Chicago May Follow Detroit Into Bankruptcy and Illinois Is Not Far Behind

URL and to post comments: http://dollarvigilante.com/blog/2014/5/2/after-chicago-the-deluge.html Friday,May 02, 2014 [Editor’s Note: The following post is by TDV contributor, Wendy McElroy] Chicago dances on the edge of a fiscal cliff.  It is the third largest city in the US with a population of 2,714,856 as of mid-2012. It is the economic engine of Illinois. If Chicago falls, especially into bankruptcy, then the entire state is likely to do so as well. Illinois won’t declare bankruptcy because federal law prohibits the option. But insolvency would raise many of the same questions as bankruptcy. For example, who gets paid first, or at all? And how much on the dollar? If other cities stumble, as they would, then whether Illinois officially declares bankruptcy may be a matter of semantics. The fiscal land mine of Chicago     In early March, Moody’s Investors Service downgraded Chicago's credit rating from A3 to Baa1. The rating is just three rungs above “junk-bond.” With the exception of Detroit, Chicago now has the worst credit rating of any large US city. The reason cited by Moody's: unfunded pension liabilities for city employees.  A March 7thWall Street Journal article announced that Chicago's 2015 balloon payment on its $19.4 billion pension debt will be $1.07 billion. The payment is one-third of Chicago's entire operating budget. According to WSJ, “The pension payment could cover salaries for 4,300 police officers or the resurfacing of 16,000 blocks of roads in the city... Meantime, the required pension contribution for Chicago schools this year is tripling to $613 million... Chicago's pension funds are only half as well-funded as even Detroit's, if you can believe it, and could run dry by 2020.” The pension shortfall amounts to $7,100 per Chicagoan. Moody's is threatening another downgrade unless Chicago 'fixes' the pension fiasco; a lower rating would mean higher interest on the city's debt. There are two ways out: cut expenses or raise revenues. Cutting expenses means cutting jobs or reducing benefits, or both. The average city employee receives wages and benefits that the average private worker only dreams about. The watchdog Illinois Policy Institute reported that “teachers who retired between July 1, 2011, and June 30, 2012, after 30 or more years on the job could expect starting average annual benefit payments of $72,693… After 10 years of cost-of-living adjustments, this pension is $97,693 annually.” Job and benefit reductions are rigidly opposed by public sector unions, especially by the power-wielding teachers' union. Union support makes or breaks political careers in Illinois. That means the legislators who set the pensions through Illinois law are not likely to take the political risk of reducing them; they face an election in November and Democrats would like to maintain their current two house super-majority. It means Chicago Mayor Rahm Emanuel who could cut jobs is reluctant to do so; he is up for re-election in February. Politicians are more likely to bleed taxpayers and investors instead. Raising revenues is what remains. On March 12th, Breitbart ran the headline, “Mayor Rahm Emanuel Warns of Doubled Property Taxes to Fund Spiraling Pension Costs.” Emanuel added, “if something else isn't done.” A variety of “something else” has already been tried; the situation gets worse. For example, in February, Chicago's city council approved a $500 million issuance of commercial paper and $900 million of general-obligation bonds. TheWSJ article commented, "There's little to stop politicians from pouring the proceeds into pensions – or later reneging on this unsecured debt if it were to file for bankruptcy." There is precedent; Detroit intends to repay similar bonds at 20 cents on the dollar. As Chicago goes, so goes Illinois Chicago is only one of many cash-strapped cities in Illinois, which are choking on their pension liabilities. According to an Illinois Policy Institute report the capital city of Springfield now dedicates all property taxes to pay the pensions of police, teachers and other city workers; and that after slashing its police department by almost 15 percent. Other cities are raising taxes. Peoria, for example, added new water and utility taxes, and doubled its garbage fees. Quite apart from the cities of Illinois, there is the state as a whole. A February 8th, 2013 article in Business Insider explained, “Illinois's five state-level pensions...report current accrued liabilities at $146 billion, but the state has set aside only $63 billion to cover future benefits... [T]he $83 billion shortfall in unfunded liabilities leaves the state’s pensions only 43% funded, on average. Unfortunately, the real numbers are far worse.”  (Note: those official estimates are a year old and the situation worsens daily.) Moody's recently adopted a new methodology by which to assess debt and risk. When it “discounts future liabilities using the more reasonable rate of return on high-grade corporate bonds (about 4% today), current accrued liabilities tally to more like $272 billion. These figures drop the official 43% funding ratio to only 24%.”This means  Illinois has the most underfunded pension system in America. Dividing the total liabilities by the number of Illinois residents, every person is liable for $22,294. Illinois tops various other lists as the worst state in the Union, or close to it. Illinois' dubious distinctions include: the fastest growth of any state in food stamp recipients ( June 2013); 5th in foreclosures. 1 in 811 housing units received a filing (Feb. 2014); 4 of its last 7 governors were convicted and imprisoned; it has the 3rd highest unemployment rate, 8.9 percent (Jan. 2014); it has the 4th most regressive tax system (Jan. 2013); its sum total state corporate income tax is 9.5% (2013). Illinois: Run Far, Run Fast According to Forbes (Feb. 8, 2013), “Most of the top-10 states people are leaving are located in the Northeast and Great Lakes regions, including Illinois (60%), New York (58%), Michigan (58%), Maine (56%), Connecticut (56%) and Wisconsin (55%).” Illinois is first in the raw numbers of people leaving and second to New Jersey in the ratio of those leaving to total population. This ranking occurred in 2012 as well. Southern and western states are the most popular destinations for a variety of reasons including greater economic opportunity and personal freedom, lower taxes and better climate. But those leaving should ask themselves: is anywhere in the US far enough away from Chicago if the city and then the state collapse financially? Taxpayers United President Jim Tobin predicts, ““Illinois will be the first state to go bankrupt, unless pension reforms are implemented.” Only it cannot legally declare bankruptcy and escape its debts. Whatever will happen, Tobin believes will occur sometime about 2015. Whatever the timing, whichever patches are slapped on the system, Chicago's economic meltdown would effect not only Illinois but all of America. Chicago is also the economic engine of the MidWest. The federal government is unlikely to abandon an entire region, especially one dominated by Democrats. Obama is unlikely to abandon Chicago as long as Emanuel, his former White House Head of Staff and close friend, is mayor. What does “unlikely to abandon” mean in specific terms? Probably bailouts, in some form. The flood of money and legal privilege will be a further drag on those islands of opportunity to which economic refugees have fled. Other cities teetering on the same fiscal cliff will fall. It is an exaggeration, but not an outrageous one, to say: as Chicago goes, so goes America.  In any case, if something else isn't done, Mayor Emanuel is warning that he'll have to double property taxes to fund the payment. The municipal pension fund isn't the only pension in failure in Chicago. The city's teachers' pensions are also widely understood to be one of the worst funded in the country. The teachers' pension fund will require a tripling of its required contribution. Michael Pagano, dean of the College of Urban Planning and Public Affairs at the University of Illinois at Chicago, though, warns that just raising taxes and cutting services won't fix the problem. "I don't think either one is even a possibility. Everybody's going to have to give something," Pagano said in December. Meanwhile, the State of Illinois already comes in at second place in the number of citizens moving out of state. Outward migration for The Land of Lincoln ranked second only to New Jersey in 2013.

Wendy McElroy is a regular contributor to the Dollar Vigilante, and a renowned individualist anarchist and individualist feminist. She was a co-founder along with Carl Watner and George H. Smith of The Voluntaryist in 1982, and is the author/editor of twelve books, the latest of which is "The Art of Being Free".

Is Obama Thinking About A Third Or Fourth Term? Very Possibly!

Tuesday,February 11, 2014

[Editor’s Note: The following post is by TDV contributor, Wendy McElroy]

What do you call a President who can choose which laws to enforce and how, a leader who can create new laws with the stroke of a pen? A dictator. Some would say a king.

Obama has denied both claims. In 2013, he told CNN Chief White House Correspondent Jessica Yellin, “I am not a dictator, I’m the president.” By this he meant he could not bypass Congress to unilaterally impose his will. In a 2013 interview with the Hispanic network Univision, Obama explained his immigration policy with the words, “I think it’s important to remind everybody that, what I’ve said previously, I am not a king.” A president who persistently denies being a dictator or a king is worrisome. It is like a stranger who tells you, “I am not a thief.” It makes you wonder why the question arises.

It arises because Obama has both ignored laws and created them despite Congressional protest. And, in last month's State of the Union address, he declared an intention to speed up the process. Obama stated, “America does not stand still and neither will I. So wherever and whenever I can take steps without legislation...that's what I'm going to do.” Translation: he will use a myriad of executive means to assume the legislative powers of Congress. It will be rule of the executive, by the executive, for the executive.

In the past, Obama has blithely ignored the Constitution, Congress and statute law in order to impose his own widesweeping policies. In June 2012, for example, he bypassed a rebellious Congress to impose an immigration policy that won him crucial support from Hispanics for his re-election bid. The New York Times (June 16, 2012) explained the impact that executive directive had on up to 800,000 illegals, “Under the change, the Department of Homeland Security” would no longer deport those who entered the US “before age 16” who met other specified criteria. Congress had pointedly refused to enact that immigration change.

More recently, Obama has unilaterally rewritten key aspects of the Affordable Care Act (Obamacare). He has done so even though Obamacare is existing law and duly approved by Congress. He has done so even though Congress must approve all changes. And his method of altering the law has sometimes been cavalier. For example, through a Treasury Dept. blog post in July 2013, the Obama administration announced “it will provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.” That's illegal on its face.

The issue is not whether established laws deserve respect or compliance; most don't. The issue is not whether the current political structure of America should be preserved; it shouldn't. What's happening is a dramatic shift in power between the three branches of American government so that one-man rule is becoming the reality. In his last term as President, Obama will try to cement the Presidency into a dictatorship under another name.

One formidable barrier against his power remains. The Constitution specifies that spending bills must originate in the House of Representatives. That's why recent warfare between the House and the President, the Republicans and Democrats has revolved around budget issues. If Obama can bypass the Constitutional requirement, then nothing obstructs his path.

Executive authority and a competing Congress

Article 1, section 7 of the Constitution states, “All bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.”

The House’s monopoly on raising revenue was designed to be a powerful brake upon the executive. The president can sign executive orders and create executive agencies (like the Department of Education) with administrative policies that regulate the minutiae of society. Without funding, however, the measures and agencies falter.

Unfortunately, there is some legal grounds upon which Obama could challenge the authority of Congress over revenue bills. Section 4 of the Fourteenth Amendment (1868) reads, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” This Reconstruction amendment was adopted in the wake of the Civil War (1861–1865) in order to guarantee Union loans while repudiating Confederate debt. Nevertheless, the United States Supreme Court later ruled that the section’s language had broader application. How broad? Constitutional attorneys point out that the section refers to honoring current debt, not to creating new debt. But during a national emergency, when the president assumes extraordinary powers, will anyone make that distinction, or care about it?

Section 4 was undoubtedly what ex-president Clinton referred to during the 2011 debt-ceiling crisis. According to theNew York Times (July 25, 2011) Clinton had “identified a constitutional escape hatch” for Obama: the Fourteenth Amendment. If he were still president, Clinton claimed he would invoke the amendment “without hesitation” and “force the courts to stop me.” Courts are slow; an executive order goes into force almost immediately. Thus, even if the Supreme Court ruled against an executive order, political realities would favor it.

Obama's chances of grasping control are enhanced by the current Democratic strategy of weakening the Supreme Court through “popular” or “democratic” constitutionalism. An essay entitled “Popular Constitutionalism and Relaxing the Dead Hand: Can the People Be Trusted?” by law professor Todd E. Pettys offers a general sense of the approach. “Popular constitutionalists argue that the American people, not the courts, hold the ultimate authority to interpret the Constitution’s many open-ended provisions.” In other words, if Obama violates the Constitution's budgetary restrictions, he should answer to the American people – perhaps through a vote – rather than be overruled by the Supreme Court.

Can Obama's executive onslaught be stopped?

The honest answer is “no one knows.” But Obama's power is now so great that some question whether his current stint in office will be his last term. The iconoclastic financial advisor, Zero Hedge commented, “So how long until the Economist-In-Chief extends presidential term limits with executive order.” This is an improbable scenario but not impossible.

The improbability: after Franklin D. Roosevelt won a successive four terms as president, the Twenty-Second Amendment to the Constitution was passed. The relevant passage states, “No person shall be elected to the office of the President more than twice.” To seek a third term,Obama would need to repeal the Amendment or to nullify it in some manner, such as through “popular constitutionalism.”

Nevertheless, rumors of a third run are spurred on by increasing discussion of the possibility. For example, the Washington Post ran an op-ed entitled “End presidential term limits.” A House Judicial Committee hearing on Presidential Constitutional Violations was held in December 2013. Republican Congressman Trey Gowdy pointed out to the committee that Obama violated other laws and Constitutional requirements; why wouldn't he violate election laws?

A third-term run remains unlikely. But, significantly, opinion and law makers are speculating about it. It defies credibility to believe that Obama is not among them.

Detroit The Lucky One?

Wednesday,February 05, 2014

[Editor’s Note: The following post is by TDV contributor, Wendy McElroy]

Who knew Detroit is the lucky one by being forced into Chapter 9 bankruptcy?

The majority of Scranton, Pennsylvania's remaining 76,000 residents want to declare Chapter 9, and they want it yesterday. Bob Quinn, president of the Scranton and Lackawanna County Taxpayers Association explains, “The silent majority would like to see bankruptcy. Basically, it’s down to a point where people cannot afford to pay the taxes and are moving out of town.”

In a Reuters article (August 23, 2013), financial analyst Cate Long explained a key reason taxpayers were fleeing Scranton. The city's unfunded “pension benefit obligation...is $113 million, or more than a full year of revenues....This is coupled with $21 million of accrued worker’s compensation claims, $177 million in long term debt and $225 million of unfunded future retiree health care costs. This adds up to about $536 million of future liabilities...”

Bankruptcy is attractive to taxpayers because it offers a partial exit strategy by reducing public sector pensions and other benefits. But public sector unions have a death grip on the power politics of many, if not most, American cities.

What happened in Scranton should be a cautionary tale. Similar battles are erupting across the continent – from Stockton, California in the West to Heartland cities like Pittsburgh and to Trenton, New Jersey in the East. The reason is the same. The enormous unfunded liability of public sector wages and benefits makes taxes and fees soar even as government 'services', like garbage collection and street lights, decline. People flee if they can. But property values plummet, and so many must endure. This is especially true of Scranton in which an unusual number of residents are elderly and on fixed incomes.

HOW SCRANTON BECAME A BOTTOMLESS PIT

Scranton has been off the financial rails for over 20 years. In January 1992, it joined the dozens of other Pennsylvania towns that are now declared to be “financially distressed” under Act 47 (The Financially Distressed Municipalities Act). Among the advantages it confers, the designation means revenue from nonresident taxpayers became available; instead of cutting back city expenditures, tax-money was imported into the city and poured out.

That wasn't enough, so Scranton hiked its own taxes...again and again. But that still wasn't enough to fund the public sector liability, to pay interest on debt and to continue basic city services.

That's why Chris Doherty, who was mayor of Scranton in 2012, proposed hefty new taxes on the private sector. For example, he wanted a 78 percent property-tax increase over three years. The Scranton city council rebelled. Its President Janet Evans placed the blame for the proposed increases on "Mayor Doherty's unbridled spending, borrowing and financial mismanagement." Doherty did not react well. A four-way conflict spun out of control between the mayor, city officials, public sector unions and the incredibly stressed taxpayer.

But something had to be done. The city had $133,000 in cash-on-hand and $3.4 million in vendor bills, including health insurance for public employees and pensioners. The cash could have covered one day of municipal expenses but only if payroll was excluded. Doherty cut every city worker's salary to minimum wage – $7.25 an hour. It was a rash gesture in which Doherty ignored a federal judge’s injunction that had barred him from imposing the pay cuts. The push-back was powerful. Doherty blinked. And, lest anyone make a private-sector hero out of a politician, Doherty almost immediately sought a $16 million loan from the public employees' pension fund, which the municipality (aka the taxpayer) would have paid back at 8 percent interest over 10 years.

Fast forward to 2014, and Doherty is out. A new mayor faces a $20+million deficit. In November 2013, Moody's threatened to cut Scranton's rating, which would weaken its ability to borrow more or to issue municipal bonds. The solution? Moody's recommendation was bankruptcy. Scranton made a different choice; its 2014 budget hikes taxes into the stratosphere. Property taxes and trash fees increase by almost 60%; rental registration fees tripled; the school district hiked taxes 2.4% to cover a $4-million deficit. With a 5% amusement tax already imposed on live entertainment, a 10% drink tax is being considered.

A Los Angeles Times article (Jan. 11, 2014) entitled "For Scranton residents, bankruptcy is an inviting option” explains the impact of what may seem to be a modest increase in taxes. “Bar owner Mert Gavin says...'I am one of the last two bars that's still downtown. Tink's is gone. Whistle's is gone, Banshee's is gone, Molly Brannigan's is gone,' said Gavin, who runs Mert's. 'Do they expect I'm going to bail the city of Scranton out myself'?"

Politicians and public sector workers probably think precisely that. The private sector can be drained forever, as history has proven. But, in this case, the past is not prelude. The state's foremost public policy research firm Pennsylvania Economy League (PEL) advised the mayor and the city council Scranton would need a 117% tax hike to close the budget deficit. The city plans a 50% hike in 2014 and is rumored to be eying a 125% one in 2015. The Reuters August 23rd article reported “the median household income was $28,805 in 2011.” The “median total compensation for a police officer (public sector union) was $71,250.” The well is dry.

Meanwhile, Council President Evans maintains, “We are in a different situation than Detroit. We were willing and able to do everything within the scope of our authority to continue the recovery of the city of Scranton until it sits once again on sound financial ground.” It is the willingness and ability of politicians “to do everything within the scope of our authority” that has the residents of Scranton on life support.

But Evans is correct about one thing; Scranton's situation is different than Detroit's. As financial guru Mike Shedlockexplained, “Detroit is better off. In bankruptcy, Detroit has a chance to dump union contracts and onerous pension promises. Detroit may have hit bottom. The union controlled politicians in Scranton are going to extract every ounce of blood they can from taxpayers, then eventually declare bankruptcy anyway.” 

Interesting Prognostications! Do You Agree With Her?

Thursday,January 09, 2014

[Editor’s Note: The following post is by TDV contributor, Wendy McElroy]

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness...it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us...” — Charles Dickens, A Tale of Two Cities

I cannot shake a sticky feeling of optimism about 2014. 

It rose in me for the strangest reason yesterday. CNN was providing background noise when a term caught my ear: bug-out bag. This is a portable kit of the items you need to survive for seventy-two hours. The Red Cross suggests keeping one on hand in case it is necessary to quickly evacuate your home due to a disaster. But the term “bug-out-bag” is most often associated with survivalist “cranks” who are prepping for when the SHTF (sh** hits the fan) – that is, they are preparing for an economic and social collapse.

CNN was discussing bug-out bags because the respected financial guru, David John Marotta had advised his wealthy clients to prepare one against “the possibility of a precipitous decline.” In short, he warned against a collapse from which city-dwelling clients should flee. Marotta wrote, “Firearms are the last item on the list, but they are on the list.”  The broadcasters seemed dumbfounded by the words coming out of their own mouths. They hastily assured listeners that Marotta was not predicting a financial apocalypse. Rather he thought a slow European-style decline was more likely. That's the reassuring news?

Well, actually it is. “Slow” means there is still time to make preparations. And if figures like Marotta are recommending “prepping,” then the reality of the economic situation is going mainstream.   

To make preparations, however, it is useful to have a sense of what to expect. This leads directly to my predictions for 2014, which I introduce by three cavaets. First, predictions are a territory into which financial guru Doug Casey says people should not wander if they intend to include an event and a time; I recklessly include both. Second, predictions should be vagued up in a manner perfected by psychics who proclaim “you will meet a stranger...”; I offer specifics. Third, the next year will be volatile and largely defined by unintended consequences and unexpected reactions; 2014 is not the raw material required for accurate predictions. 

And, yet, there are specific events that I think are more likely than not to occur within the next twelve months. 2014 is likely to resemble the opening sentence  of Dickens' Tale of Two Cities. It will be a wild mixture of both the best and the worst of times. The ratio of good to bad that impacts people's lives depends largely on whether they are ready to embrace the best and marginalize the worst. Happiness and liberty are similar to luck; they tend to favor the prepared. 

30 Possibilities For 2014:

Here are some of the “best of times” that I expect in 2014:

1. More individuals wake up and take control of their lives (a large rise in subscribers recently at TDVshows this)
2. Snowden continues to make opposing the state look trendy.
3. Libertarianism swells in popularity as evidenced by media attacks.
4. Biotech 'miracles', including reversal of aging, edge toward being real.
5. Ditto on tech breakthroughs, including robots and self-driving cars.
6. 3D printing creates a cornucopia of cheap and accessible goods.
7. The correction in gold prices ends.
8. More states legalize marijuana; a crack in the drug war spreads.
9. Bitcoins stabilize and are more accepted by the mainstream.
10. Republicans win the House but not the Senate; bipartanship deepens.
11. Virgin Galactic begins space tourism flights in Aug. 2014, on schedule.
12. US$ fades as the world's reserve currency; Yuan fills void.
13. Use of cash increases due to concern over ID theft, privacy.
14. Supreme Court rules against Obamacare in at least one key case.
15. Backlash against “global warming” grows, led by Canada and Australia.  

Here are some of the “worst of times” that I expect in 2014:

1. True US unemployment rises despite what is officially reported. The housing market crashes again, especially in Canada.
2. Israel attacks Iran's nuclear facilities, perhaps covertly.
3. New minimum wage laws sweep America, driven by Democrats.
4. 29-hour week is standard for most new employees due to Obamacare.
5. American economy lumbers into zombie mode, similar to that of Japan.
6. 1% are richer; the middle class is poorer; the poor...don't go there!
7. Terrorist attack occurs somewhere in Russia during Olympics.
8. The price of food and energy soar.
9. A series of American cities declare bankruptcy.
10. Snowden is still in Russia; Assange is still at Ecuadorian embassy.
11. Social unrest grows worldwide, including racial unrest in America.
12. Obamacare is a train wreck; insurance companies balk at paying claims.
13. Quantitative easing continues worldwide.
14. Taliban controls most of Afghanistan; US does not remove all troops.   
15. "Lone shooter" events occur increasingly throughout the US.

My synopsis for optimism ensues.  In terms of prosperity: The innovation and energy of individuals is driving the economy despite the desperate effort of governments to clamp down and to control. We live in an age of miracles, wrought not by religion but by science and technology – that is to say, by the mind of man. Our species deserves a standing ovation. In terms of politics: decent and productive people are waking up to the corruption and thievery that is the state. They are becoming independent enough to weather economic and social hardships that could otherwise break them in two.  In terms of liberty: the key factor in how freely people live is how thoroughly they reject the state from their lives and deal with it only under duress. I see this happening everywhere. It is in the air, like ozone before a storm.

Your personal choices have never been more important. And there is still time... but shrinking

Every day you're alive to fight the good fight is a good day. But, time is of the essence if you're going to continue leading a semi-free life. With mainstream financial advisors now telling clients to organize 'bug-out-bags' in case major cities become uninhabitable, there can be little doubt in the thinking man's mind that these might just be the worst of times. When you realize that FEMA and local news channels are beginning to parrot the same theme, you might begin to wonder: "Why is it exactly that I am still here?"

Click here or on thumbnail

As you can see, as Jeff Berwick often says, things are moving quickly. The worst thing we could do as individuals is panic - remember, it is also the best of times. By figuring out and focusing on clear goals designed to protect ourselves and our families financially (and physically, etc.), we can lead the happy and secure lives we deserve. 

NSA--The Definition Of An Agency Out Of Control! Will Obama And Congress Have The Guts To Rein It In? Doubtful, Most In Washington Agree With The Abuses Of The NSA.

Is The NSA Changing Bank Accounts?

January 3, 2014 by The Dollar Vigilante 

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Has the National Security Administration (NSA) been changing the amounts held in the financial accounts of people it targets?

The question would seem absurd if it were not for a 308-page report on the NSA that was released on Dec. 12 by an official White House panel. Recommendation 31, “Institutional Measures for Cyberspace,” on page 37 and repeated on page 221 reads:

(1) Governments should not use surveillance to steal industry secrets to advantage their domestic industry;

(2) Governments should not use their offensive cyber capabilities to change the amounts held in financial accounts or otherwise manipulate the financial systems.

Upon reading the panels’ report, Trevor Timm (a surveillance expert from the Electronic Frontier Foundation) sent a tweet; it was retweeted by Glenn Greenwald, the journalist who originally leaked documents from Edward Snowden.

Does it imply that the NSA is or has been altering the financial data of targeted individuals or agencies?

The NSA certainly has the ability to do so, because it has the information to do so. The German news source Der Spiegel reported Sept. 15 on an internal NSA branch known as “Follow the Money” (FTM). The branch monitors “international payments, banking and credit card transactions.” In a responsive statement, the NSA admitted to tracking financial information but only as it related to terrorist financing and terror networks. It states, “This information is collected through regulatory, law enforcement, diplomatic, and intelligence channels, as well as through undertakings with cooperating foreign allies and partners.”

One “cooperating” ally is apparently the international bank messaging system Society for Worldwide Interbank Financial Telecommunication or SWIFT. The system promotes itself as a financial service “with speed, certainty and confidence.” More than 10,000 banking organizations in 212 countries use SWIFT. In a carefully worded statement, SWIFT’s chief information officer Mike Fish indicated that the agency had “no evidence to suggest” there had been “any unauthorized access.” The key word is, of course, “unauthorized.”

The NSA stores the financial information in a databank called Tracfin. (An identically named database was created in France in 1990 with the stated goal of tracking illegal financial transactions; it is not clear if the database used by the NSA is somehow connected.) According to Der Spiegel, Tracfin “in 2011 contained 180 million records. Some 84 percent of the data is from credit card transactions.”

If the NSA is monitoring transactions in the Mideast and Germany, then how likely is it to be tracking money within U.S. borders? This is especially likely given that leaked documents from Snowden indicate the NSA has been tracking the Visa credit card system. Visa offered a carefully worded response in which it claimed not to know of any “unauthorized” access to its database. As for other large U.S. financial institutions, it would be surprising if they refused to share information with a government responsible for their economic dominance.

The only assurance of financial privacy is the NSA’s claim that it is not monitoring American transactions. There are at least three reasons why the assurance is not credible:

1. The tracking of financial transactions within America has been documented for years. In 2008, The Wall Street Journal reported on “so-called ‘black programs’ whose existence is undisclosed.” Many of them “began years before the 9/11 attacks but have since been given greater reach. Among them, current and former intelligence officials say, is a longstanding Treasury Department program to collect individual financial data including wire transfers and credit-card transactions.” If one government agency has the data, then they all do.
2. In 2006, when NSA was discovered using SWIFT data, there was a political uproar in the EU; the U.S. agreed to safeguards and to limit its surveillance in exchange for access. Agreements from the NSA are apparently worthless, as the backdoor access continues.
3. What the NSA says varies from moment to moment, person to person. For example, the agency has repeatedly denied that its surveillance is conducted to commercially benefit American companies. Nevertheless, Bloomberg on Sept. 9 reported on the NSA surveillance of Brazil’s state-controlled oil company, Petrobras. Documents released by Snowden included a 2012 NSA slide show presentation “that explained the agency’s capability to penetrate private networks of companies such as Petrobras. … One slide in the presentation listed “economic” as an intention for spying.”

In his recent “open letter to the people of Brazil,” Snowden asked that government for political asylum. Of the NSA surveillance, he stated: “These programs were never about terrorism: they’re about economic spying, social control, and diplomatic manipulation. They’re about power.”

The foregoing is not surprising or even new, except for one detail. No government body has previously implied that the NSA might be now or in the future altering the information stored by financial institutions. No official has previously suggested that the NSA could bankrupt or lock up the finances of targeted individuals. It is a haunting question: Why would the panel explicitly tell the NSA, “Don’t do this!” if the agency weren’t doing it already or planning to do so?

The panels’ recommendations are heartening because they are overwhelmingly critical of the NSA; the panel went so far as to unanimously call for splitting up the agency and for safeguards such as transparency. This is another surprise because the panel was handpicked by Obama and included the die-hard loyalist Cass Sunstein and former CIA deputy director Michael J. Morell.

Obama quickly indicated his rejection of some of the panels’ recommendations. Watching him deal with the rest of them will make for entertaining popcorn moments.

Meanwhile, everyone should make sure they have a print copy and a screenshot of their latest financial statements on hand. People should consider holding assets in a less conventional place than large and “trusted” financial institutions. The advice sounds paranoid. But as paranoid as you get, it is difficult to keep up with the U.S. government.

–Wendy McElroy

Wendy McElroy is a renowned individualist anarchist and individualist feminist (not the kind of feminist you are used to) and now a staple at The Dollar Vigilante.