What is Going on in Illinois?

The following quotation is sourced directly from the SEC web pages and here is the reference: http://www.sec.gov/spotlight/municipalsecurities.shtml

“The municipal securities market touches almost every aspect of our lives. The water we drink, the roads we travel, and our schools and hospitals are typically financed by municipal bonds.

Despite its vital role as an important and omnipresent sector of the U.S. capital market, the municipal securities market is subject to limited regulatory oversight. Investors in municipal securities lack many of the protections afforded to investors in public companies and other sectors of our financial markets.”

Our readers will recall that TheFundamentals published an article recently suggesting that something was going on in the state of Illinois because there would no other apparent explanation for their lame duck legislative session to force through a huge increase in personal and business income taxes with little or no effort to cut spending. (See: TheFundamentals, “Illinois Chooses Self Destruction,” January 13, 2011.)

Since then, two of our supporters/readers have notified us that there indeed is something going on in Illinois.

What on earth are the foolish politicians and the equally promiscuous bureaucrats doing in Illinois? Why on earth is there not a screaming outcry from the national media over these news reports? What are the feds, who scrutinize every line of our tax filings with sophisticated computer programs, doing when states like Illinois borrow hundreds of millions of dollars and they neither can balance their budgets nor anticipate how they will meet their debt obligations? The question is remarkably simple, “Should a borrowing government fully disclose its financial condition including its contingent liabilities and should an independent auditor opine whether those statements are reasonable and accurate?"   If we, the people, sign a bank loan request form that includes false information, we are subject to criminal penalty. Why shouldn’t the same be true of municipal officials borrowing hundreds of millions of dollars?

Wall Street Journal, January 25, 2011: Illinois Confirms Inquiry by SEC http://online.wsj.com/article/SB10001424052748703555804576102872492651318.html?mod=WSJ_WSJ_US_News_5

Who doesn’t know that Illinois is not funding its outrageous pension obligations to retired state employees? Please hold up your hand if you think Illinois is solvent!

Here’s more on the same topic: Another Thorn in the Side of Illinois: The SEC
http://blogs.wsj.com/law/2011/01/25/another-thorn-in-the-side-of-illinois-the-sec/

Read this article: New Hit to Strapped States http://online.wsj.com/article/SB10001424052748704307404576080322679942138.html

What is going on with these states? Why is there not an outcry from Obama and Geithner and Bernanke about the need for these states to not only get their finances in order but they must disclose accurately their true; their real financial condition? Where the heck are the political leaders? Is this another example of the SEC and its head in the sand approach to Bernard Madoff? Is this the way elected leaders fulfill their obligation to protect investors and bond buyers? Does anyone else get the impression that we live in a dual legal system country? One set of laws for private individuals and businesses that are enforced with some consistency and, when desirable, a great deal of publicity and notoriety. And a second very loose, very subjective application of the same rules and laws to public officials. Are we, at TheFundamentals, just paranoid? Or is there little or no application of law to the activities of governments? Why can a state issue bonds based on incomplete or inaccurate disclosure and not face any legal or regulatory consequences?

Two more things with respect to Illinois.  They just had an election.  We don't recall the incumbents addressing the investigations that were already underway during their campaigns for reelection?  What do you think would happen to a public company that didn't disclose such an event?  Illinois also has a requirement in its constitution to balance its budget.  Which courts are enforcing this constitutional provision?  Where are the court rulings on this matter?

The solution is fairly simple. A US constitutional amendment that clearly states that any law, tax, rule or practice imposed by any government entity in the United States on the people is equally applicable to the imposing government entity and that any elected representatives and person employed directly or indirectly by that entity are similarly subject to all rules, laws, taxes and practices imposed by such entity on its people.

Good for the goose; good for the gander. It’s simple. It’s a fundamental!