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The current turmoil on Wall Street could have far reaching implications for the US economy and for companies here in Connecticut.
As ripples from the Wall Street shake up begin to spread, commentators warn that Main Street will feel the pain. As well as the generalized effects on the credit markets, Connecticut could be particularly hard hit because of its proximity to New York. Peter Gioia is chief economist for the Connecticut Business and Industry Association.
"Probably the most telling effect I think will be in terms of the effects on lower Fairfield County in terms of job loss, because of people being laid off in New York what that might mean to housing and other sales in that area, and also what it will mean in terms of state tax receipts. I think we'll see the state budget worsening as we go on because of things like this."
After Bear Stearns, Fannie Mae and Freddie Mac, now Lehman Brothers and Merrill Lynch, many people are left wondering where this is going to end. Osman Killic, professor of finance at Quinnipiac University says he fears the instability could spread next to depository banks.
We have so many specialty regional banks, and they have made so many mortgage loans. Probably either this quarter or the next quarter, they are going to start writing off those mortgages. Meaning that so many banks are going to go under, become insolvent, and FDIC, they have to come and take it over. Probably talking about somewhere around 150 to 200 banks.
The insurance industry too is watching the fate of the nation's largest insurer, AIG, which is in danger of being dragged down by the Lehman Brothers collapse. Regis Coccia, editor at Business Insurance Magazine says he thinks insurance stocks could suffer at least in the short term.
At a minimum certainly other insurance companies are going to have to look very carefully at their investment management, certainly at their risk management. I think AIG's situation is a bit unusual it's certainly one of the very largest players, and certainly seems to have been affected more than others by the subprime crisis.
The precipitous drop in the stock market will affect individuals and institutions alike. Connecticut's Treasurer, Denise Nappier, has revealed that the takeover last week of mortgage lenders Fannie Mae and Freddie Mac and the consequent dive in share value will hit the state's pension funds to the tune of $50 million.
The following letter was
The following letter was directed to Governor Rell on September 16, 2008 by The Federation of Connecticut Taxpayer Organizations.
Dear Governor Rell: The economy is in a freefall. The country is in crisis and some economists predict a recession is imminent.
It is therefore imperative that state elected officials throughout the country act immediately and responsibly to protect the interests of their constituents to the best of their ability. During your term in office, you have demonstrated that you are a leader in this regard.
We live in one of the highest taxed states in the country. Our property taxes are driven by state mandates such as binding arbitration and prevailing wage laws.
The majority of Connecticut residents work in the private sector, at will, where there is no job security. The unemployment rate is at an all time high. That rate is guaranteed to climb as more Connecticut residents lose their jobs. The collapse of Lehman is just one example. If homeowners are unable to pay their property taxes, they will lose their homes.
The property taxes of Connecticut homeowners in the 169 towns in our state are driven by personnel costs which constitute, on average, approximately 85% of local budgets.
If history repeats itself, very few working in the public sector in Connecticut will lose their jobs. In fact, many could reap the benefits of increased salaries, healthcare and/or pensions in already approved union contracts.
As such, the Federation of Connecticut Taxpayer Organizations asks that you consider the following:
Allow towns to suspend Binding Arbitration for up to three years due to a downturn in the economy.
Require that local arbitration awards be ratified by a majority vote of the local legislative body. As in state government, if the awards are rejected, the process must begin again.
Prohibit arbitrators from accessing a town’s undesignated savings account to fund union contracts.
Impanel a Blue Ribbon Commission to study municipal union contracts throughout the State of Connecticut to
1- Determine the feasibility of developing a universal pay scale for all municipal and state jobs
2 - Determine the feasibility of bringing all union contracts under a state arbitration panel
3 - Assess salaries with the suggestion that only one wage increase be allowed and eliminate step increases.
4 - Determine the effects of overtime pay being factored into pensions; how many state and/or local employees are retiring at a pension greater than their base pay?
5 - Determine the cost and feasibility of establishing a database where all municipal union contracts are recorded and can be accessed by the public.
With the understanding that the government contracts some of its responsibilities to nonprofits, which are not transparent, we ask that you propose Legislation which would require all nonprofit companies under contract to the State to be subject to FOI statutes.
This is proposed as we understand over $1 billion in state funding is allocated to nonprofits, that their employees can access the State employees health insurance plans, and that the budgets of some nonprofits are supported primarily by state funding.
Propose that all nonprofit and for-profit businesses which rely on 50% or more of public funding to operate be subject to Freedom of Information laws.
Discontinue the allocation of millions of taxpayer dollars to discretionary accounts which benefit you, the Speaker of the House, and the Senate President.
In conclusion, our country’s financial system is spiraling out of control due to debacles in the mortgage and banking industry. Our federal government is compounding the problem by trying to sustain its collapse by further indebting the American public by pouring billions and billions of taxpayer dollars into a sinking hole from which we may not be able to climb out from for many years to come. It is, therefore, the responsibility of the States to sustain themselves by enacting fiscal constraints and policies to protect the interests of their constituents.
We would direct you to a recent editorial captioned High-earning police officers, firefighters drive California city bankrupt. http://www.nhregister.com/articles/2008/09/14/opinion/doc48cd1d15319f2773136557.txt
Unless the burden of Binding Arbitration laws in Connecticut are lifted off the shoulders of municipal officials, Connecticut towns could follow a similar path to bankruptcy.
We would direct you to a recent editorial captioned High-earning police officers, firefighters drive California city bankrupt. http://www.nhregister.com/articles/2008/09/14/opinion/doc48cd1d15319f2773136557.txt
Unless the burden of Binding Arbitration laws in Connecticut
Thank you for your consideration of the aforementioned. We look forward to your response.
Susan Kniep, President
The Federation of Connecticut Taxpayer Organizations, Inc.
Website: http://ctact.org/
email: fctopresident@aol.com
860-841-8032