LISTEN: The Financial Collapse of “White Folks” Bay, Wisconsin
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In the audiobook preview below, author Les Leopold reads Chapter One from his forthcoming book, The Looting of America: How Wall Street’s Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It.
Listen to the audio preview of Chapter One here.
The great economic crash of 2008 tore right through Whitefish Bay, Wisconsin, population 13,500—though you’d never guess it from looking around town.
Located just a few miles north of Milwaukee, this golden village exudes the hopeful self-confidence of the early 1960s. Whitefish Bay’s stately mansions offer breathtaking views of Lake Michigan from cliffs that rise a hundred feet above the shoreline. As you head inland on its tree-lined streets, the houses slowly shrink back into sturdy, middle-class neighborhoods. The stores on Silver Spring Drive, its main shopping strip, have survived despite fierce competition from the nearby Bayshore Mall (a selfcontained ultramodern shopping village with faux streets, a faux town square, and real condos). Whitefish Bay also supports an art deco movie theater that serves meals while you watch the show, and a top-notch supermarket, fish market, and bakery. Nothing is out of place—except you, if you happen to be brown or black. Whitefish Bay is 94 percent white and only 1 percent black. There’s a reason the town’s unfortunate moniker is White Folks Bay.
Yet this white-collar town voted for Obama—and has always voted for its schools, which are considered among the best in the state. Its residents’ deep pockets supply the school system with all the extras: In 2007, $700,000 in donations provided “opportunities, services and facilities for students.” The investment has paid off. An average of 94 percent of Whitefish Bay’s high school graduates go on to college immediately. And the school dropout rate is less than 0.5 of 1 percent.
The school district takes its fiscal responsibilities seriously. It has set up a trust fund to pay benefits, primarily health insurance, for retired school employees. When these benefits (called “Other Post-Employment Benefits” or OPEB) were originally negotiated, the expense was modest. But then health care costs exploded. What’s more, accounting rules now require that school districts amortize these costs and post them on their books as a liability each year. Whitefish Bay, like many other school districts, became worried about how to meet these liabilities.
Whitefish Bay is a town full of financially sophisticated residents, including its school managers. They sought to pump up the OPEB trust fund quickly so they could keep their promises to retirees. As responsible guardians of the town’s resources, they looked for the highest rate of return at a minimal risk to the fund’s principal. As Shaun Yde, the school district’s director of business services, put it, the goal was to “guarantee a secure future for our employees without increasing the burden on our taxpayers or decreasing the funds available to our students to fund their education.”
Meanwhile, Wall Street investment houses had set their sights on school-district trust funds like Whitefish Bay’s. They hoped to persuade districts to stop stashing this money—valued at well above $100 billion nationwide in 2006—in treasury bonds and federally insured certificates of deposit (CDs). Wall Street’s “innovative” securities could provide higher returns—not to mention more lucrative fees for the investment firms. So an old-fashioned financial romance began: Supply (Wall Street’s hottest financial products) met Demand (school districts seeking to build up their OPEB trust funds). It looked like a perfect match.
Listen to the audio preview of Chapter One here.
The audio previews for the book’s Introduction and Chapter Two can be found in the bookstore here.
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April 21st, 2009 at 12:59 am
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