More Financial Quackery Planned By Milwaukee County Gov

So Milwaukee County Gov has a big long-term financial problem that was brought on by the previous County Exec and County Board of Supervisors mucking around with the pension system for no good reason by enriching of some at the expense of the Milwaukee County taxpayers. Most (not all) of those responsible have been turned out of office, but there has been little in the way of retribution.

Anyways, the financial hole is estimated to be about $400 million now. The county has been skimping on repair, maint, and service to reduce costs, but that can only go so far.

The real solution would be to find new sources of non-tax revenue and to grow the tax base (i.e. more/better/improved businesses and jobs). I am not sure if MILW* is up to that though…I will blog on that soon.

So what MCGOV going to do?

– Float a bond issue for $400 million with a 6% yield

– Take the $400 million; invest it in riskier securities and get a return of 8%

This is a dumb idea. The taxpayer is likely to be screwed again. The MCGOV leaders don’t seem to know anything about finance or risk.

– The 6% yield is mandatory…unless you default and go into bankruptcy

– The 8% yield is a target

– 8% yield is not guaranteed

– The yield from riskier investments will fluctuate from year to year

– Management costs will eat into any return brought from investment in riskier securities

– Did I mention there is no guarantee of an 8% return year in and out?

Lots of smart finance guys have loss lots of money engaging in financial arbitrage…and the MCGOV are not smart financial guys.

Perhaps, bankruptcy is the answer. Perhaps MCGOV should declare bankruptcy and void the pension sweeteners.

I wonder – that might be the best way to go.

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