The Hedgehog and the Fox

The fox knows many things,
but the hedgehog knows
one big thing.

We are reminded constantly these days of the unholy trinity of ills facing California and Claremont finances: the cliff we are facing with reduced property tax revenues, the looming specter of the State pension system used by the City making a large capital call--probably in a few months, and less discussed, the probable large reduction in California income tax receipts due to reduced incomes and disappeared capital gains. We discussed two of these in our last post.

These three factors, the recent election in Claremont, and an article in Thursday's New York Times, crystallized some thoughts about how Claremont may plan to deal with the current situation--the old shell game.

Political junkies may remember these bits from the Claremont Courier endorsement of Larry Schroeder on February 21st (not online):

Mr. Schroeder served as Finance Director for the cities of Glendora and Lakewood for over 25 years. His finance background will undoubtedly help the city as it struggles over the next few years...
...He offered an original solution for using the transportation funds allotted to the [Village Trolley].

"Now I know the city of Commerce is in need of transportation funds," he explained. "For our dollar, we could have received roughly 75 cents back which would go into the general fund."

Unlike earmarked transportation money, cash in the general fund can be used at the council's discretion. For things like balancing the budget, replenishing our depleted fund reserves and securing more open space; the list goes on and on.

Was this option ever presented to the city council by our city staff? If it was, would we have a mostly empty trolley trucking around the Village today?

This type of innovative thinking is what our city will need over the next few years as we ride out the economic crisis.
Before the election we wondered where then-Community Services Commission-member Schroeder had been a year ago when the trolley matter came up. You'd think he could've at least offered the idea for discussion. However, we submit that there are too many foxes like Larry Schroeder running city and state government, and too few hedgehogs.

These kinds of things: derivatives, credit default swaps, securitization, tranches and baskets--they are seductive to people who are not as as smart as they want to be and who are looking for some painless way to paper over reality and to avoid a real reckoning. People like this--too many down at City Hall--are the natural prey of the modern snake-oil salesforce for these nostrums.

This is exactly the too-clever-by-half type of dealing that got us into this mess, the kind of Seductive Something for Nothing that has been the governing and action principle of a generation of city and state leaders (and national leaders, who additionally have the ability to print money).

These tricky scams have to be beat down one by one since there are more people engaged in thinking them up than are involved in the productive activity of putting money in the bank honestly. We need more hedgehogs, and many fewer foxes.

Thus, in this era of change we can believe in, it was of more than passing interest to see this headline back on page A14 of Thursday's New York Times, following up on an issue first raised in the San Gabriel Valley Tribune in an article by Alfred Lee:

"Cities' Plans to Swap Cash for Stimulus are Stopped"

The article, linked here, and well worth your time, gives the Feds' very low opinion of just the kind of "Money for Nothin'" swap plan Schroeder was peddling before the election, this particular one contrived by the green-eyeshade Madoff-crazed policy wonks at the Metropolitan Transit Authority, the people who brought you no Gold Line:
...that is essentially what several cities in Los Angeles County planned to do with federal stimulus money, until the local transportation authority, its face slightly reddened, pulled the plug on the plans. A spokeswoman for the House Committee on Transportation and Infrastructure said Wednesday that the swaps would be illegal.
By the way, it's interesting to read in the article that the value of federal money dropped in the bidding wars held before the boom got lowered on Wednesday. Rather than the 75 cents Larry Schroeder was pimping, the stimulus transportation money only brought 62 cents on the dollar. After encouraging LA County cities to do the swaps in a letter last week, the MTA sent another letter on Wednesday, advising, "never mind".

If we can get copies of the two MTA letters, the first authorizing the swaps and the second stopping them, we will post. We think those are important documents. The embarrassed flaks at MTA are putting it all down to a misunderstanding, semantics. And there is nothing about it apparent at this writing on the MTA website.

Kudos for San Gabriel Valley Tribune reporter Alfred Lee for writing the original article on Monday, March 9, revealing this questionable activity. The ripples from this article have gotten national legs. And we must acknowledge the late Isaiah Berlin for bringing to everyone's attention his own comparisons between the hedgehog and the fox.