Pete Kendall's Socio Times: A Socionomic Commentary

April 1, 2007
Make the Most of Tobacco Cash Now
Gov. Ted Strickland's budget calls for securitizing the Ohio Tobacco Settlement estimated to net the state $5 billion now. Some view this as a long-term revenue loss (at least 40 years of payments). The fact is, the fund is rapidly shrinking. In the first two years, payments to the state were 19 percent less or $73 million less than was projected. This rate of loss has continued each year since.

As a legislator, I found, according to the Wall Street Journal and other research, that the "rise of small cigarette wholesale manufacturers means that the big tobacco companies pay less to the states." Because of the small manufacturers and the reduction in consumption of cigarettes, the market share for the large manufacturers, which are liable, has dropped.

Nineteen states, including California, Wisconsin, New York, New Jersey and South Carolina, and 82 municipalities, have sold off their tobacco settlement to investors. This money, by securitizing the Ohio Tobacco Settlement, could be distributed proportionally according to the original Ohio plan without having bonded indebtedness. Thus, the money saved could be used to give property tax relief to the elderly.
Mary Rose Oakar, former Ohio state legislator and member of Congress
Cleveland Plain Dealer 

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At the End of the Rainbow: Tobacco Settlement Shares
Category: NEWS
By: Pete Kendall, April 4, 2007
What’s so fishy about the public’s sudden access to exchange shares after 200 years of member-only ownership? The public never gets an even break.
The Elliott Wave Financial Forecast, April 4, 2007

I read a letter to the editor in the Cleveland Plain Dealer on Sunday from former congresswoman Mary Rose Oakar, which called for "securitization" of Ohio's tobacco settlement fund.  She mentioned that Florida, Tennessee, Texas and others have already done this.  As a student of Socionomics, I must wonder what this signifies.  To me, this was always funny money, since it was unjustly derived from legitimate businesses, etc., and is to be paid over a period of time, but what I find most unsettling is that  opportunistic politicians such as Ms. Oakar want to cash it out by issuing some sort of shares to what credulous investors they may find, so a) the state can get its hands on more sooner (naturally for some good cause) b) it will not have to worry about the vagaries of its value (which has been declining due to rampant anti-tobacco legislation).

It seems to me that the government is forever interfering in the marketplace, but when it comes to trying to stick the populace in a new way through a scheme such as securitization of something it controls but hasn't earned, in fact which it actively undermines, it must have faith in P.T. Barnum's old estimate: "There's a sucker born every minute."
--John G. Dzwonczyk

Excellent question. I’m sure there’s more than one answer. To me, it goes straight to the various ways in which dubious financial plays are being pawned off on the public through IPOs, private equity and so on. At this point this is only slightly less legitmate than a ponzi scheme. As EWI has noted many times before, government is the ultimate trend follower. Now that its selling off assets as "securities," it must be close to the end of a long uptrend for the entire practice.

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