The Palm Jumeirah in Dubai
Paul Krugman has said there are three takes on this: one, Dubai World's default signals the start of a chain of sovereign defaults, where countries start defaulting one after another, spreading a darker, deeper panic worldwide; two, Dubai World's default is really no different than any other commercial real estate company's default; or three, that this is a new ball game entirely. Krugman's going for a combo of 2 and 3; Andrew Leonard at Salon seems to be pretty firmly in the 2 camp, comparing Dubai World to Lehman Brothers; Felix Salmon at Reuters is cheering for Dubai World to be allowed to default, so that a better precedent is set here in the U.S. for government-owned entities like, say, AIG; and any number of other analysts are saying anything from "don't worry about it" to "the sky is falling, we're all gonna die."
I reject the second two of Krugman's options (though I like their combination). This situation is neither unfamiliar nor unserious. It is, in fact, a nice parallel to exactly what's happening within our own borders, with that government-owned massive debtor we in the U.S. kindly call "California."
Palm trees in California
People are antsy about what a Dubai World default might mean because it could signal that somewhere, a government is willing to let a state-sponsored entity fall. When you shift "entity" to "state," though, the conversation gets more complicated and, I think, closer to where it should be. What do you do, as a country, when your shining star goes supernova?
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Catherine Forsythe
Writer to the Stars
Emily Holleman
Iron Skillet
Leslie Harpole
old new lefty
Salon.com
Comments
California was going to pay the bills....
...but then we got high....
R
Stellaa -- irresponsible? I grant you California has a big agricultural industry that Dubai does not, but Dubai gets nearly the same amount of income from its oil resources that California does from agricultural exports (agriculture income in 2008: $36B; total Californian GDP: $1,800B). Beyond that, though, I'm not trying to say that these governments or situations are the same -- just that there's a comparison to be made.
I'm sure you're too young to remember, Saturn, but there was a time when New York City was on the verge of bankruptcy; man, those were fun times. If you have any questions about how California is faring under the weight of its own budget difficulties and its completely dysfunctional State legislature, come on out for a visit - as bad as things are, life is f*ckin' great out here.
I don't personally remember the NYC debacle, you're right, but I still somehow have "Ford to City: Drop Dead" flashbacks sometimes when the word bail-out is thrown around.
I totally bow to your first-hand experience of California in all of the things you mention. Plus any place that continues to bring the avocado to the world stage is always going to be more systemically important than... anywhere else, at least to me.
We'll go down eating in California, we will. And eating well.
The absolute refusal of the cowards in Sacramento to address this fact and do what needs to be done (i.e., raise enough revenue to cover our debts--i.e., raise taxes) maddens me on a daily basis as I listen to "analysts" aurally wringing their hands about What To Do About The Budget Crisis on NPR.
Gah.
The mostly liberal California state legislature? Do you actually live in California, or do you just have a knee-jerk reflex whenever any state (or city or country) government is in trouble that makes you point and shriek "Gah!! Liberal liberal liberal," the same kind of instinctive reflex that makes normal people hop around and curse when they hit their own thumb with a hammer?
Well, I've lived in California for 13 years and I can tell you the problem is not that the legislature here is too liberal. The problem (one of many with this state's government) is that gerrymandering has resulted in representatives who are either so far to the left or so far to the right that compromise on any issue (the secret to effective governing in a two-party system) is impossible. Taxes can only be raised by a two-thirds vote of the legislature, which I would imagine wouldn't be a problem if it was mostly liberal. But it's not, so taxes never get raised while our antiquated and stupid government-by-ballot-proposition results in voters voting for all sorts of unfunded mandates the state has to borrow like crazy to pay for. And the legislature knows this but has never done anything about it, like standing up to its constituents or lifting a finger to change the system. And those aren't all liberal ballot propositions either, I can assure you. If it was we wouldn't have voted in the last election to keep drug offenders locked up in our expensive and overcrowded prisons instead of sending them to rehab. Legislators gotta look tough on crime, you know.
In other words, it is not a liberal or a conservative problem. It is a problem of stupidity and lack of spine, and that is a problem that defies whatever label you want to slap on it.
Stick to talking about things you know about, like when the black helicopters are coming to spirit you off to one of the FEMA death camps.
But by all means don't let reality interfere with your blame-the-Dems-no-matter-what world view. You might start thinking for yourself instead of just regurgitating whatever Limbaugh says. Can't have you thinking for yourself, it'll make it so much harder for the Marxist overseers at the re-education center the 82nd Airborne will soon be dragging you off to.
Just the other day CARB announced that it's going to go ahead and fine truck operators who have refr units that are 2001 and older. So when these guys quit going into CA who is going to haul you AG crops? Remember the fine is for showing up in the state with the unit and it doesn't matter if it's running or not. You have it, you're guilty.
Like taxes? Let me just say that my property taxes in CA were more than my PITI in NC, where I got a nicer house in a great neighborhood.
What they do with all the taxes they collect really gets me. You would think somebody would decide what is important and screw the rest. You would also think they would figure out what the cheap way of doing something is and go for it. CA will pay millions to put out a wildfire but they won't let the undergrowth be back burned. We all know fires never happen in CA.
IMHO there are two groups that are killing CA. They are the tree huggers and the not in my back yard. The tree huggers will cut off the water to the AG areas and send the water down stream to save some little fish while thousands lose their AG jobs and the state loses revenue.
The NIMBY people will put up with brown outs but object to a power plant being built or having to look at oil platforms off the coast with liquid tax money under the waves.
When I moved out of CA I left nothing there I want to back for.
Or whether there's any "there" out there
But if California up and failed
Would it really matter if we all bailed?
Someday it will all fall to ruin
Some would say it's better late than soon
But as for me, I'm sanguine on the Eureka state
Too little to love, way too much to hate.
But I think Stellaa is right that the size of the California economy is relevant because they may have cash flow problems, and some problems of excess to be sure, but fundamentally they are one of the places in the US that really does make money, not just on movies (although that's certainly a major deal in the world economy) but also Silicon valley, various kinds of farming, and so on. Those are real, intrinsic value and they are things that will create a buffer in a time like this.
The present crisis is, I think, a lot about the dividing line between “investment” and “wild speculation.” Whatever you may think of California, I don't think it falls in the wild speculation category.
As to whether it's irresponsible to think aloud—that's a weird word to use. But maybe what she means is that in a time when everyone is poised to rush to their broker saying “Sell, sell, sell” on the slightest hint that there is a problem, one should be careful about things that seem like predictions of catastrophe. I don't know. That seems very double-edged to me. I think it's good for there to be hints that something might be an issue so there can be discussion. The fact that Saturn is not (yet) known to the world gives her the ability to be speculative. Would I think the same if she were more visible? I'm not sure, I'd have to think about it. But do I want my editorial writers worrying about such things? That's tough, too. I think not. But it's fair to spend a couple minutes now and then pondering the question.
At the beginning of this year, the estimated state and local government budget was $300B. The latest estimates now call for a total of $450B in shortfall, and this is for governments that have charters and constitutions that call for a balanced budget!
The end result of all of this is, that the state and local budget crisis has negated all of the federal stimulus money that has been injected into this economy to date by the Obama administration. They say of the POTUS, the buck stops here. President Obama also stated earlier this year that when someone's house is on fire, you don't criticize them because they smoked in bed. You try to put out the fire because it will endanger your house.
The President better do something about this and the 17.5% unemployment in this country for his State of the Union message, or else we're all screwed, and he has a death wish for his presidency.
By contrast, the United Arab Emirates has a population not much bigger than Los Angeles. Even in the boom years, the amount of building going on in Dubai was improbable, particularly for a country that is stingy about giving families "accompanying spouse" visas.
Dubai looked like a bubble about to crash, even when it was shiny and new.
SoPolite, you are my new fave. And Boko, not enough to love? Are you kidding? And DJohn, you just plain don't know WHAT you are talking about.
The diversity of California's people is what will save the country, if not the world. Lovely mix. Namaste.
I'm so elite and rich.
@Sloop JohnB(lumenthal),
I'll make the paddles if you can sell them.
You'd only have to sell one at a time, even if they're oars as, that's all most seem to have in the water.
For years there's been talk of CA breaking off and sliding into the Pacific.
Little did we know they meant financially.
Saturn,
What do you think cados would taste like if they were grown on Saturn? Mmmm, cado/bacon sammiches!!
I use a little Bob'sBigBoy flavored salt on them also.
I think that name is other now.
And, wouldn't the earth look neat with rings?
As for DJohn(must be shitty going through life named after a toilet), if DJ was actually Lewis Black or Bart, his routine would be hilarious.
As it is, it's more like one of thosehaving escaped from "One Flew Over".
Imagine not possessing a connection to reality to understand that the current financial disaster was begun and exacerbated by the bushpunk of the last 8 years.
As for all you people with crabs, I'm keeping my pants on.
As Robin Williams once quipped, "Average people get crabs. Rich people get lobsters".
The very major problem of the world in which I live and share with my neighbors is that the WI winter is currently extremely threatening.
THAT is a BOOOOOOOO.
In California, most of the resort-style condos in places like San Diego are owned by millionaires (including Sen. McCain).
In California, the movie-star governator elected by star-struck MEN vetoes spending bill after spending bill and then gives Los Angeles a stadium - to be paid for with State money - because the city and county of Los Angeles can't convince its people to build one so a football team will come (back) to L.A.
In California a Democrat running for Congress has her fundraising campaign shut down by police and the fundraiser arrested (trial still pending) because of a single (unverified) noise complaint by a Republican neighbor.
In California we are ruled by unelected people who are libertarians when it comes to finances (lying, cheating, and stealing to make money is moral) but strict Old Testament fundamentalists when it comes to personal freedoms (same sex marriage and marijuana use is immoral and will be prosecuted, laws be damned).
I'd weep for you - but I'm too poor, and I would never waste money on a needless baubles like 'Ski Dubai', even if I did.
It's all going to fdrown as the Oceans Rise, anyway; it WILL make for a nice Archaeological Discovery - circa 30,000 CE (or whenever the next Ice Age once again lowers the sea-levels enough to expose the oceanic sediments that it'll all be burried beneath by then) - though.
Shoulda' invested in Solar Thermal Power Generation and/or Desalinazation Plants, instead! Trust the Friends & Advisors who still Love You enough to CARE, Sir/ji/san/Your Mahaness!
Wow! While I just started talkin' to the Emir of Dubai - I could just as easily be talkin' to the GOVERNATOR!
http://www.independent.co.uk/news/world/middle-east/sacked-by-text-the-indian-workers-who-built-dubai-1831651.html
And I've no idea why some folks responds to demented twerps like DJohn. He likely believes that Reagan left the economy in great shape for Clinton as did Bush for Obama. You're never going to win over the credulous nincompoops of the world but if you really enjoy trying, have at it.
California is in the same boat as all the rest of the states that allowed mortgage lenders to run amok, inflating home prices and then lending phony home equity. Some states had laws that protected against this happening - CA and many many others did not.
I do not know who started the vote on your laws in California, I suspect its the Republicans but if they are responsible I hope when California goes bankrupt (and it will) the Republicans will be the big sufferers.