WHAT METRO'S ACCOUNTING HAS TAUGHT ME ABOUT THE NATIONAL AND GLOBAL ECONOMY

I haven't been posting the last few days because I started working on a plan for unemployed and low-income to get discounted or free passes.  (I hope to post both soon.) I've been looking at the sales tax revenues, and Metro's annual fiscal reports.

I've also been trying to come up with some sort of model where Metro would be financially solvent.
They don't have an ideal model for solvency. Most public transit agencies operate at a loss, with two-thirds or more of their funding from local, state, and federal sources.  They are just going to keep plodding along, doing the same thing everyone else is doing.  So it is up to us-- the public transit riders-- to find solutions.

This is some of what I have been learning and thinking about:

Even if Metro raises the fares in July, and again in two years, they will never be viable in their current incarnation.  

To be solvent right now, Metro would need between $4.50 to $5.80 per boarding!  NOT per person, per boarding-- that 55 million per year statistic they like to throw around. That's just their operating expense. That doesn't include paying off all their debts.  

(The $1.30 variance is due to the fact I do not know what their "Depreciation and Amortization" is really hiding. I do know that eliminating 5 million in "Contributions to Outside Entities" would cover the 2.5 million a year they claim they need from the riders.)

As I began to examine Metro's annual fiscal reports, I have had to study how bonds are structured, public/private partnerships, and public transit agencies generally-- in particular how tied they are to local "business development".

I have had to research the structure of government funding for both public entities and private business development. This has further led me to investigate things like "fiat currency" and money generally, foreign "aid", banking and the Federal Reserve, and, of course, bonds.

In my post "Metro Is Juggling A Lot Of Bonds" I compare our public transit agency to Bear Stearns and Lehman Brothers before the economic collapse in 2008 and 2009.
http://optinstl.blogspot.com/2014/04/metro-is-juggling-lot-of-bonds.html

Metro isn't the only agency that involves itself in "business development" using (pardon the pun) government funding as a vehicle for private development and individual political careers.

Someone gave me the book "Confessions of an Economic Hit Man," by John Perkins on Friday, and I read the whole thing on Sunday.

From Wikipedia:

Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, the U.S. Agency for International Development (USAID), and other foreign "aid" organizations into the coffers of huge corporations and the pockets of a few wealthy families who control the planet's natural resources. Their tools included fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. They play a game as old as empire, but one that has taken on new and terrifying dimensions during this time of globalization.

These days, global dominance is no long dependent on military invasions and "manifest destiny".  Instead of sending in an army to "bring freedom and Christianity" to the impoverished heathens of the world (and gain control of their natural resources and cheap labor), private industry-- Like Halliburton, once run by Dick Cheney, to use one familiar example-- go to a place like, say, Ecuador, and convince the rich people and government to "invest" in new roads and bridges (sound familiar, cough-County Executive and Prop A- cough?) and electrical grids, plumbing, and of course, oil and gas pipelines and refineries.

Don't worry, wealthy Ecuadorians and government, you don't have to come up with the money up front!  The U.S. government via USAID will loan your country the money to hire our contractors, and your country will pay the loan back with all the money you make from this modernization!  We will "create jobs" and "new services" and you will attract lots of "talented young professionals" that will make you even richer, and saddle your country with a debt to the U.S.!

The rich people say "yay, more money for us!"  And the U.S. government loans them a bunch of money in "foreign aid" so that they can hire and pay companies like Halliburton.  Those companies come in and cut down the rain forest and put oil pipelines and electrical grids to run the pipelines. 

Who is paying that debt you ask?  Not the wealthy.  Not the government.  Ecuador, and other countries like it that have accepted U.S. foreign "aid", have become a modern slave plantation.  The slave owners owe the U.S. government a lot of money for all those pipelines and modernizations ("business development") and now the slaves better pick a lot of "cotton" (oil) to pay it off.

In all of the places where this has occurred, the average people are actually worse off than they were before the U.S. industry and government loans.

Now, the flip side of this is a place like Saudi Arabia.  This oil rich nation doesn't need the U.S., but the U.S. needs Arabian oil.  Those crafty developers sold the wealthy of Arabia on the idea of modernized, western-style, skyscraper filled cities.  "It will be better than Vegas!" They said.  And the Saudi's agreed.

But they are not in debt to us. And the skyscrapers that you see in Dubai  (EDIT: sorry my bad- Dubai is in the United Arab Emirates- actually a country that has benefitted a lot more than even the Saudis from petro dollars.) were constructed with petrodollars, that is, money the U.S. pays to Saudi Arabia for oil imports.  Clever, huh?

Does that benefit the taxpayer of the U.S.?  Not really.  Of course, our cars keep getting fueled with Saudi oil. But that money the government is "loaning" in "aid" is your tax dollars.  And it's all going right into the pockets of Halliburton executives.  Many of whom end up as our politicians (not just Cheney).

You know, like how John Nations becomes the head of Metro, and receives a $250,000 a year salary to build Metrolink stations for the likes of companies like Cortex.  (http://optinstl.blogspot.com/2014/04/metro-optinstl-is-driven-by-you.html) 

John Nations is very vocal about his purpose at Metro.  He is there for five years so that he can run for either a Senate seat, or Governor, depending on who you talk to.  Public transit?  That's an after-thought.  That is just a necessary technicality.  Nations sole responsibility is to make sure the local Cheney's and Halliburton's are happy, so that they will contribute to his campaign finance fund.

Or how people like County Executive Charlie Dooley need to make sure that his friends at Musick construction get all the construction jobs for the Metrolink. 

It is not just that the inflated statistics of the "Economic Hit Men" and croney capitalism have become the new economic success model for "business as usual", it is that profit is funnelled only to a certain section of society: Big business and the already wealthiest individuals, and the two things that keep the wealth flowing to them: the military, and the government.

Substitute the U.S. military for the Saint Louis city and county courts and lawyers.  Our lawyers and judges are so wealthy because there is so much crime.  There is so much crime because half the city is a 1st world ghetto-- the national version of the 3rd world, international sweat shop.

You know, like those children and prisoners in China working to make t-shirts and stuff? http://www.businessinsider.com/letter-in-saks-bag-from-china-2014-4#!JkEIe

The Chinese government has to accept payment for these manufactured goods.  They accept the payment in U.S. Treasury Bonds.  That is why you hear that Chinese own 1.5 Trillion of the U.S. Debt.  (You know, that debt that equals $55,000 for every man, woman and child in the U.S.  And $155,000 per taxpayer?)

From:
http://www.slate.com/blogs/moneybox/2013/10/17/china_bond_purchases_stop_being_wrong.html  

Many objects are manufactured in China these days, and many of those objects are purchased by people and firms located in the United States of America. And before an American firm can purchase something from a Chinese firm, the American firm needs to trade some of its US dollars for some Chinese money. Thus America ends up with more Chinese-made goods and China ends up with more American money.

Now in the natural course of floating exchange rates what would happen here is that the dollar price of Chinese money would rise, and this would increase the price of Chinese-made stuff in America and decrease the price of American-made stuff in China. That in turn would tend to discourage the flow of Chinese-made stuff to the United States of America.

But the Chinese government for various reasons wants to subsidize Chinese manufacturing. So they want to send those dollars they accumulate back to the United States

From:
http://www.forbes.com/sites/ianshepherdson/2013/10/23/four-big-reasons-why-china-will-keep-buying-treasuries/

...once you accept the idea that China’s dollar earnings mostly have to stay as dollars, it is clear that there are no alternatives to owning U.S. securities, government and private.  There no other safe, liquid investments available in the necessary quantities.  At the margin, China’s sovereign wealth fund can buy equities and real assets like property, but the bulk of the overall portfolio has to be held in liquid securities.  These are foreign exchange reserves, remember, not some pot of spare money to be gambled away.

The Chinese government is not going to let their own money's value increase, or demand higher wages and safer conditions for those sweat shop workers, because they need those foreign exchange reserves to make their country wealthy.  (And that means make their government and rich families- the Chinese 1%- richer.  See it doesn't matter what race or religion or what country.  The world is really about the rich profiting from the poor.  All the other divisions are to keep us fighting each other instead of them.)

The Chinese government need the U.S. dollar to stay strong.  That way they can keep making a profit from all that sweat shop and prison labor.

This works out for the U.S. government, too. U.S. corporations have lots of "aid" and "modernization" and "democracy" to sell to the oil producing nations.  And then there is always "re-building" after a war, or a natural disaster.

From:
http://www.truth-out.org/archive/component/k2/item/68279:henry-pelifian--the-iraq-war-and-crony-democracy

  In "Cronies," it is clear why Halliburton hired Mr. Cheney, for he "knew how to vacuum up federal money and federal contracts." Other facts from "Cronies": During Cheney's tenure at Halliburton, he nearly doubled the amount of federal contracts to $2.3 billion. Also, Cheney assisted the parent company, Brown & Root, in receiving a fifteenfold increase in federally backed loans and insurance from the Export-Import Bank and the Overseas Private Investment Corporation. Mr. Cheney understood the importance of lobbying, for he doubled political donations while at Halliburton.     According to the Center for Public Integrity and mentioned in "Cronies," seventy companies and individuals who were substantial contributors to the Bush-Cheney campaign have been awarded billions of dollars in contracts in Iraq.
    Have we become a nation of lobbyists, for lobbyists, and by lobbyists? The crony democracy chain links politicians, government appointees, corporations, government contracts and lobbyists. The chain includes interchangeable employment with each successive administration from government officials to corporate CEO or Washington lobbyist. The goal is profit at government expense. What is the financial calculation of waste and abuse in such a system?

(This is also worth reading: http://www.politifact.com/truth-o-meter/statements/2010/jun/09/arianna-huffington/halliburton-kbr-and-iraq-war-contracting-history-s/)

There is enough money in the world for every single person to have enough to eat, a place to sleep, and medical care.

According to Jeffrey Sachs:  http://www.visionofearth.org/economics/ending-poverty/how-much-would-it-cost-to-end-extreme-poverty-in-the-world/ 

To end extreme poverty worldwide in 20 years, Sachs calculated that the total cost per year would be about $175 billion. This represents less than one percent of the combined income of the richest countries in the world.
 ...
The military budget in the USA is about $680 billion per year³. A large amount of other funding is directly connected to military spending in the states, bringing the total closer to $1 trillion per year⁴.Even if we assume the lesser of these numbers, annual defense spending in the US is about four times as much money as is needed to begin rapidly ending extreme poverty in the entire world. If some of the US military’s monstrous budget could be channelled towards humanitarian goals, then extreme poverty in our world could quickly become a thing of the past.

There is enough money, it is just not being distributed in a way that is meaningful.  It's all about "profit" for the corporations and corporate leaders. 

When wealthy people buy a bond, whether it the Chinese government buying Treasury bonds, or William "Bucky" Bush's St. Louis neighbor buying a Metro municipal bond, they expect not only a nice return on their investment financially, they expect to be catered to.

That means no Metrolink running through the northside neighborhoods that serve only to supply surplus labor that will work cheap and not complain.  Keep those people incarcerated by lack of decent public transportation.  Make sure the slave-maid has to ride the bus for two or three hours to get to the plantation house.

That money is also not to be spent improving those neighborhoods.  They aren't earning enough to pay for improved street services.  How can they, on such low wages?

In St. Louis, there is enough money for public transit to be absolutely free of charge.  Rider revenues could be easily covered by Prop A's one half of one percent sales tax in the county and one quarter of one percent in the city, if the full amount was used for operating expenses.

But it can't.  Even though Prop A is straight revenue, most of the money Metro receives (or so the man at Dooley's office told me) goes to paying its bonds-- it's IOU's.

Metro operated at a loss of $249,514,470 in 2013.  So no matter how often they raise fares, they will never have enough.

And it is so burdened by debt that another fluctuation in the market could cripple it completely.

And if you have read this whole post, you probably understand as I do, that this current global economic model is destined to crash-- again and again.

This system needs constant, voracious expansion.  That can only occur if more construction and "business development" is needed, paying the lowest possible wages and providing the fewest possible services.

Find a reason to invade another country, like the Russians in the Ukraine. Or start a war, as the Bush-Cheney regime did in Iraq.

Or if you're lucky, there will be a natural disaster, like Hurricane Sandy:
http://www.politifact.com/punditfact/statements/2014/feb/19/lawrence-odonnell/lawrence-odonnell-says-chris-christie-steered-6-mi/

Or an earthquake in Haiti. (Sorry, did you think the Red Cross was sacred?)
http://www.huffingtonpost.com/2012/01/24/red-cross-earthquake-haiti-where-did-the-money-go_n_1228334.html

This system is not going to change by itself.  Not globally, nationally, or locally.  These people make money whether there is war or peace.  They make MORE money the smaller the middle class is and the more poor people there are. 

It is only going to change when enough of us DEMAND our fair share. And frankly, that time is long passed. 

OCCUPY!


PS: if you read all the way through this, you might be interested in this stuff as well:

On "Foreign Aid":
http://www.transparency.org/topic/detail/humanitarian_assistance

 http://www.breitbart.com/Big-Peace/2012/10/03/The-Scandal-That-Is-Foreign-Aid 

On the Economics of the 1%:
http://www.upworthy.com/what-the-1-dont-want-you-to-know?g=3&c=hpstream 

BILL MOYERS: Here’s Piketty’s main point: capital tends to produce real returns of 4 to 5 percent, and economic growth is much slower. What's the practical result of that?
PAUL KRUGMAN: What that means is that if you have a large fortune, or a family has a large fortune, they can -- the inheritors of that large fortune -- can live very, very well. They can live an extraordinary standard of living and still put a large fraction of the income from that fortune aside and the fortune will grow faster than the economy.

On Fiat currency:
http://dailyreckoning.com/fiat-currency/
http://www.dummies.com/how-to/content/how-the-fiat-system-works.html

METRO IS JUGGLING A LOT OF BONDS

I've been going through the audit report Claire McCaskill had done on Metro after the Shrewsbury lawsuit fiasco.

http://optinstl.blogspot.com/2014/04/more-on-metro-lawsuit-against-original.html

I wish there was some sort of honorary degree in Public Transit I could get from a university. Just reading through the legalese in these things is ridiculous.

I admit I have to read slowly, and re-read a lot. But it is not completely incomprehensible. Let's look at this paragraph from page 8 of the document, which is page 12 of the PDF web page file:

http://auditor.mo.gov/press/2008-58.pdf

The Cross County Extension Project exceeded the original project budget by nearly $126 million and resulted in the issuance of an additional $150 million in bonds in 2005 to finance the project and $20.8 million in bonds in 2007 to refinance a portion of the debt service payments due in 2008 and 2009. The total debt service costs over the life of these additional bonds will exceed $293.5 million and will not be fully paid until 2036. The additional debt service must be funded by the Proposition M sales tax and as a result Proposition M sales tax funds available for funding operations will be reduced. A proposal to increase the Proposition M sales tax rate by ¼ cent had been placed on the February 2008 ballot in St. Louis County. However, that proposal was removed from the ballot by county officials following the unfavorable outcome of the Metro lawsuit against the CCC. Also, in early 2008, Metro was informed that St. Louis County would reduce Metro's funding from the ½ cent transportation sales tax by $8.5 million for fiscal year 2009 and $10 million for fiscal year 2010.

Now, those $150 million in extra bonds is a problem. Not only did they go way over budget, end up in litigation, lose the court case, end up paying a lot in legal fees and settlements, they also created a bunch of debt for themselves (a bond is essentially a way to borrow money, a big IOU).

And some of these bonds were to refinance the debt service payments due in 2008 and 2009 on other bonds!

They planned to repay this IOU (the "additional debt service") by Proposition M, which actually never made it to the ballot. (So, I was wrong that Prop A was a bond measure re-packaged to voters, the Transportation Bond failed. Prop A was just a quarter cent increase and three years later version of Prop M.)

And it seems that any monies that come from the County on Transportation Sales Tax IS decided by the County Executive. In both 2009 and 2010 they are looking at increasing reductions in the amount of money they can ask for.

So that explains A LOT about Prop A.

It also explains why Metro was hit so hard by the sub-prime mortgage fiasco that hit all the banks, and in turn, all bonds. The report continues with this:

As of April 30, 2008, Metro reported holding cash and investments of approximately $131 million and various trustees held $41 million. In March 2008, Metro prepared an analysis of cash and investments that indicated about $71 million would be available to fund operating deficits that were expected in fiscal years 2008, 2009, and 2010, if additional revenue sources could not be identified. The analysis predicted that cash and investments available to fund operations would be about $12 million by the end of fiscal year 2010. Also as of April 30, 2008, Metro and its trustees were holding $28.2 million in Missouri Higher Education Loan Authority (MOHELA) securities that they have been unable to sell due to disruptions in the financial markets. The remainder of Metro's cash and investments, about $72.8 million held by Metro and its trustees, are restricted and unavailable to fund operating deficits.

As early as April 2002, Metro's former Chief Executive Officer (CEO) informed the St. Louis County Council that Metro was facing serious shortfalls in operating the region's mass transit system. In the fall of 2006 and spring of 2007, the former CEO and executives of St. Louis County met with legislative leadership to discuss new state funding to abate the pending financial shortfall. In May 2008, Metro adopted the budget for fiscal year 2009 that included a projected budget deficit of $10.8 million for fiscal year 2009, and also included $8.3 million in budgeted "other revenue sources" which were described as "the amount needed to balance the budget. The additional needed revenue could come from a successful tax referendum in St. Louis County, passenger fare increases, and/or revenues not yet determined. If no other revenues are identified, service reductions will be planned and implemented" during fiscal year 2009. The budget also projected a deficit of $45.8 million for fiscal year 2010. The planned spending for capital improvements was also reduced from $360.6 million in fiscal year 2009 to $68.6 million in fiscal year 2010. Metro has scheduled a series of public hearings regarding various options for fare increases that may become effective in January 2009. Those options range from increasing the cost of all passes and transfers to increasing all fares, passes, transfers and cutting service.

The second is obscene, considering what the former CEO was paid. In 2002 they KNEW BEFORE THE FINANCIAL CRISIS that they were already FACING SHORTFALL!

What did they do? They jacked up the public for more sales tax and higher fares.

SOUND FAMILIAR? (Yes, City voters, you have ANOTHER Transportation tax in the coming election. Alderman Lewis Reed was conducting a survey about it in the Missouri History Museum a few weeks ago. The survey asked voters to choose what they wanted to spend it on. Metro was one of the choices. I haven't had a chance to look into the City yet at all, but I bet that money doesn't go straight to Metro for basic operating expenses. I bet there are a lot of restrictions on it. And Council and Commission approvals. The people they should be asking, the riders, are not even considered except as an afterthought.)

Metro has all the earmarks of Lehman Brothers in September of 2008.

People that think the current system is "doing the best it can" and "Metro is similar to other Transit Agencies in cities of a similar size" need to consider the lesson of Lehman Brothers. What they did was no worse than Bear Stearns.

Metro might be doing what everyone else is doing, but that doesn't mean they are doing what they SHOULD BE doing.

Metro needs to be re-structured. It needs another public audit. REAL SOLUTIONS need to be found. Those solutions might be unique to St. Louis. Metro likes to brag that it is the only public transit agency of its' kind in the country (still trying to figure out exactly what this means-- something about the way they are structured and the partnership with the two states). If it is the only one of its' kind it shouldn't be too difficult to actually make it work for the people that ride it.

And actually, right now, it is not working for anyone.