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German municipalities face ruin

Discussion in 'European Politics' started by Stalin, Mar 20, 2009.

  1. Stalin

    Stalin Active Member

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    Slowly, but surely, the toxic DNA of unfettered capitalism unravels...

    "....The Berlin Public Transit Corporation (BVG) has recorded a financial loss of €247 million for 2008. The previous year, the corporation's deficit amounted to €62 million. Above all, the current deficit of nearly a quarter of a billion euros is a result of the state-owned company having to make provisions to meet potential claims from the US banks. These risks are due to so-called cross-border leasing (CBL) deals that now threaten to collapse as a result of the worldwide financial crisis.

    The CBL model functions in the following way: German municipalities rent most of their infrastructure—urban transit system, roads, city halls, school building, civic buildings and canal networks—to enterprises in the US for the duration of several decades, then simultaneously lease them back. Under German law the municipality remains the legal owner. Under US tax law, however, the American enterprise becomes the economic owner and is able to write down the value of the facilities. These write-downs reduce the company's profit; less profit means having to pay fewer taxes to the Internal Revenue Service (US).

    The resulting tax savings are then divided between the US company and the German municipality. It is not only the city government in Berlin that has sought to exploit this US tax loophole. Several hundred municipalities in Germany and across Europe are also involved in such arrangements. There is a consensus among politicians of all parliamentary groupings that the municipalities' increasing financial problems should be deferred to some indefinite future date utilizing the tricks of the capitalist system. However, the global financial crisis has undermined this opportunist policy.

    These highly risky financial practices took the following form at BVG: In several instalments since 1997, by means of 22 separate transactions, some 511 trams (85 percent of BVG stock) and 647 underground trains (48 percent of BVG stock) were hived off to the now insolvent US insurance giant AIG through a CBL scheme, being leased back over a period of 12 to 30 years. In return, BVG received a one-off "cash benefit" of €68.9 million from the tax savings.

    The institutions supporting the loans for the credit default swaps (CDS) linked to the leasing transactions included the state-owned Landesbank Berlin (LBB), the Hypo Vereinsbank and Credit Suisse. When the Berlin senate (city legislature) privatised LBB in 2007, selling it to the Sparkasse Group, it faced having its creditworthiness downgraded. Under clauses in the contract, the senate then had to find another bank with the highest AAA credit rating in place of LBB as a contracting partner. This was done in the form of the Landesbank Baden Württemberg. As is now known, in mid-2007 BVG—with the full support of its supervisory board, including trade union representatives from ver.di and Economic Senator Harald Wolf (Left Party)—decided upon the contracts that have now developed into a disaster for BVG.

    On the recommendation of the American investment bank JPMorgan, the senate and BVG decided to secure the CBL contract by means of a registered parcel, a credit portfolio including several collateralised debt obligations (CDO) meant to provide collateral against some 150 different companies, institutes and investors. Among these were the now insolvent investment bank Lehman Brothers and various likewise insolvent Icelandic banks.

    The bankruptcy of these different partners has now brought the house of cards tumbling down, and means that BVG, or rather the Berlin city legislature, will have to guarantee the entire debt of at least €157 million.

    he financial operations of the Berlin city legislature had already taken on particularly improper forms under the grand coalition in the 1990s, culminating in 2000 with the bankruptcy of the Bankgesellschaft Berlin. After the collapse of East Germany, Berlin became a haven for a small layer of nouveaux riches and other speculators. For years, a whole network of state and federal politicians became wealthy exploiting various funds and real estate deals at the expense of the publicly owned Bankgesellschaft Berlin, leaving the city legislature with a €60 billion mountain of debt.

    Since the PDS/Left Party joined the SPD in the coalition in 2001 it has dropped all demands to shed light on the banking scandal and bring those responsible to account. Instead, it has swung in line behind the SPD and is determined to place the burden on the backs of ordinary working people in Berlin.

    One of their first official acts was to endorse the €21 billion underwritten by the Berlin city legislature to guarantee the assets of the plundered banking company. Peter Strieder (SPD), who had profited from the privatisation of Bankgesellschaft Berlin, was even able to remain as senator for urban development until 2004, when he was brought down by the next scandal concerning the financing of Tempodrom, Berlin's prestige event location.

    Things look no different now in connection with the current BVG crisis. In all the years they sat in coalition with the SPD in the senate, nothing was heard from the Left Party about these business arrangements. It neither exposed any of the dubious issues surrounding the contract nor expressed any criticism nor demanded an end to this practice. Most recently, the follow-up negotiations in 2007 would have provided an opportunity for them to do this.

    The problems and risks associated with the CBL dealings have long been known. The Left Party certainly knew about these business operations and supported them. The Association of German Cities and Districts, a proponent of the CBL deals, had warned of the dangers in 2003: "If (the risks) are realized, the damage can be immense and far exceed the profit that accrued to the municipality".

    According to the weekly Die Zeit, under the pressure to push through privatisations, approximately 700 municipalities in Europe have invested public money in the "financial casino" of the "free market". The banks have advertised their derivatives and other financial products with glossy prospectuses, technical periodicals and in specialized seminars for city treasurers, promoting them as modern instruments for "active local debt management".

    Leipzig has privatised the most public property by means of CBL of any European city. Wolfgang Tiefensee (SPD)—who today is federal transport minister—presided over the sale of Leipzig's water companies and water pipelines, trade fair facilities and meeting halls, hospitals, trams, railway systems and sewage treatment and water purification plants to US investors for €100 million, and then leased them back again in a 30-year deal. The financial crisis also saw Leipzig engage in further dubious transactions to provide guarantees for the debt repayments.
    Local politicians as lackeys of the financial oligarchy

    In the Frankfurt Review last September, Winfried Fuest, from the Institute of the German Economy in Cologne, warned: "The crisis can affect all CBL dealings...the cities may have to provide guarantees for the failing banks and insurers that are involved in the operations...existing collateral is useless if the guarantor becomes insolvent".

    In public, those responsible for these dubious financial affairs are presented as victims. But such an interpretation falls far from the mark. The active participants include politicians such as Berlin Finance Senator Thilo Sarrazin and Economics Senator Harald Wolf, as well as union representatives on the supervisory board. They are representatives and members of a wealthy and thoroughly corrupt elite.

    Sarrazin, who is joining the board of the Bundesbank (Federal Bank) later this year, has made a name for himself in bourgeois circles as a hardnosed administrator of austerity measures. In view of the additional costs faced by the crisis-ridden BVG, he cynically intoned: "If you fly anywhere, you entrust yourself to complicated technologies that you are unable to comprehend. If you write a text on your laptop, then you also don't know exactly how it works. Everywhere in the world we live, we trust things that we do not understand. That is also a bit like things in the financial system".

    Mirroring the enrichment of the elite, Sarrazin, together with the Left Party and the SPD, have transformed Berlin into the capital of the poor and the homeless. While the financial elite have reaped ever-greater profits, one in three children in Berlin lives in poverty; a quarter of a million are unemployed; tens of thousands work for low wages; and the welfare state is disappearing.

    The Left Party is praised by Berlin Mayor Wowereit (SPD) and Sarrazin, who told Die Welt Online that recent years have shown that the Left Party in Berlin is a "coalition partner capable of decision-making, action and compromise".

    The Left Party plays a key role in shifting the burden of the financial crisis onto the backs of ordinary working people. It has supported the federal government's €500 billion rescue package for the banks, as well as a Berlin rescue package currently being prepared. The leader of the Berlin Left Party, Klaus Lederer, said, "The Left Party in Berlin believes that state intervention, as in the case of the financial market stabilisation law passed today, is urgently needed in order to prevent the uncontrollable spread (of the crisis) into the sphere of the real economy...". Economic Senator Harald Wolf added, "Without the rescue package, the situation would be far more devastating. Therefore we will participate constructively in its arrangement".

    http://www.wsws.org/articles/2009/mar2009/berl-m20.shtml

    Comrade Stalin, now chuckling in his grave
     
  2. Aus22

    Aus22 Well-Known Member

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    This arangement is common in many countries. I think it is wiser that the Government of the country invest not relying on forginers. However Germany has a Conservative government.
     
  3. dogtowner

    dogtowner Moderator Staff Member

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    they don't have the money and have no appetite for the debt. and if the German government is conservative, it was the people who put them in place and it was the people who dictate appetite and taxes. they want something for nothing.
     
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  4. GenSeneca

    GenSeneca Well-Known Member

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    Straw man – an argument based on misrepresentation of an opponent's position

    The failures are not the result of "unfettered capitalism" but the very predictable failures that result from government interference in the economy. Being a Communist, you seek a command economy, so any problems that can be found in mixed economies are blamed on whatever sliver of freedom is left in the economy because it's unthinkable for totalitarians to place any blame on the state. Communism doesn't work. Command economies do not work. Mixed economies are doomed to fail as well, they just take a bit longer than command economies.

    Only a Free Market Economy can survive long term, because that's the only kind of economy where FORCE is removed from the market place, where win-win transactions can take place without interference of government. Both the Mixed and Command economies require that the state use it's power to force market participants into a LOSE-WIN transaction, where one individual or group benefits at the expense of another. Such markets are not sustainable and only lead to the devastating poverty that can be seen in every Communist country that has ever existed.


    Not all economies are organized in the same way. The three major ways they can be organized are as a market economy, a command economy, or a mixed economy.​

    In a market economy, consumers and businesses decide what they want to produce and purchase in the marketplace. They make these decisions by “voting with their dollars.” Producers decide what to produce given the demand they see in the marketplace in terms of their sales and the prices they get for their goods and services. In a pure market economy, also known as a laissez-faire economy (from the French “allow to do”), the government plays a very limited role in what is produced. The government does not direct, and may even lack the power to direct, the private sector to produce certain goods and services.​

    In a command economy, also known as a planned economy, the government largely determines what is produced and in what amounts. It directs producers to make and deliver goods and services in specified amounts. In practice, command economies are associated with socialism and communism, two closely related forms of government. Socialism and communism are characterized by collective ownership of the means of production and central planning functions that try to produce what people want and need, in the quantities and at the time required. The underlying philosophy of socialism is “from each according to his abilities, to each according to his needs.”​

    In command economies, the people (in the form of the state) own the means of production. The state, which is seen to embody the will of the people, decides what will be produced according to a plan based upon what the state calculates to be people's need and desire for various goods and services. The state also plays an important role in determining how goods and services are distributed, that is, in deciding who gets how much of what.​

    In a mixed economy both market forces and government decisions determine which goods and services are produced and how they are distributed. In general, market forces prevail in mixed economies. The government does not direct the private sector to produce certain goods and services in certain quantities at certain times. However, the government's influence in the economy stems from the amount of money (raised in the form of taxes and borrowings from the private sector) that it spends and, through various forms of welfare, redistributes.​

    Today, the economies of most industrial countries are considered mixed economies. In Western European nations the government usually plays a larger role in the economy than in North America. Since the fall of the Soviet Union in 1991, the only two major planned economies are those of North Korea and the People's Republic of China. However, China has begun to incorporate some market mechanisms, such as competition, into its economy.​

    Although many people characterize the U.S. economy as a “free market economy,” it is clearly a mixed economy. The federal government alone accounts for about 19 percent of the U.S. economy (depending on what forms of government spending are counted). Adding state and local governments brings the public sector share up to about 28 percent. With that kind of economic clout, government at various levels has a lot to say about what is produced in our society and who gets what. Nevertheless, the United States relies on markets to a larger degree than any other major industrial nation in the world, so from a relative standpoint, it is indeed a free market economy.​
     
  5. Aus22

    Aus22 Well-Known Member

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    I doubt if many people would think that The USA is a mixed economy like Germany. It is the closest to a capitalist or market economy we have.
     
  6. GenSeneca

    GenSeneca Well-Known Member

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    The top five "free" economies identified by the 2011 index were Hong Kong, Singapore, Australia, New Zealand, and Switzerland, each scoring over 80 on the economic freedom grading scale. ... The United States dropped to 9th place behind such countries as Denmark, Canada, and first-place Hong Kong.​

    Australia ranked 3rd, the US ranked 9th. Your country is closer to Capitalism than the US.
     
  7. Aus22

    Aus22 Well-Known Member

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    Australia has a Labor government and Hong Kong a Communist Government. I am not sure how you measure economic freedom but if that what you think , I suspect politics has little to do with it.
     
  8. Gipper

    Gipper Well-Known Member

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    I didn't get past that sentence. It is complete and utter foolishness.

    Capitalism does not exist in the western world.

    You leftists blame capitalism for the failures of socialism. Then demand that we need socialism, when that is what we have now.

    Do you really believe capitalism exists or are you just a typical commie propagandist? Be honest now. Rhetorical question....an honest commie...I don't think they exist....

    Remember your beloved motto - "The ends justify the means" - such a grand motto....
     
  9. GenSeneca

    GenSeneca Well-Known Member

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    Positive non-interventionism was the economic policy of Hong Kong; this policy can be traced back to the time when Hong Kong was under British rule. It was first officially implemented in 1971 by John Cowperthwaite, who observed that the economy was doing well in the absence of government intervention but it was important to create the regulatory and physical infrastructure to facilitate market-based decision making. The policy was continued by subsequent Financial Secretaries, including Sir Philip Haddon-Cave. Economist Milton Friedman has cited it as a fairly comprehensive implementation of laissez-faire policy, although Haddon-Cave has stated that the description of Hong Kong as a laissez-faire society was "frequent but inadequate"​

    Economic freedom is measured on a sliding scale from the least amount of government interference in the economy to the greatest. Your country of Australia has LESS government interference in the economy than the US. So, going back to your original statement, the US does operate on a "mixed" market economy - a "mix" of freedom and government controls. Anyone who does not believe the US uses a "mixed" economy does not understand the term.
     
  10. GenSeneca

    GenSeneca Well-Known Member

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    I have more respect for people who openly admit to being Communists than the Progressives who deny it. I'd rather have a discussion with a Communist because they'd actually argue in favor of Marxism by admitting it's Marxism. Progs never admit to it, they just call you racist, sexist, bigot, homophobe, etc. and claim to have won the argument.
     
  11. Aus22

    Aus22 Well-Known Member

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    Gen Seneca. You prefer people to admit their beliefs. I have always said I am a Socialist. Australia has a mixed economy because we sometimes have Conservatives in power and the Labor Party does not practiced complete Socialism but Democratic Socialism.
    As far as Hong Kong. Whatever it was in the past it is part of Communist China. It has a large number of government businesses but does allow the market to operate to some extent.
    I suspect the USA has fewer government owned businesses but does allow the market to operate to some extent. I am not sure this will change if Obama gets defeated.
     
  12. Gipper

    Gipper Well-Known Member

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    I agree completely. We have discussed several times the fact that many Democrats are communists. And as you say, when this information is presented to liberals they resort to name calling. The fact that many Democrats wish to conceal their communist beliefs, proves how disingenuous they are.

    Disingenuousness and Communists go together like peas and carrots. So, finding one who is honest, is rare.

    The end of the USSR was in some ways, beneficial for American communist politicians. Because the American people are clueless now about the horrors of Communism and they think Communism is dead, when it is alive and kicking.
     
  13. Gipper

    Gipper Well-Known Member

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    And as we have witnessed, a mixed economy does NOT work well. Most of the western world is bankrupt or about to be, from the weight of socialist/collectivists government programs. It is NOT sustainable and if left unaddressed, will ultimately lead to numerous negative consequences. Add in lots of crony capitalism (a form of Fascism, which is a form of Socialism), which causes economic unfairness resulting in further concentration of power into the hands of a few elites, causing terrible harm to the vast majority of citizens. And round and round we go.

    The fact that the above is NOT apparent to all of us, is most unfortunate.
     
  14. GenSeneca

    GenSeneca Well-Known Member

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    You still don't understand my point... probably because you can't separate the concepts of political parties and economics so the concept of positive non-intervention didn't sink in. Do you understand the concept of separation of church and state? Same idea where economics is concerned, it's a separation of economy and state. The HK economy is the free-est in the world, so saying that the ChiCom gov allows the HK "market to operate to some extent" is an amazing understatement. The HK economy has MORE freedom than the Australian econ, and a LOT more freedom than the US.

    So... On what basis do you claim the US has the Free-est economy, that it is a Capitalist nation?
     
  15. GenSeneca

    GenSeneca Well-Known Member

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    A recent survey conducted earlier this month by the Harris Interactive polling firm on behalf of the Bill of Rights Institute reveals some startling results. According to the survey, 42 percent of the over 2,000 respondents believe that Karl Marx’s maxim, “from each according to his ability and to each according to his need [or needs]” is part of one of our nation’s founding documents. Further, nearly 20 percent assigned it to the Bill of Rights. When the survey results are fragmented according to age, we find that 30 percent of young adults misidentified Marx’s statement as something written in either the Federalist Papers, the Declaration of Independence, or the Constitution.​

    The particulars of the answers to the poll’s questions are equally disturbing. Over half of respondents named “education” as a right protected from government encroachment by the First Amendment. Furthermore, not even 20 percent could name the five rights actually guaranteed by that amendment (those rights, should any of our readers need a refresher are: freedom of religion, freedom of speech, freedom of the press, the right peaceably to assemble, and the right to petition the government for a redress of grievances).​

     
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