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?
Burien is 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 U.S. city, county, and state has vast amounts of money stashed away in surplus funds. Burien maintains that these slush funds have been kept concealed from taxpayers, even as taxes are being raised and citizens are being told to expect fewer government services.
Burien was originally alerted to this information by Lt. Col. Gerald Klatt, who evidently died in 2004 under mysterious circumstances, adding fuel to claims of conspiracy and cover-up. Klatt was a an Air Force auditor and federal accountant, and it's not impossible that he may have gotten too close to some military stash being used for nefarious ends. But 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. Still, 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 Missouri. The friendly public servants at the conference explained that maintaining large "rainy day" funds is simply how local governments must operate. Unlike private businesses, which have bank credit lines they can draw on if they miscalculate their expenses, local governments are required by law to balance their budgets; and if they come up short, public services and government payrolls may be frozen until the voters get around to approving a new bond issue. This has actually happened, bringing local government to a standstill. In emergencies, government officials can try to borrow short-term through "certificates of participation" or tax participation loans, but the interest rates are prohibitively high; and in today's tight credit market, finding willing lenders is difficult.
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 Missouri, but the figures I was particularly interested were for my own state of California, which was struggling with a budget deficit of $26.3 billion as of April 2010. Yet the State Treasurer's website says that he manages a Pooled Money Investment Account (PMIA) tallying in at nearly $71 billion as of the same date, including a Local Agency Investment Fund (LAIF) of $24 billion. Why isn't this money being used toward the state's deficit? The Treasurer's answer to this question, which he evidently gets frequently, is that legislation forbids it. His website states:
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 California Transit Association took him to court and won. The Third District Court of Appeals ruled in June 2009 that diversions from the Public Transportation Account to fill non-transit holes in the General Fund violated a series of statutory and constitutional amendments enacted by voters via four statewide initiatives dating back to 1990.
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 California has never defaulted on its bonds. Meanwhile, the too-big-to-fail banks, which would have defaulted on hundreds of billions of dollars of debt if they had not been bailed out by the states and their citizens, are able to borrow from each other at the extremely low federal funds rate, currently set at 0 to .25% (one quarter of one percent). The banks are also paying the states quite minimal rates for the use of their public monies, and turning around and relending this money, leveraged many times over, to the states and their citizens at much higher rates. That is assuming they lend at all, something they are increasingly reluctant to do, since speculating with the money is more lucrative, and investing it in federal securities is more secure.
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 California's latest CAFR, the California Public Employees' Retirement Fund (CalPERS) has total investments of $360 billion, including nearly $144 billion in "equity securities" and $37 billion in "private equity." See the State of California Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009, pages 83-84.
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, California could leverage its excess funds itself, turning the money into much-needed low-interest credit for its own use. How? It could do this by owning its own bank.
Only one state currently does this -- North Dakota. North Dakota is also the only state projected to have a budget surplus by 2011. It has not fallen into the Wall Street debt trap afflicting other states, because it has been able to generate its own credit through its own state-owned Bank of North Dakota (BND).
An investment in the State Bank of California would not be at risk unless the bank became insolvent, a highly unlikely result since the state has the power to tax. In North Dakota, the BND is a dba of the state itself: it is set up as "the State of North Dakota doing business as the Bank of North Dakota." That means the bank cannot go bankrupt unless the state goes bankrupt.
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 California state development bank, the bank could generate $100 billion in loans.
This $100 billion credit line would allow California to finance its $26 billion deficit at very minimal interest rates, with $74 billion left over for infrastructure and other sorely needed projects. Studies have shown that eliminating the interest burden can cut the cost of public projects in half. The loans could be repaid from the profits generated by the projects themselves. Public transportation, low-cost housing, alternative energy sources and the like all generate fees. Meanwhile, the jobs created by these projects would produce additional taxes and stimulate the economy. Commercial loans could also be made, generating interest income that would return to state coffers.
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?
In North Dakota, all the state's revenues are deposited in the BND by law. Compare California, which has expected revenues for 2010-11 of $89 billion. The Treasurer's website reports that as of June 30, 2009, the state held over $18 billion on deposit as demand accounts and demand NOW accounts (basically demand accounts carrying a very small interest). These deposits were held in seven commercial banks, most of them Wall Street banks: Bank of America, Union Bank, Bank of the West, U.S. Bank, Wells Fargo Bank, Westamerica Bank, and Citibank. Besides these deposits, the $64 billion or so left in the Treasurer's investment pool could be invested in State Bank of California CDs. Again, most of the bank CDs in which these funds are now invested are Wall Street or foreign banks. Many private depositors would no doubt choose to bank at the State Bank of California as well, keeping California's money in California. There is already a movement afoot to transfer funds out of Wall Street banks into local banks.
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 California's local banks, any state monies held on deposit with local banks could remain there, since the State Bank of California should have plenty of potential deposits without these funds. In North Dakota, local banks are not only not threatened by the BND but are actually served by it, since the BND partners with them, engaging in "participation loans" that help local banks with their capital requirements.
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.
Follow Ellen Brown on Twitter: www.twitter.com/ellenhbrown
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I can't believe that people believe this stuff. Our country is so screwed!!
According to their statistics, Californians in 2005 (the last year for which they have information available) paid in to the federal government $289.6 billion, but the state got back from the feds only $242 billion, a difference of $47.6 billion, and that is just for one, single year.
Between 1987 and 2005, inclusive, Californians paid to the federal government $3.605 trillion, but the state received back from the feds only $3.071 trillion, a difference of about $534 billion over the period.
Most of the states in the union receive more from the federal government than what they pay in, but that has not been true for California. Instead of being so quick to condemn Sacramento politicians and unions for our deficits, perhaps we should reflect on how federal budgetary and tax policies affect California's budgetary problems.
Politics and private central banking are the machinery of corruption, and those on the inside will not willingly give up their place at the trough/cookie jar. Recently Idaho lawyer Edgar Steele suggested that the guillotine in America may be the only path to pursue to reclaim our Republic (now Marxized Amerika), before the enemies do us in.
Waiting for pie-in-the-sky-by-and-by (as pushed by the religulous) is suicidal, as is the "love your enemies" nonsense, in my opinion.
Creeping Khazar Marxism has about taken over every avenue of power in the world, so there is not much time left for us to do something proactive to restore freedom in America or anywhere in the world. And it doesn't look like those speaking of help from "visitors from space" hold much credibility in this discussion, does it? Help................
the pooled money investment account is $71 million, not $71 billion.
Allow Californian 401k investors to participate in the bank with a targeted return of between 6-8 percent with the higher rate of return in a recession. This would ensure that the bank has liquidity in even the most severe recession.
The bank should run anti-cyclical to the business cycle ensuring the lowest cost for goods and services. In addition, because the bank has a drawer full of worthy projects it can predict the staffing needs and therefore the training the unemployed need to fulfill them.
To keep politicians honest the bank should have a rating agency like Moody's but based on ROI to Californians for each project.
And finally, to generate user fees and a better business environment the bank should look to invest in opportunities across industries instead of giving tax breaks because they think they know the future of a particular industry.
There are three parts of a CAFR, they are Governmental Funds, Proprietary Funds, and Fiduciary Funds.
Governmental Funds are funds which account for basic services, such as the police department, sanitation department, or the fire department. Proprietary Funds are those funds which operate in a manner similar to private businesses and collect fees for their services. Examples of these types of funds are the state lottery, state or government owned hospitals, or mass transit systems. Fiduciary Funds account for resources which are held by the government as a trustee for the benefit of others. Examples of these funds would be pension plans for government employees or sales tax collected by the state on behalf of local governments.
In order for government to use this money for some new purpose (some purposes suggested by conspiracy theorists are ending income tax or taking the money to start state owned banks to make low interest loans or just giving this money to everyone as some kind of dividend), the money will have to either be taken from some government service, such as the police or the hospitals; or taken pension funds, unemployment funds, or workers compensation funds. Now, the question of whether or not government is spending too much money on police departments, hospitals, or pensions is a policy discussion outside the scope of this essay. However, it is apparent that there are no hidden trillions in these financial statements.
NO GAMBLING
It's amazing to think how much of our own personal wealth (401k's and investments) and state/local government wealth is located in Wall St. All of the money of our country should NOT be concentrated in Wall St. where the private bankers and financiers siphon off as much as they can get away with. Instead, as Ellen Brown once again educates us, our money should be in our own local public banks, serving the public good.
As Ellen Brown states "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".
www.webofdebt.com
Reading Ellen Brown always gives me hope.
did the taxpayer really bailout Wall St. or did The Fed just create/print the $ out of thin air?
Considering that 47% of Americans don`t pay federal income taxes why do most so-called "ordinary Americans" believe that they bailed out Wall St.?
http://www.businessinsider.com/only-half-americans-actually-pay-income-tax-2010-4
Americans Love To Scream About Taxes Or Social Support, But Only Half Are Actually Paying Income Tax
Is it bc of the way Wash frames the argument? Or how the mass media just runs w the spoon-fed story handed out by Wash and thereafter manufactures a class-warfare argument?
Finally, since most Americans are financially illiterate it`s amusing to read post after post of people offering up rediculous opinions (based on emotion and visceral feelings rather than on knowledge/fact about GS, Wall St., derivatives (what`s that?), CDO`s, SIV`s, shorting (Paulson betting against the housing mkt and making $15B for his firm: how unpatriotic, some say), bailouts, etc.
Most Americans Are Clueless About Economics and Markets
The New American - Beverly K. Eakman - May 4, 2010
It is dangerous to confuse economics and finance. As we are learning (once again), the ability to make the numbers come out right for (wholly owned) auditors has nothing to do with actually creating wealth. Actually, it is probably at odds with it. Financial capitalism is a far more serious threat to real capitalism than Communism, socialism or Russian Bolshevism ever thought of being. It is not necessary to understand derivatives, CDO`s, SIV`s, shorting, etc to understand whether an economic system is working or not. Money doesn't create wealth; people do. And when they are not allowed to do it, the POLITICAL economic system is NOT working!
Hyman Minsky is Wall Street's darling right now, not for some of his more 'radical' suggestions about curbing its rapaciousness but for his analysis suggesting that as long as we want to play numbers games that allow bankers and big money to continue racking up nominal profits governments should continue piling up big deficits - and the banking and finance sectors of the economy should continue being exempted from the rules of capitalism and the marketplace.
The truth is that science and technology - some would say pushed and prodded by capitalism and free markets - long ago reached the stage where it could provide 'enough' for everyone if its creative forces had been confined to that objective instead of in pursuit of global domination with the 20th century’s world wars and the 21st century’s bogus ‘Wars on Terror’.
The State shops around until it can find a bank willing to do this. There will be a bank somewhere that will agree.
It is a different matter when banks pay interest to people who monetise assets. That interest is justified and it is justified to charge a differential between money lent and money created by monetising an asset because the asset may not be worth what it was said to be worth if the loan is not repaid and the asset had to be sold.
When money is created to monetise a future asset then interest is not the best way to cover the risk. A better way is to ask for more money back in total if there is a risk it will not be repaid.
Let’s look at the CAFR data.
California claims they need this money for retirement benefits. Let’s check that story. The CAFR data shows current member contribution pays for all retiree benefits except for $1.8 billion. If the state of California surrendered their $350 billion in investments back to the public, each Californian would receive $10,000 and would be taxed $50 each to make-up for the $1.8 billion retirement shortfall. If you combine all of California’s ~10,000 government agencies’ CAFRs, the combined total according to Walter Burien through sampling is $8 trillion. Let’s say it’s only $3.5 trillion. If that was returned to the public, each Californian would receive $100,000.
Obviously, we need independent auditing of all state CAFRs and independent economic cost-benefit analyses to make our choices clear of how the public benefit is best served. Operating with a communist-style Big Brother lording of our money while claiming a $20 billion dollar budget deficit, cutting essential public services, and never reminding the public of the billions and trillions of our money in CAFRs is among the worst choices imaginable.
Can you please point us to some reference for this $3.5 to 8 trillion figure for the CAFRs? The original post use the figure of $70 billion. Given that there are only about $10 trillion of bank deposits in the U.S., it would be wonderful to know where even a fraction of this miraculous pot of gold is hiding..........
Look-up Walter Burien's CAFR info; he doesn't cite the $8 trillion but says this is from his sampling of the 14,000 different government CAFRs in CA. Just the CA data is enough to cry-out for comprehensive and independent audit; and independent cost-benefit analysis for taxpayers to consider our choices other than surrendering our assets to Big Brother.
Your book, Web of Debt, is absolutely fascinating and sheds a clear light on America's financial history (and thus political and economical, and partly global), and is so well wrought that anyone, even if they have no financial background can easily grasp the concepts and comprehend our current global situation and see solutions clearer. I recommend anyone worried with current affairs should read it and keep it on their bedside table.
The idea of virtually giving our monies to private banks so they can speculate, play the spread with treasuries for which we have to pay them interest for creating/using our money, then charge us exorbitant rates on municipals when we could, with state creation of money and credit eliminate the "masters of the universe" bond dealers who own the "Fed", we would be far better off. Lastly, we can un-elect every 2-4 years those state politicians who abuse the system, something we cannot do with a private central bank cartel and their rotten-debt-money system leading inevitably to bankruptcy for state and nation.
I can't understand why more Americans don't understand these very simple concepts. Why don't they understand that we are paying interest on every dollar in our wallets. We are paying interest to private, super rich, non-Americans who laugh at us for being so gullible and in most instances stuuuupiid.
Dr. Ellen Brown is a genius. She takes the most complex and arcane concepts and makes them understandable to the laymen. I can see why the Federal Reserve tried to suppress publication and sale of her book www.webofdebt.com. They also tried to get it banned on Amazon.
Thank you Dr. Brown, were it not for you many of us would pass through this life believing we had no other alternative to higher taxes and budget cuts. Your alternative economic philosophy needs to become mainstream, and soon.
What is so hard to understand about the fact that the author of this piece has completely misrepresented the CAFR.
There is no secret stash of government money, that money that you want to seize and use to start a bank is the money that the government uses to do things like have a police department, run mass transit systems, and run the fire department.
Sure, we could sell off every single government asset and use it to create a bank, but that would literally turn the state into anarchy. There would be no one doing things like repairing roads, fighting fires, etc. Even if people wanted to volunteer to do this stuff, all the equipment would have been sold off!!!
Her economic philosophy is mainstream in Somalia, maybe you should visit there and report back how it is working out!