Broke states stealing money
Remember the $2.5 billion that state governments won/extorted from the big banks because of abuses in their mortgage and foreclosure processes?
You know, the $2.5 billion that was supposed to be used to help those same said troubled homeowners.
Now that the states have the money, guess where it isn’t going—to the needy homeowners the states said they were defending. Courtesy of the New York Times, “Needy States Use Housing Aid Cash to Plug Budgets”:
Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.
In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nation’s biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the state’s debts.
In fact, only 27 states said they would spend most of the money on housing-related programs. Fifteen states have admitted the money will be spent on whatever they want.
On the positive side, spending the money to prop up the housing market and keep people in homes they cannot afford is a waste of money. However, giving the money to college students getting useless degrees (and pushing up tuition costs) and financing unsustainable government programs (that will have to be cut anyway) is also a waste of money.
America has still not come to grips with the fact that it is living beyond its means—and that its debt-based economy can no longer support its economy.
But even if America hasn’t come to grips yet, its most notorious investment bank, Goldman Sachs, has. Here is how it directed its clients (released today) to profit from America’s impending economic woes (hat tip ZeroHedge):
We are recommending a short position in the U.S. Consumer Discretionary sector, with a target of a -6 percent move … following today’s disappointing Philly Fed reading, which fell well short of expectations and suggests that activity may be slowing further in May. Our advanced reading of the gli showed that monthly growth … continues to slip.
In other words: Bet against anything that has to do with consumer spending, because consumers are going to have to tighten their belts. If true, that means if we are not currently, America will soon be in recession again.
Read Lamentations: The Point of No Return for a Bible-based prognosis on America’s future.