at 10:16 AM, Optionsforfun wrote:

    And, keep in mind, this was 25 years ago. But, I'm sure they're only making 50k now . . .

  • Report this Comment On June 15, 2010, at 2:41 PM, STORMSTOCKER wrote:

    The Solution to Government Pollution, is Dilution.- We need to cut all taxes by 50%- Income,Property, Sales, and Gas Tax. All "non-esential government services" (90%) will be sub contracted to the Private Sector. They will be required to provide certificates of insurance, a Bond,work comp,-all to guarantee they "do the job". (That's a lot more guarantee, then we now have from our Public Sector.- (half of their employees, do little but-collect full salaries and benefits, vacation, and sickpay, all at the taxpayers expense.)

  • Report this Comment On June 17, 2010, at 8:04 AM, sept2749 wrote:

    Saunafool - you are so right! So typical of EVERY insurance company. No different then paying obscene medical insurance premiums for 40 years and then you get cancer and the "fun" begins. Now your sick and what do you know, the insurance company you've been paying for all those years starts denying coverage for any of a dozen reasons. Same crap all the time with insurance companies. Pay and pay and then when it comes time to collect the insurance company starts looking for ANY reason not to pay. Makes me sick! All the while the top execs are pulling in salaries that are as obscene as the way they conduct business.This is the same dynamic with the muni bond insurance companies. I have lots of munis and if they default (NYC) I'm screwed - you can't trust anyone these days. Trite but so true.

  • Report this Comment On June 18, 2010, at 2:48 PM, nwjh wrote:

    Capitalism institutionalizes greed. The more capitalistic the economy, the more greed is built into the system. If the love of money is the root of all evil, it's not a big step to see what's wrong with the economy, and the country that provides the philosophical basis for it. I'll let you rip off your consumers over there if you let me line my pockets over here. When greed is one of the two primary emotions driving things (fear is the other in the US), things like honesty, integrity, generosity and ethical behavior must be lower priorities, so what do you expect to see in the way of people's behavior?

    The 'solution' isn't to try palliative care for the symptoms (bail outs, spending), but a dispassionate examination of the whole system. No, we don't embrace socialism or marxist or any other 'ism' that is flavor of the month, but we try to find something that will work long-term. If I had an answer, I'd be running for Congress or President, but at least I try to see the problem, first.

    As for the education debate above, education is an investment, not a cost. Unfortunately, the US is obsessed with appearance over substance (fear operating again), and is prepared to sacrifice long-term educational success for short-term appearances of success. Short-changing your education system is like short-changing your retirement plan. Looks good against certain metrics in the short-term, but who suffers long-term?

  • Report this Comment On June 18, 2010, at 9:49 PM, RTGolden wrote:

    A couple points only.

    1) For those of you decrying the entitlement culture and lack of accountability in the public sector, perhaps a few hours per week studying civics instead of money will help. Try reading PJ O'Rourke's "Parliament of Whores". Teachers and dead-weight public employees aren't the problem; Service demand by the public and opportunistic greed by the elected are what is causing the muni meltdown. We as the electorate are the ultimate trough slopping pigs in our demand for more and more services (wealth) from the government. Unfortunately, as far as slopping goes, we're terrible at the business side, because we have to front the money that pays for the services we're demanding for free.

    2) You cant have it both ways. We have to choose: Capitalism or Socialism. A bureaucracy, by it's very nature is incapable of promoting Capitalism. Putting the government bureaus and commissions in charge of regulating a Free Market is like putting the arsonists in charge of fire prevention. Of course, Socialism is a guaranteed path to failure, and the entire world sees it except for US Liberals.

    Winston Churchill once said "Democracy is the worst system of government, except for all the rest." The same could be said for financial systems; "Capitalism is the worst financial system, except for all the rest." Free Market capitalism, with minimum govt regulation will naturally dole out disproportionate wealth to a relatively few people, commensurate wealth to a majority of people, and little to no wealth to a few. Socialism will make everyone equally poor and destitute. At least poor capitalists can still dream of something better! (Like me!)

  • Report this Comment On March 02, 2012, at 12:45 AM, funspirit wrote:

    good article as I browse two years late.

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MCO $102.13 Down -0.64 -0.62%
Moody's CAPS Rating: ****
PPMIQ.DL $0.03 Down +0.00 +0.00%
PMI Group Inc. CAPS Rating: **