By Mark Wachtler
May 22, 2015. Chicago. (ONN) According to a Vice President of Moody’s rating agency, every single man, woman and child in Chicago owes $26,000 in municipal debt. That doesn’t even include similar amounts owed for each of the debts of Cook County government, Illinois government, and the federal government. And since audits show that half of all Americans have a net worth of zero or below, those Chicagoans who can afford to pay will have to pay double the amount to cover the half that can’t.
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According to Chicago Mayor Rahm Emanuel, Moody’s is crazy for downgrading the city’s debt status to ‘junk’ this week. But the nation’s other two Wall Street ratings agencies sided with Moody’s and followed suit by immediately dropping their own ratings of Chicago debt. Two other bond funds, including Chicago Public Schools debt, were also downgraded to junk status.
$26,000 for every man, woman and child
When Moody’s, S & P, and Fitch all dropped their ratings of Chicago debt this week, with Moody’s going all the way down to ‘junk status’, Mayor Emanuel responded exactly the way he did the previous times the agencies dropped Chicago’s debt rating leading up to this point. He called the analysts, “irresponsible.” But in a very rare personal rebuttal, a Moody’s Vice President addressed the City Club of Chicago on Tuesday to back up their actions with raw numbers.
Moody’s Vice President and senior analyst Rachel Cortez appeared personally at a sold-out luncheon at the City Club to explain the rating agency’s downgrade to junk status. She defended the downgrade by immediately pointing out that Chicago’s municipal debt is the largest per capita in the entire country, coming to $26,000 for every Chicagoan.
Cortez went on to take questions submitted by the luncheon banquet attendees, including those that seemed to present an air of shock and disbelief, asking the Moody’s executive to repeatedly explain why Chicago’s debt status was lowered to junk. Sensing some of the resentment in the room, the analyst seemed almost apologetic as she diplomatically pointed to the numbers and the facts time and again.
The downgrade comes at a particularly bad time for the people of Chicago. Mayor Emanuel announced he is going ahead with his casino-style gamble of refinancing the city’s debt from variable rate interest obligations to fixed rate. Many financial experts would agree with Emanuel’s premise that interest rates have nowhere to go but up and fixing them at today’s lower rates is a good bet. But with the three-agency downgrade of Chicago debt, even fixed rates will be higher than they otherwise would have been, costing Chicagoans even more money. It costs a lot of money in promised returns to get investors to gamble on bonds already labeled as ‘junk’.
And if that news wasn’t bad enough, taxpayers will have to pay even more due to the massive exodus of citizens from the state. Recently released numbers show that Illinois was one of only a few states that didn’t grow in population last year. In fact, the state lost more residents and taxpayers than all 49 other states combined. Want $26,000? Leave Chicago. Want $50,000? Leave Illinois. For taxpayers, that seems to be the best investment advice of all.
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