Meredith Whitney has forecast that potentially there could be 50 to 100 municipal defaults. While I believe she could be right in the sense of bond defaults, I define default as something very different. Due to a vast nationwide culture of corruption of the American political system by the service workers and the teachers unions, there is a massive default by politicians on the social contract they have, and are obligated to abide by, with the citizens they are obligated to serve. The two unions contributed over $400 million cash and tens of millions more in manpower to the Obama election. He rewarded them by appointing union hacks to the NLRB in order to accomplish by executive fiat what the elected representatives in Congress refused to authorize in the way of pro union rules. At the state and local level, these unions have contributed in similar fashion to local politicians for several decades, and the result is now the basic employment contract with government workers has been nullified. That is a default with the citizens who bargained for this old agreement. The tradeoff was always, as a government worker you had limited hours, a lifelong job security, and a pension, in exchange for somewhat lower pay than the private sector, and more limited pension and healthcare. The blatant corruption practiced by the unions has now changed that basic contract, and the 95% of citizens who are not government employees are being made to do without in order to pay for the outsize pensions, healthcare and salaries of union workers. This is a default by the politicians on their social contract with the taxpayers. Government workers, and especially teachers, are now materially over paid compared to the private sector comparable jobs. In addition teachers, who only work 9 months a year, have gotten guaranteed job security called tenure, which is nothing more than a guarantee that you do not have to do your job, you just have to stay in place and you are untouchable. In New York City if you are really a bad teacher you are not fired, you just go to a lounge each day and pass the time while being paid in full. It is the children of America who are paying the price of this defaulted contract of teachers to provide a good education to the future generations. Teachers claim it is all about the kids, but reality is, that it is all about the unions and going to the lowest common denominator of quality education. America simply can no longer afford to have this decline in educated citizens. It is doing grievous harm to our economy and security. This is the sort of default I am referring to.

Quite simply the service workers and the teachers unions have been bribing the politicians with campaign contributions, election workers and other support for reelection in exchange for these payoffs to the unions. You may not call it bribes in the sense of these are not white envelopes of cash to the politicians in many cases, but it is cash, and it is directly to the benefit of the elected official to allow him to have his job, in direct exchange for a specific vote in repayment to expand pensions and other union benefits. If it walks like a duck and quacks like a duck, it is a duck. It is a blatant bribe from the president on down to the local mayor.

The governors of Wisconsin, New Jersey, Ohio and Indiana are finally calling for an end to this bribery and for honoring the social contract with their citizens, which is the bedrock of our democracy. It is no surprise that Obama is critical of the governor, and the Democratic party is busing people to Madison and using election style phone banks to try to stop Wisconsin from reestablishing the social contract terms with the voters. Chris Christie showed the way, and now we finally have governors who are willing to abide by the social contract terms with their citizens and to stop the union corruption.

If you wonder what does all this have to do with real estate. It has everything to do with you. You are paying steep costs in the form of higher property taxes, entitlement fees, sewer tap fees and other fees and taxes which dig deep into the profits of your investment. These added costs brought about by union corruption directly cause a diminution of value of your real estate by raising your operating costs. You are transferring your returns on investment to the union workers who have gotten the excessive salaries and pensions they have by means of corruption of our system of democratic government. We can easily sympathize with the demonstrators of the Middle East who are rising up partly due to the corruption of their rulers, but it is time we all rose up and demanded that our politicians honor their social contracts with us. Wisconsin is the tipping point for America, and Obama and the unions know it. That is why they are treating it as the essential battle to maintain the corrupt status quo. .

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.