Copyright ©2010 |The Unique Green Boutique
THE MYSTERIOUS CAFRS:
HOW STAGNANT POOLS OF GOVERNMENT MONEY COULD HELP SAVE THE ECONOMY
For over a decade, accountant Walter Burien has been trying to rouse the public over what he contends is a massive conspiracy and cover-up, involving trillions of dollars squirreled away in funds maintained at every level of government. His numbers may be disputed, but these funds definitely exist, as evidenced by the Comprehensive Annual Financial Reports (CAFRs) required of every government agency. If they don?t represent a concerted government conspiracy, what are they for? And how can they be harnessed more efficiently to help allay the financial crises of state and local governments?
Burienis a former commodity trading adviser who has spent many years peering into government books. He notes that the government is composed of 54,000 different state, county, and local government entities, including school districts, public authorities, and the like; and that these entities all keep their financial assets in liquid investment funds, bond financing accounts and corporate stock portfolios. The only income that must be reported in government budgets is that from taxes, fines and fees; but the investments of government entities can be found in official annual reports (CAFRs), which must be filed with the federal government by local, county and state governments. These annual reports show that virtually every
It is hard to envision how all the municipal governments hording their excess money in separate funds could be complicit in a massive government conspiracy, but if that is not what is going on, why such an inefficient use of public monies?
I got a chance to ask that question in April, when I was invited to speak at a conference of Government Finance Officers in
To avoid those unpredictable contingencies, municipal governments will keep a cushion of from 20% to 75% more than their budgets actually require. This money is invested, but not necessarily lucratively. One finance officer, for example, said that her city had just bid out $2 million as a 30-day certificate of deposit (CD) to two large banks at a meager annual interest of 0.11%. It was a nice spread for the banks, which could leverage the money into loans at 6% or so; but it was a pretty sparse deal for the city.
That was in
?Can the State borrow LAIF dollars to resolve the budget deficit?
?No. California Government Code 16429.3 states that monies placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi-governmental agencies shall not be subject to either of the following:
?(a) Transfer or loan pursuant to Sections 16310, 16312, or 16313.
?(b) Impoundment or seizure by any state official or state agency.?
The non-LAIF money in the pool can?t be spent either. It can be borrowed, but it has to be paid back. When Governor Schwarzenegger tried to raid the Public Transportation Account for the state budget, the
In short, the use of these funds for the state budget has been blocked by the voters themselves. Bond issues are approved for particular purposes. When excess funds are collected, they are not handed over to the State toward next year?s budget. They just sit idly in an earmarked fund, drawing a modest interest.
California?s budget problems have caused its credit rating to be downgraded to just above that of Greece, driving the state?s interest tab skyward. In November 2009, the state sold 30-year taxable securities carrying an interest rate of 7.26%.Yet
Private banks clearly have the upper hand in this game. Local governments have been forced to horde funds in very inefficient ways, building excessive reserves while slashing services, because they do not have the extensive credit lines available to the private banking system. States cannot easily incur new debt without voter approval, a process that is cumbersome, time-consuming and uncertain. Banks, on the other hand, need to keep only the slimmest of reserves, because they are backstopped by a central bank with the power to create all the reserves necessary for its member banks, as well as by Congress and the taxpayers themselves, who have been arm-twisted into repeated bailouts of the Wall Street behemoths.
California, then, is in the anomalous position of being $26 billion in the red and plunging toward bankruptcy, while it has over $70 billion stashed away in an investment pool that it cannot touch. Those are just the funds managed by the Treasurer. According to
This money cannot be spent, but it can be invested-- and it can be invested not just in conservative federal securities but in equity, or stocks. Rather than turning this hidden gold mine over to Wall Street banks to earn a very meager interest,
Only one state currently does this --
An investment in the State Bank of
The capital requirement for bank loans is a complicated matter, but it generally works out to be about 7%. (According to Standard & Poor?s, the worldwide average risk-adjusted capital ratio stood at 6.7 per cent as of June 30, 2009; but for some major U.S. banks it was much lower: Citigroup's was 2.1 per cent; Bank of America?s was 5.8 per cent.) At 7%, $7 of capital can back $100 in loans. Thus if $7 billion in CAFR funds were invested as capital in a
This $100 billion credit line would allow
To start a bank requires not just capital but deposits. Banks can create all the loans they can find creditworthy borrowers for, up to the limit of their capital base; but when the loans leave the bank as checks, the bank needs to replace the deposits taken from its reserve pool in order for the checks to clear. Where would a state-owned bank get the deposits necessary for this purpose?
While the new state-owned bank is waiting to accumulate sufficient deposits to clear its outgoing checks, it can do what other startup banks do ? borrow deposits from the interbank lending market at the very modest federal funds rate (0 to .25%).
To avoid hurting
We have too long delegated the power to create our money and our credit to private profiteers, who have plundered and exploited the privilege in ways that are increasingly being exposed in the media. Wall Street may own Congress, but it does not yet own the states. We can take the money power back at the state level, by setting up our own publicly-owned banks. We can ?spend? our money while conserving it, by leveraging it into the credit urgently needed to get the wheels of local production turning once again.
Ellen Brown developed her research skills as an attorney practicing civil litigation in
Thanks to Carl Herman for discovering the CalPERS figures.
© Copyright 2007 Ellen Brown. All Rights Reserved.