The Real News Network has the concluding segment Ugly Money Politics – Robert Johnson on Reality Asserts Itself (8/8) in its series. My previous blog post Reality Asserts Itself – Robert Johnson covers the first 7 segments.

The first topic is the problems with the city of Detroit.

Well, in particular in Detroit there are always–I mean, there are many factors in Detroit, demographic decline in the aftermath of the ’67 riots, long periods of white flight, etc. But going back to your perspective on finance, what sends them over the waterfall are very, very large, questionable derivatives trades guaranteeing what are called certificates of obligation that lead to penalties.
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What you’ve seen since the crisis of 2008 is federal cutbacks to state and local governments, which causes the states to, how you say, tighten their belts and cut off the cities or diminish transfers to the city. You then see diminished income tax revenue, sales tax revenue, and property tax revenue associated with the slump. So you go into a budget crisis and you tend to, quote, underprovision for the pension. The annual required contribution is not made. As the funded assets fall in relation to the value of obligations, the tendency is to throw the Hail Mary pass, reach out to higher-yield investments. But that despair is what makes what you might call the temptation to resort to things that turn out to be frauds or, how you say, too good to be true more and more prevalent, which tends deepen the losses.

My point in choosing the above excerpts is to drive home the point of how the financial collapse has drive the federal government to lower aid to the states and localities, and this has driven these entities to either cut back or go bankrupt, or even fall victim to the financial fraud that started it all.

People who don’t understand this path to ruin are often led to believe that it is the fault of the innocent pensioners that the city cannot pay their pensions anymore.