Who exactly is to blame for what future historians will cause the 2008 financial crisis?  There is no shortage of answers to this question, just as there is no shortage of questions about how we will get out of the crisis.  But one thing that everyone agrees on is that we need more transparency and more effective regulation (not necessarily more regulation)  in the financial industry.  But if really expect our private corporations to have better transparency, shouldn’t we expect the same from our government?


In a previous article, I reported on the rampant deception in the US Government accounting practices.  The US government accounting standards are so morphed, they have even fooled CNN into thinking we are much better off then we actually are.  The deception goes far beyond the national government, and extends to state and local government as well.  In Washington state, for example, we have political campaign advertisements based on erroneous information related to the fiscal state of Washington.  It’s not entirely surprising, given the chaotic accounting and reporting methods employed by the state of Washington, and other municipalities.  And California is even worse.   I would challenge California treasurer Bill Lockyer to accurately answer questions related to the budget of California.  I’ve studied the Califronia treasury reports, and the numbers are anything but straight forward.

As of September 1, 2008, the total outstanding debt of California state is $57.610 billion, according to this California treasury website link.   But the total debt is $65.398 billion, according to this other California treasury website link.  I called the California treasury office for an explanation, and their response was the following:

The total amount of debt is 57.610 billion.  The other figure included lease revenue debt which is not a part of the GO debt.  Lease Rev debt is paid with lease revenue.

I’m not entirely sure what type of lease revenue they are referring to, but I’ll just let this one go for now.  What about the yearly trend of California’s state debt, determined by their total outstanding and unpaid bonds?  Unfortunately, California makes this question very difficult to answer, but the short term trend can be determined by trudging through the Treasurer’s Debt affordability reports, one by one.  Unfortunately, there is no rhyme or reason to these reports; each one uses a completely different template, a different set of headings, and obscures the total debt in an entirely different section.  Here are the results, as of July 1st of each year listed:

Just how bad is the fiscal situation in California and the trend of increasing debt?  It was bad enough that California issued an emergency request for a $7 billion dollar loan from the federal government, because the market for its own bonds was drying up due to the increased risk.  California had $96.38 billion in general fund revenue for the 2007-2008 fiscal year, which gives them a debt to income ratio of over 60%.  But California prefers to use the less realistic and less shocking measurement of measuring only the yearly interest payments ($4.42 billion) of their debt as a percentage of their revenue, which came to 4.92%.

California prefers to blame their current financial woes on the rating agencies, and not their own economic policies that got them into the mess they currently face.  The 2008 debt affordability report is worth reading cover to cover for hints on their reckless spending, and blame game.  One noteworthy excerpt from the report follow below.

Letter to rating agencies – This letter to the rating agencies appears in the appendix of the 2008 debt affordability report.

We, the undersigned representatives of major municipal bond issuers, urge the rating agencies you head to create new rating standards for U.S. municipal debt. For years, municipalities have been held to a higher standard than corporate issuers…  For investors, the current system greatly inflates the risk of investing in municipal bonds relative to alternative investments, leading to investment decisions that are not based on the best information…

I can’t decide if I should laugh or cry about municipalities being held to a higher standard than corporate issuers.  For all the financial problems being exposed in private corporations, at least they are held to reasonable accounting practices (GAAP), something municipalities have never embraced!

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