By: Mark Glennon*
The figure I deeply admire in The Big Short, Mark Baum (Steve Eisman was his real name), had a simple reaction when financial screens began to bleed red as the subprime mortgage market collapsed and the Great Recession began: “It’s happening.”
Illinois’ descent isn’t like that. No single day, month or even year will be marked on a chart to stick in the history books. But it is happening. Illinois is gradually bleeding out through ever deeper wounds inflicted by its own government. The most common question I get here is when it all blows up, but I doubt there will be any explosive event.
It’s not just happening, it’s worsening. The most recent news marks a death spiral in full swing. Population is shrinking, the tax base is eroding and the state’s revenue is declining, all while the underlying causes remain unaddressed and debt soars for the state and most of its municipalities.
One credit rating agency last week finally conceded that death spiral, at least tepidly. “A self-reinforcing cycle of population loss and economic stagnation could greatly complicate Illinois’ efforts to stabilize its finances,” Moody’s wrote. That’s important because rating agencies have shamelessly focused on the short term, cheering tax increases that cover debt service for the moment but ignoring the long term effect of driving off taxpayers. Well, the long term has arrived.
The press remains complicit by missing the full scope of the crisis. Major stories are ignored. For example, a recent RealtyTrac study found a stunning 500,000 Illinois homes — nearly 20% of houses in the state — with seriously underwater mortgages. That is, the mortgage balance exceeds home value by at least 25%. I was asked about that yesterday by Dan Proft while taping for his Illinois Rising radio show that airs on Sunday. He’s about the only one to recognize how horrible that fact is in itself. He asked me afterwards to provide the source the numbers I discussed. (It’s linked here, and kudos to Proft for being conscientious about facts.)
Most political reporters have long mocked doom and gloom about our problems. They ridiculed the “Illinois is Broke” campaign of The Civic Federation and the comment by Ty Fahner of The Civic Committee that Illinois’ pensions may be “unfixable.” They ignore superb research long produced by the Illinois Policy Institute. One long-time member of “the sky isn’t falling” crowd came around recently — almost. That’s Rich Miller, the most influential political reporter in the state. He wrote last week that Illinois is in danger of becoming a “failed state.” But what’s his solution? “Throw [Gov. Rauner] a bone or two” on his reform agenda. No. The list of reforms Rauner initially wanted is down from some 44 items to just three or four. Illinois should be implementing the whole initial list, and more.
The Illinois General Assembly majority, the Chicago City Council and Mayor Emanuel are the obvious villains, but as for the ultimate culprits — voters who elect them — consider what Alexander the Great supposedly said about why Asians in his day were easily made slaves: “Because they never learned to say ‘no.'” Just saying ‘no’ to the incompetence, graft, lies and rank stupidity of their own government would end it all. But Illinoisans, especially Chicagoans, won’t say it, content to march blithely into indentured servitude.
There is no end in sight except for a small hope that the majority of the General Assembly turns over in two years and Rauner is re-elected. A budget compromise now will make little difference because the true deficit will remain massive. Our crisis will continue to worsen. Each day lost deepens the hardship to come.
We repeat our view that Illinois’ imperative should be having its Congressional delegation work for amendments to Chapter 9 of the U.S. Bankruptcy Code to make it a fast, efficient, predictable means to a fresh start, with the general public’s interest made paramount, and the option of bankruptcy should be extended to states as well.
It’s happening. Deal with it.
*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.