“Après moi le déluge”

This famous quote has been attributed to Louis XV, King of France or some believe it was first said by his mistress, Madame de Pompadour. It can be translated as, “After me the flood,” or, “After me the end.”

The spirit of Louis is alive and well in the halls of American government. David Paterson, the Governor of New York has agreed to allow the State and municipalities to borrow $6 Billion dollars from the state pension fund to make payments, required by law, to---the state pension fund. (Really!)

Due to the market crash combined with a significant drop in tax revenue, pension costs are soaring. The State and its municipalities can not meet their payments without further cuts to services or increases in tax rates, neither are politically acceptable solutions. The scheme calls for the debt to be repaid by 2013 with up to an additional $1.85 Billion in interest. The politicians, as the song says, are “wishing, and hoping, and thinking, and praying,” that a large run up in the market that would exceed their expected return of 8% per year. For the most recent decade the stock market has provided a slightly negative return on investment. Curiously, the State while expecting returns of 8% on its other investments will only be charging itself 4.5% to 5.5% for this loan.

New York State currently faces a $9.2 Billion deficit for this fiscal year. Their governor and representatives have still not figured out how to close this gap, although they are considering more borrowing.

An even more egregious example of King Louis’s behavior can be found in the State of Arizona where politicians plan to mortgage their Supreme Court Building, the Schools for the Deaf and the Blind, and a number of other properties for $300 Million to meet current operating expenses. The notes are scheduled to be repaid between 2012 and 2029.

When an individual begins to use borrowed money (credit cards) to meet current operating expenses, be assured, the end is near. These are the actions of a State or an individual headed for bankruptcy.

Oh, by the way.

Louis XVI, the successor of the aforementioned Louis XV, was removed from office and arrested during the Insurrection of August 10, 1792. He was tried by the Revolution, found guilty of treason, and executed on the guillotine on January 21, 1793.