City Bankruptcies Will Increase, Dimon Warns

As cities across the nation face increasing budget strains, the vocal group of experts warning about municipal defaults has gained a powerful member: Jamie Dimon.

The JPMorgan CEO said he expects to see more U.S. municipalities declare bankruptcy, Bloomberg News reports. His concerns echo those of Meredith Whitney, the analyst who has said the next major financial crisis will come from a wave of local government defaults, and those of famed investor Warren Buffett, who has called the municipal debt situation a "terrible problem."

"If you are an investor in municipals you should be very, very careful," Dimon said, according to Bloomberg.

His warning comes as local governments contend with painfully depreciated tax revenue, which in some cases threatens to ruin budgets. In the wake of the worst financial crisis since the Depression, cities and states have had to severely cut back their spending, even as the need for their services has grown. While official bankruptcy remains rare (Vallejo, California, is the most recent example), experts say there's trouble brewing.

Different cities have different problems, but one thing remains constant: there's not enough money coming in. Often, revenue isn't enough to cover even the most basic of services.

• In Detroit, the problem has gotten so bad that a new proposal would deprive a fifth of the city of basic municipal services, like trash collection and police protection.
• Neighboring Hamtramck has run out of services to cut, and expects to spend its last dollar early this year.
• Prichard, Alabama, in a desperate response to depleted coffers, has illegally stopped paying its pensioners.
• Newark has cut 13 percent of its police force.
• Camden, N.J., one of the nation's most dangerous cities, has begun a process of cutting about half of its police department.

"It's a frequency issue," Whitney said on CNBC Wednesday morning. When host Andrew Ross Sorkin asked her to name the three municipalities most at risk of default, she refused.

"Too dangerous a game," Sorkin admitted.

Indeed, the bond market tends to punish the weakest cities. As ratings agencies downgrade municipalities, and as investors get nervous, yields on muni bonds rise, meaning it's more expensive for cities to borrow money.

"It's a downward spiral," George Rusnak, national director of fixed income for Wells Fargo, told the Wall Street Journal.

Comments

[Neufield]

12:18 PM on 01/19/2011

We will all move in the banksters when they take our homes or camp in tents in their front yards!

[gavrielle]

02:14 AM on 01/15/2011

And Jamie would know all about it, because JP Morgan helped broker deals that put many of these cities into this position in the first place.

[Republitarian]

05:01 PM on 01/14/2011

All the high-tax blue states hurting, and all the red states doing fine. I can only hope California goes bankrupt, so all its public employee contracts can be voided by a federal judge. Then ban public employee collective bargaining. That would get Cali back on track.

And don't expect any bailouts with a GOP House, blue states. The chickens are coming home to roost for your "progressive" (i.e., profligate) ways.

[gavrielle]

02:16 AM on 01/15/2011

Actually, it would help if red state politicians stopped snuffling up to the public coffers scarfing down pork for their constituents every chance they got. Blue states are tired of paying red state welfare. Let's keep blue state federal tax money in blue states and red state federal tax dollars in red states. Then we'll see who comes out on top.

[Republitarian]

05:29 PM on 01/15/2011

Ha, nice try, but blue states have more welfare. California has 12% of the nation's population, but 30% of its welfare recipients (not to mention all the costs for illegals). NY is #2 in Welfare.

http://www.alternativeright.com/main/blogs/malinvestments/california-welfare-capital-of-the-u.s/

The disparity in tax money is due to you liberals and your obsession with income redistribution. Since the wealthier tend to live in NY and California, and since your socialist, er, "progressive" tax rates strike the wealthier way out of proportion with what they earn, more federal tax money naturally comes from those two states. And you have the audacity to complain about the consequences of your own policies!

If you don't like it, pass a flat tax!

[dcrimso]

10:43 AM on 01/15/2011

Apparently you don't watch the news. But that's what you get for watching FOX. 48 states have some sort of fiscal problems, including Texas and Alabama. Last I checked, they are red states. And just for the record. More jobs have been in Obama's 2 years than George Bush created in two terms. Apparently none of friends, if you have any, are public employees. With 25% of the money in the hands of 1% of the people, your arguements are specious. For you Tea Partyers, that's another word for false.

[ny rebel]

03:07 PM on 01/14/2011

It's happening because of what these banks / companies did. They caused this. What a bunch of weasels. I won't even consider a card through JP Morgan. Screw them.

[Republitarian]

05:02 PM on 01/14/2011

It's happening because cities and counties borrow more than they can pay.

[dcrimso]

10:43 AM on 01/15/2011

Just like all the citizens

[Mafdet]

01:51 PM on 01/14/2011

We get it Jamie:  You're giving us a heads up that you're going to take the hundreds of billions you parlayed our measley 25b in bailout cash into (after you've finished picking our flesh out of your teeth with the shards of our bone that you cruched under your boots) and go bargain shopping again, just as soon as the nation's cities go under.  We're sure you're very "concerned" (as in absolutely giddy) over an impending crisis that will devalue lots of real estate...

[toolman911]

01:09 PM on 01/14/2011

It is all about bringing down the standard of living in the USA while raising it in the poor parts of the world. South Korea has said it is going to build textile plants in Haiti along with housing similar to the textile villages in the USA that have recently shut down. Due to the technology advacnement worldwide
the american government along with others are turning americans into a service society with very little manufacturing. Our crooks should force all american companys to abide by US law even if they open a plant in a different part of the world. Slavery has never been abolished it has only been organized. We have four different classes of people. Dirt poor,working poor, middle class and rich. The rich never have and never will pay taxes as long as our crooked government refuses to change our tax code. They say they do but we all know there is always a loophole that will keep them from paying

[donaldinks]

02:16 PM on 01/14/2011

Sorry...
but I cannot "Fan" you again.
;-)

[tuberider]

12:43 PM on 01/14/2011

These guys are pure poison.

[donaldinks]

12:32 PM on 01/14/2011

GATT.

NAFTA.

AND :

(The stake into the very heart of Middle Class of America, consigning us all to become just another "Third World Nation" )

Allowing China into the WTO (by taking OFF the table the "Human Rights" stipulations...EVEN AFTER The Tienanmen Square massacre...)
******************************************************************************************************
"For example, in 1991, the United States stated that it would impose $1.5 billion in trade
sanctions against China for failing to adequately protect patents, copyrights, trade secrets
and trademarks. China then threatened to impose retaliatory sanctions on the US. President
H.W. Bush responded by threatening to revoke China's MFN status, but China and the
United States reached a compromise instead. China finally received PTNR during the last
few months of the Clinton administration, paving the way for it to join the WTO."

http://ncgg.princeton.edu/IPES/2010/papers/F930_paper1.pdf
****************************************************************************************************

The American people said CHEAP is GOOD, look what we can buy, look at my shiny new IPad and IPhone, my plasma television that covers my entire wall...

now, almost EVERY FRACKING thing you buy comes from...
CHINA. (Vietnam too! They are good little Capitalists now!).

The United States?

We just "create" SH*T.
Hell, look at what our fine Financial Establishments up on Wall Street have created...
(..and if it weren't for WARS non stop...we would REALLY be fracked)

And DO NOT speak to me of your "intellectual properties"...

...the Chinese have already stolen those too.

[kenhamlett]

10:45 AM on 01/14/2011

I live in NYC where the lay-offs of public employees, curtailing of city services (hospitals, bus routes, social service assistance -- the entire gamut of services), and the cost of the ones remaining continues to be impacted seriously by the city's financial problems. Now, we are embarking on an austerity program at the state level -- as is the case all around the country -- to try and salvage our state budget crisis. These problems are rampant and threaten to undermine our "fragile" recovery. No one in positions of authority can claim unawareness of the problem or the threat, but we hear very little about resolving these problems from anyone in the administration or the Congress. I wish they were even half as concerned about these problems -- with their direct impact on every resident in the impacted city or state -- as they were about the financial crisis for banking institutions, or the problems of the big automobile manufacturers, or the extension of the tax cuts for the rich. But, alas, that does not seem to be the case.

[outofstepper]

02:25 AM on 01/14/2011

""If you are an investor in municipals you should be very, very careful," Dimon said, according to Bloomberg."

Dimon must be short in the municipal bond market. Sounds to me like he is trying to instigate a sell-off of municipal bonds with this statement.

[tartentart]

10:19 AM on 01/14/2011

Thanks, I hadn't thought of that and now that I do I say "excellent point" and could be true.

[donaldinks]

12:40 PM on 01/14/2011

I would really like to buy into that speculation...
unfortunately,
he most likely is sending a signal to his corrupt brethren to adjust their portfolios
before the BIG one happens...

the one that will make 2008 look like a "walk in the park".

[cadawa]

01:17 AM on 01/14/2011

Dimon should know. He and his friends took all the money.
Which would you rather have. A handful of giant banks that gamble with money instead of lending it and don't pay their debts or vibrant American cities?

[spinotter11]

10:55 PM on 01/13/2011

I just wish that I understood the motives of those who are profiting by America's loss. I was never a razzle-dazzle heave-ho patriot, but up until recently I always believed that this country (my country?) would do the honorable thing when push came to shove. I no longer believe that - in fact, I expect more connivery and self-agrandizement every day. We have lost our honor, we have lost our compassion for one another, and we have lost the kind of country we all thought we had.

[muck-raker]

07:57 PM on 01/13/2011

Obama Signals Break with Wall Street -

Today with unemployme­nt in almost double digits and foreclosur­e unabated, President Obama decided that America needed more of the same. The President announced appointmen­t of JPMorgan Executive William M. Daley as White House Chief of Staff, replacing Rahm Emanuel. news reports indicate that he will announce that Goldman Sachs adviser Gene Sperling will be appointed head of the National Economic Council, replacing Larry Summers.

At JPMorgan, Daley’s portfolio has included supervisin­g government lobbying for a bank with $2 trillion in assets that has fought efforts to limit the size of megabanks. Daley co-chaired a U.S. Chamber of Commerce commission that urged the federal government to revise the 2002 Sarbanes-O­xley corporate reform law and protect corporate auditors from lawsuits and investigat­ions.
Daley at JP Morgan spent $5.8 million in the first nine months of 2010 alone fighting Elizabeth Warren's Consumer Financial Protection Board and other financial reforms. He also made public statements opposing President Obama's health care reform bill. His appointmen­t was praised by the U.S. Chamber of Commerce.

As director of the NEC. Sperling was a principal negotiator with then-Treas­ury Secretary Lawrence Summers of the Financial Modernizat­ion Act of 1999, also known as the Gramm-Leac­h-Bliley Act. . President Barack Obama believes that the repeal of Glass-Stea­gall helped cause the 2007 subprime mortgage financial crisis
continue read,great article http://www­.banksteru­sa.org/con­tent/obama­-signals-b­reak-wall-­street-giv­es-top-job­s-jpmorgan­-exec-and-­goldman-ad­visor”

[LynnW49]

06:17 PM on 01/13/2011

"His concerns"?? "

=="If you are an investor in municipals you should be very, very careful," Dimon said, according to Bloomberg.==

Lets see if I have this right. A guy comes into my house and steals everything, all of the things in my home office from which I make my freelance living, and even the appliances, wallboard, floorboards and drapes. This leaves me with no way to make an income, and nowhere to live. I put up notes on the community bulletin boards around town saying I am still in business (even if I have to borrow a computer to work). The guy who robbed me comes along and tacks up a note over all of my postings saying that it is a bad idea to hire me, i.e. invest in my services.

Thank you, Jamie. You make me believe in hell. I'm thinking the fourth circle (greed) for you. Or maybe the ninth (treachery).

[Linda from Deerfield]

05:03 PM on 01/13/2011

Doesn't this make you wonder if there's a killing to be made if only Dimon can convince enough parties to stay away from municipal bonds -- betting against cities if he can just get them into a death spiral, perhaps???