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California on brink of financial armageddon

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    Sunshine state’s cities finds themselves on the edge of bankruptcy

  • Duration 5:53
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In the back of the book segment tonight major economic problems in the state of California.

As you may know stocked in the city of 290000.

Residents carrying a 700 million dollar debt.

It's about to file for bankruptcy making it the seventh municipality in the US to do so this year.

And an estimated 20% of California cities appear to be teetering on the edge of bankruptcy.

That's by the end of this year -- -- -- -- well.

California's the most indebted state in the country with a budget gap of more than fifteen.

Billion with a B dollars joining me -- to put this in perspective from Chicago Jonathan Hoenig.

A hedge fund manager.

And from Los Angeles mark Sawyer a UCLA political science professor Jonathan let me begin with you who's to blame.

Well it's certainly not the bankers cell line it's not nefarious hedge fund managers -- evil Wall Street financiers.

It's the progressive agenda in government certainly California's government that's prompts -- cities like Stockton to borrow spend and -- -- -- unions.

I mean the -- as you mentioned to -- the biggest bankruptcy in American history they've got huge union compensation 85% of the budget.

So just like GM just like the airline's unions and of forcing artificially high wages you've got firemen and -- in making the 160.

Thousand dollars a year they get 90% of their pay when they -- Tyler at age.

Fifty that can't resist that's -- California so many cities they're going bank amount marks or you have a different perspective and I want to ask you this same question.

-- -- -- Well are periods in -- and here in California we're doing fine until we handed him over the guys like Jonathan Kraft the stock market.

But really what's going on here is back is that agencies have not properly put money in.

When times were -- then and they were promised these huge returns are people like Jonathan and then all of a sudden the market crashes because they've been making crazy -- on things.

And and taking away people's pension -- my parents live in Chicago -- on a pension it's a former weights that they work for 3040 years and they expect to get something back we can't have firefighters who want somebody 65 results on a -- -- a -- of burning buildings -- generally a little.

Definitely I want uterus market that was personally says.

It's you know what hedge fund manager can -- this crap I've gone ahead -- -- What and you can understand it was a mile Jonathan noted -- -- I -- stock market actually want in -- and it was city officials.

That may be -- realistic expectations and back.

They spend public money -- -- Maria not they spend public money in privatizing the -- not a privatizing the downtown and redevelopment if down downright and they know courageous.

They -- outrageous promises are.

Patient data in the -- -- the best athletes here's the heart and soul of what I heard a moment ago from -- He said his parents are hardworking people who made a deal with the government.

And part of that deal with that they would get a pension it might be a lavish pension but some politicians sign on the line to -- on the pension.

So why would you all those people.

To blame for this crash and stopped.

Well -- first I think it's pretty disingenuous for mark.

To argue for more government spending in California because mark is the direct recipients of government spending in California professor at UCLA.

Making at least -- I understand a pretty high 86 figure.

Incomes so yes of course is in a vested interest argued for more government spending but one.

And reality exists and -- the piper can't be -- whether it's in a private company or the public sector then you'll you have OK she's.

-- that's not only fix -- that we cut those pensions.

We can't we have to cut the pensions want confident -- cut them later if you don't -- -- now.

What you end up with is exactly what's been happening in Greece of course California has been called the next -- for months it wasn't the private sector is in Greece are arriving in the streets.

It was the public -- -- unions.

That's what they could see if we don't impose some real loss there Wal-Mart state -- -- -- prosperity cutting pensions cutting spending you've got to do it or.

They're going to be -- what do you say mark.

-- austerity is exactly the wrong way to go it's exactly what crash our economy and in this back and recession we seen this happen in Europe.

And we've got to be pro growth and we've got to figure -- we've assured these things up.

Let California -- a revenue problem ever since prop eight particularly on commercial real estate and folks like the people of -- gave a bunch of money to private developers.

To build marinas and to do redevelopment and develop commercial things it didn't take care of the the workers and the people who provide -- good service of the people Stockton.

And taking away pensions for people who work for them is a former -- that my parents worked in -- the Chicago Transit Authority they put in their time.

They sometimes didn't take job on the -- Abraham -- admire him I didn't get out of quantitative index would have the money mark how can you say go ahead grow out of it when you don't have the money right now no growth no money.

Bankruptcy and you're single -- and I am anyway.

We've got to get the feds have to get involved in this I mean we don't wanna go back to what this is that private companies like there was -- -- Romney did will be just dumped all the pension fund our daughter.

Trying to put out there -- leaders -- go ahead go ahead and go ahead Jonathan.

Well that just point and this wasn't private industry that has bankrupted towns like Stockton was and fortunately the -- -- of the of the governors of the leadership of that town.

It's a philosophy that in my opinion is -- it exemplified.

Bob by the president wants of course the fund into two two you -- be involved with every element of the private sector.

It failed at the marina the stock that -- OK okay hundred million dollars Arnett from.

-- theater so let me get this straight it's John I think you're saying.

We gotta have cuts and cuts even to pensions for people who are retired.

And mark you're saying no cuts just pro growth gentlemen I don't know what's gonna happen here but it predicts -- opera house -- -- -- spending more growth and the ahead.

Hasn't worked thus far well over in the future -- gentlemen thank you so.

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