CAFR: US agencies have billions, trillions in investments looted from the American public

*Hyperlinks and video live at source:

Gerald Klatt and Walter Burien are unrecognized heroes. These individuals are national leaders who have communicated how government agencies conceal American taxpayers’ money in surplus accounts that collectively total trillions of our dollars. The data is found in government agencies’ Comprehensive Annual Financial Reports (CAFRs).

What CAFRs reveal is a communist-style policy whereby the US taxpayers surrender enormous assets to the state, who then “invest” these collective trillions that swell in these accounts. Concurrently, taxpayers are informed of budget deficits to either squeeze more taxes from them and/or cut public services. To add insult to injury, the state lies in omission by never reminding Americans of their hard-earned and withheld trillions as they eliminate jobs, reduce education, and attack the quality of our lives.
The American Constitution is a contract of limited government whereby the public informs and is informed by our representatives. CAFRs are damning public documents that expose “leadership” from Left and Right as exactly what leading economic voices have said: an absolutely corrupt and self-serving oligarchy.
Let’s look at the economic data revealed in CAFRs.
For example, California has a budget deficit of ~$20 billion. The combined investments of CAFRs for the state of CA, Los Angeles County, and the City of Los Angeles is over $450 billion; over 22 times the amount of the budget shortfall (documentation page numbers below).
California claims they need this money mainly for public employee retirement benefits. Let’s check that story. The CAFR data shows current member contribution pays for all retiree benefits except for $1.8 billion (net cost). If just these three state agencies surrendered their withheld money back to the public instead of lording over it as communists, each Californian would receive ~$15,000. To pay for the shortfall in the retirement account, each individual could be taxed $50.
Why has political “leadership” and corporate media not informed American taxpayers of this option and publicly submitted this data for professional and independent economist cost-benefit analysis to provide other options?
The answer to that question is also the answer to they question of how political "leadership" gets away with Orwellian unlawful wars.
So far, we’re only considering three CAFRs in the state of California. The comprehensive reality is far more dramatic. If you combine all of California’s ~10,000 government agencies’ CAFRs, the combined total according to Walter Burien’s sampling analysis is $8 trillion. Let’s say Walter’s way-off. For argument’s sake, let’s say the total is less than half; only $3.5 trillion. If that was returned to the public, each Californian would receive $100,000.
Walter says he’s confident in his documentation that every state has overtaxed and seized Americans’ hard-earned money in outrageous sums.
Obviously, we need independent auditing of all state CAFRs and independent economic cost-benefit analyses to make our choices clear of how the public benefit is best served. Californians oppressed under a $20 billion dollar budget deficit that cuts essential public services while not considering taxpayers’ trillions “invested” in our names is among the worst choices imaginable.
It’s criminal.
It’s Orwellian.
To put this into an analogy, I’ve modified the one used by Walter:
This is like a juvenile claiming he needs money because his front pants pocket is empty, which he dutifully shows (budget). What he's not telling you is that his back pockets have over 100 times the money he says he "needs" (shown in various places of the CAFRs). Whenever he's asked about the money in his back pockets, which he never volunteers in discussing his empty front pocket and never invites for consideration to move some into the front pocket, he says, "Oh, that money is designated for other uses. I can't touch that." So far, the silence of corporate media and political leadership from Left and Right has brought us to today. Of course, "I can't touch that" is a lie of omission because it can be touched the moment policy changes. So the real issue is the heart of economics: what are the costs and benefits of different choices?
Here’s the specific data and documentation:
  • California pension and “other” trusts investments total $367 billion. Net pension benefits payable from that $367 billion in 2009 was $1.8 billion (retiree payouts minus current member contributions). Subtracting other liabilities ($48 billion in securities lending obligations that seemed to be borrowed from retirement funds- page 212), the state of California is holding onto over $300 billion of the public’s money that could be used for other purposes (pages 48, 49 of the report).
  • The misleading information on pages 154-155 suggests retirement funds are not fully funded. However: over $300 billion is held in investments for $1.8 billion in net benefits. How many votes do you think our present policy would receive from the California public given the alternative of receiving ~$15,000 now and paying a $50 tax every year.
  • The investments: $143 billion in “equity securities” (stocks), $92 billion in debt securities (page 83-84). $72 billion is dependent upon foreign markets (page 88).
  • The UC system had a budget deficit for this ending school year of $0.65 billion. The policy response was to deny 2,300 students enrollment, lay-off over 2,000 faculty and staff, furlough teaching days and cut 10% salaries, and raise tuition by 32%. For less than one-third of one percent of the investment total of California, UC would have been fully-funded and those reductions eliminated.
  • California’s 20,000 laid-off teachers could be rehired at $70,000/year for $3.4 billion; less than 1% of these three CAFR “investments” total.
  • One cost of this deception: Governor Schwarzenegger announced a 41 percent cut for the 2010 budget in "general government" services including elimination of CALWORKS (welfare to work and child-care program, which will affect 1.4 million people, two thirds of them children), and sharp decreases in health and welfare programs for single mothers, low-income children, foster youth, the disabled, and senior citizens.
  • Los Angeles County has $52 billion in investments (pages 61-63), the City of Los Angeles has $36 billion (page 80). Both have drastically cut programs. Both have pension plans underfunded by current members by less than 2% of their investment totals.
Below is Walter Burien’s 10-minute introduction to his video explanation of CAFRs. Walter claims that investments are only the most obvious section where CAFRs reveal hidden public money in plain sight; other areas include advanced forward liabilities accounts (overestimates and/or retained money for far-distant projects), states buying their own debt, profits from state-run enterprises (like recycling), and possible other areas requiring full and independent audits to discover.


I conclude with my usual resources for comprehensive understanding and suggestions for action. This has some repetition or the above information along with additional resources:
Fellow Americans: literally for the love of God, it’s time.
It’s time for our men and women in government and military to choose: either stand with the US Constitution you’ve sworn to support and defend against all enemies, foreign and DOMESTIC, or remain complicit in ongoing Wars of Aggression, mass murder of our soldiers and our fellow humans in other lands and throwing trillions of our tax dollars to do so, pushing the world ever-closer to an apparently planned and desired nuclear Third World War (and here), and guilty of what Dr. Martin Luther King called “Silence is Betrayal” (before the US government assassinated him according to the only trial conducted for his murder).
Over 5,000 US soldiers have been killed so far as pawns of the civilian and military brass tyrants. Multiples more have been crippled physically and emotionally. There is no end in sight to current wars; indeed, the US is expanding them into Pakistan and Yemen and threatening more war with Iran. The dead are comforted by God; their families are devastated by the loss of their loved-ones. The crippled and their families face a range of challenges; many so severe that a total of 6,000 US veterans commit suicide every year. One-third of all US homeless men are veterans.
It’s time for our men and women in the military and government to refuse all orders associated with our unlawful wars and preparation for unlawful war with Iran over one gram of medical isotope worth $75,000 in 20% enriched nuclear fuel. It is hard to imagine a more ridiculous case for war.
It’s time for our men and women in the military and government to stand with the American public who declare in a ratio of 9 to 1 that our government no longer represents them under the US Constitution.
It’s time: exercise your 1st Amendment right to freedom of speech and press, and to petition the Government for a redress of grievances. Please provide this article to all Americans if you find it helpful to stop current and future unlawful wars.
Our military was duped into these wars with calculated "Big Lies;" our trusting young men and women took an Oath to support and defend the US Constitution that supersedes the Nazi insert of “placing the mission first.” The Claus von Stauffenberg faction of US military and government must act to end this soulless mass-murdering; this loveless series of unlawful wars and unlawful orders, if we want a future we’re proud to build.
This choice is up to our men and women in uniform and government for leadership. I provide:
Choose well; our collective future, and your future, depend upon it. I appreciate your attention to these facts and encourage your further study and action consistent with your own self-expression.
It's time: please share this article with all who can benefit. If you appreciate my work, please subscribe by clicking under the article title (it’s free). Please use my archive of work to help build a brighter future.
Policy response: Gandhi and Martin Luther King advocated public understanding of the facts and non-cooperation with evil:  
"One thing we have endeavoured to observe most scrupulously, namely, never to depart from the strictest facts and, in dealing with the difficult questions that have arisen during the year, we hope that we have used the utmost moderation possible under the circumstances... We have an abiding faith in the mercy of the Almighty God, and we have firm faith in the British Constitution. That being so, we should fail in our duty if we wrote anything with a view to hurt. Facts we would always place before our readers, whether they are palatable or not, and it is by placing them constantly before the public in their nakedness that the misunderstanding between the two communities in South Africa can be removed."    
- Mohandas K. Gandhi, Indian Opinion (1 October 1903)
For Gandhi’s evolved view of British evil in 1922, read this passage from Freedom’s Battle.
Gandhi concluded the effective response from the public was non-violent, non-cooperation with unjust British rule until the British themselves realized their engagement in immoral acts with an educated and non-cooperative public was inconsistent with their own values.
To consider:
"If we are to have peace on earth, our loyalties must become ecumenical rather than sectional. Our loyalties must transcend our race, our tribe, our class, and our nation; and this means we must develop a world perspective. No individual can live alone, no nation can live alone and as long as we try, the more we are going to have war in the world. Now the judgment of God is upon us and we must either learn to live together as brothers or we are all going to perish together as fools."
 --Inscription on Dr. Martin Luther King’s statue, Moorehouse College, Atlanta
"The day that hunger is eradicated from the earth, there will be the greatest spiritual explosion the world has ever known. Humanity cannot imagine the joy that will burst into the world on the day of that great revolution." -- poet Federico García Lorca
Comments policy: I present a professional level of discourse based on facts. I welcome questions and comments that are civil and pertain to the article topic. Here, readers are welcome to argue for any inaccuracy of factual claim and/or need for inclusion of other facts. Readers are welcome to interpret facts however they wish and welcome to any policy position. They are not welcome to misrepresent facts. Facts are objective, measurable, and independently verifiable.
That is how freedom looks. Freedom is not an allowance of whatever, whenever, however. We censor behavior of drivers beyond strict limits, censor many behaviors as fouls and out-of-bounds in sports. We censor people in relationships and business from certain acts, and can fire them upon violation. You censor in your place of business those who distract and/or damage your work. You fire destructive people from relationships, and would never invest your time or money for a sport that did not strictly censor behavior.
Our government is paradoxically based on censorship: “deriving their just powers from the consent of the governed” means any behavior outside constitutional limits is forbidden. This is the paradox of freedom: freedom is only realized within limits.
In these articles, I write for the highest level of factual accuracy and will manage comments with that commitment. Comments and questions are welcome ONLY from those who chose factual integrity.
Please consider that I’m among hundreds of writers who have documented our own government’s disclosure of propaganda programs to support their wars. My articles are subject to such propagandistic attack from comments that use typical rhetorical fallacies to distract readers from the facts. I invite readers to sharpen their ability to discern such propaganda. They are characterized by a combination of: denying facts without evidence, ignoring key facts in lies of omission, lying about verifiable facts as lies of commission, diverting attention through unsubstantiated belief in an alleged expert, irrelevant data, straw-man attack that distorts the facts, ad hominem attack of insults to the messenger, vile comments to repulse readers, and focus on minutia.
I will use such comments to point-out the propaganda or delete them at my discretion. Again, all relevant and polite questions, and factually accurate comments are welcome. As a professional educator I’m in agreement with my experience and research: we learn best from multiple perspectives in mutual commitment to understand the facts, see those facts from diverse points-of-view, and consider various policy proposals of what we should do.
"But now, after having once and for all put to the test the judgments of men, I here again approach these same questions regarding God and the human mind, and at the same time treat the beginnings of the whole of first philosophy, but in such a way that I have no expectation of approval from the vulgar and no wide audience of readers. Rather, I am an author to none who read these things but those who seriously meditate with me, who have the ability and the desire to withdraw their mind from the senses and at the same time from all prejudices. Such people I know all too well to be few and far between. As to those who do not take care to comprehend the order and series of my reasons but eagerly dispute over single conclusions by themselves, as is the custom for many-those, I say, will derive little benefit from a reading of this treatise; and although perhaps they might find an occasion for quibbling in many spots, still it is not an easy matter for them to raise an objection that is either compelling or worthy of response." 
- Rene Descartes, Meditations on First Philosophy, 1641, "Preface to the Reader." This book is usual reading in college philosophy courses today. Descartes is considered the founder of modern philosophy, the founder of analytical geometry (which led to calculus), and a founder of the Scientific Revolution. Descartes was well-known in his age, but highly controversial. His work was condemned by the Roman Catholic Church in 1633, and his books put on the Index of Prohibited Books in 1663. The University of Utrecht condemned his work in 1643, where he had previously taught.
For those involved in support of US government-sponsored disinformation in whatever versions of Operation Mockingbird that are active, I invite you to consider the quality of human relationships you wish to create. National security and a brighter future is not a function of fear, manipulation, and control. Our best security follows cooperation, justice under the law, dignity, and freedom. Working for your best imagined self-expression of virtue may include a unique contribution from the inside of your agency. Public attraction to the stories of Star Wars and the Harry Potter books/movies recognize that our society’s jump to civilized relations for all of us might require support from people within the “dark side” acting as covert agents for building a brighter future. Another option is becoming a whistle-blower; Project Camelot is a popular venue for people in sensitive positions. Ultimately, I recommend a Truth and Reconciliation process to exchange full truth for no prosecution, explained in detail at the link. Please consider the wisdom of your own “Scrooge conversion” to act for the benefit of building a brighter future for all humanity rather than propagandizing for your controlling, manipulating, and loveless “masters’” psychopathic policies of violence and suffering.
“Scrooge was better than his word. He did it all, and infinitely more; and to Tiny Tim, who did not die, he was a second father. He became as good a friend, as good a master, and as good a man, as the good old city knew, or any other good old city, town, or borough, in the good old world. Some people laughed to see the alteration in him, but he let them laugh, and little heeded them; for he was wise enough to know that nothing ever happened on this globe, for good, at which some people did not have their fill of laughter in the outset; and knowing that such as these would be blind anyway, he thought it quite as well that they should wrinkle up their eyes in grins, as have the malady in less attractive forms. His own heart laughed: and that was quite enough for him.”


CAFR's may be the mother of all conspiracies

If Burien's estimates are essentially correct (as well as his accounts of trying - and failing - to get public officials dealing with the problem), then I consider this the mother of all conspiracies. Unlike relatively rare events, such as the murder of a President (JFK), the CAFR hiding of assets occurs throughout the country, every day, for many decades.

And the "hiding" is in plain sight, as I believe that you've been able to obtain official CAFR documents at public libraries for at least 10 years. However, nobody in public life talks about CAFR's*. I googled the NY Times for "Comprehensive Annual Financial Reports" a while back, and found almost nothing. IIRC, about 2 sentences that weren't included in comments by readers. (I posted about this search at the JREF forum.)

If the CAFR stories check out, IMO 911 truthers who do public outreach need to feature the CAFR information. 911 is rejected by many because they consider the very notion bizarre. I call this "high strangeness", (a term used to classify certain UFO events). However, when it comes to how government really operates, truth is stranger than fiction. That is why reaching out with other "deep politics" information is crucial. Re-framing what people consider strange, vs. non-strange, in the public's mind will allow for a fairer evaluation of damning 911 information.

Problem is, most people get their news through the boob tube, and while they know that "something" is wrong, they often don't have a clear idea of what.

* See Senator Bill Bradley and NJ's CAFR - a vignette


You reply shows some of the problem, that was also described in an article today by Christopher Story, called Why Admiral Dennis C. Blair Was Sacked By Obama. In this article Chris Story writes more on your point of not only a TV hypnotized public, but that we also get so much disinformation and spin; it is not easy to see which way is up or down. What I like about Chris Story's articles is the amount of details in his work, and that he is in the middle of something big and an optimist.

"..At the top of our report dated 11th May 2010, we revealed (see also above) that US Vice President Joseph Biden, US Treasury Secretary Timothy Geithner, and Rahm Emanuel, the White House Chief of Staff, are/were in receipt of weekly and monthly bribery cheques in exchange for their continued assistance to the Bush-CIA ‘Black’ apparat in blocking the releases which the White House has hijacked under both the Bush II and the Obama régimes.

As usual, and in accordance with their confusion-mongering and disinformation instructions, the flaky US websites magnifying the unprovenanced opinions of anonymous bloggers and thereby serving the obfuscation interests of the ‘Black’ apparat by specialising in maximising the fog of confusion to help protect the US kleptocracy from exposure (while maintaining an opposite self-righteous stance) ran off at once down rabbit holes with the historical Fritz Kraemer information, disregarding the sensational revelation concerning these highest-level bribees.

This is typical of these professional confusion-mongers: they are trained to pick up peripheral data and thereby to obfuscate the central issues that have been exposed. It’s called 'redirection'."

# # #

Most people will judge something before even fully reading, and as you wrote, wait until they hear it from the boob tube before believing. We lose our power that way, which is why 911bloggers are an unusual lot that reads and considers what is to most, too scary to even consider. Thank you for comment and posting this article.

By the way,, the web site of above article, also confirmed Chris Story's reporting on a 3.87 Trillion Dollar Lawsuit filed against the S.E.C.


and perhaps useful, but does it belong here? The article seems to be a narrow, highly speculative and rhetorical political screed that has little direct or even indirect connection to 9/11 issues. And how does the phrase "communist-style" apply to a system where private interests long have looted the nation and impoverished the working class?

It took me some time to digest this information.

A common denominator between this CAFR issue and the 9/11 Truth issue is that the media and many government officials are intentionally not disclosing alarming, blatant facts.

Wiki on CAFR -
Find your state -

This video helped me to grasp the concept...

Your 'common denominator'

has long been recognized in detail by 911 students and others seeking truth and reality in news, politics and history. It is a weak reed supporting the inclusion of this anti-tax, anti-commons polemic in a scientific inquiry. The article appears more likely to be a red herring intended to divide those seeking serious examination of specific issues directly related to 911. If you want to explore serious critical issues involving legitimate government funds, look for corruption in the ways that their money is diverted -- such as the looting of Social Security assets starting with LBJ and the dumping of worthless private-sector securities on pension funds and public endowments.

andhowe, I'll address your comments:

You state: "narrow, highly speculative and rhetorical political screed that has little direct or even indirect connection to 9/11 issues. And how does the phrase "communist-style" apply to a system where private interests long have looted the nation and impoverished the working class?" and "It is a weak reed supporting the inclusion of this anti-tax, anti-commons polemic in a scientific inquiry. The article appears more likely to be a red herring intended to divide those seeking serious examination of specific issues directly related to 911. If you want to explore serious critical issues involving legitimate government funds, look for corruption in the ways that their money is diverted -- such as the looting of Social Security assets starting with LBJ and the dumping of worthless private-sector securities on pension funds and public endowments."

This article is about documented trillions of our dollars, taken from US taxpayers, then hidden in plain sight. Power and money are always connected. 9/11 opened the Middle East for looting, yes? Looting IS the broader context, Brother. 9/11 was an event to open that door along with destroying citizen protections in the US Constitution (you haven’t noticed I’ve also written about this).

I appreciate John’s comment on my friend and colleague Ellen Brown’s participation in the Deep Politics conference. Try this on for size: Deep Politics is another way of describing the larger context: 9/11, indefinite detention, endless wars, torture, looting of our trillions are all components.

And when we win with 9/11 truth, you’d better hope people like Ellen and me are still around to make sure money is created and managed with full transparency for the public good. If not, money will be twisted to create more evil.

CAFR data is not at all “speculative,” it lists government agencies’ declared assets. Communism is an economic theory whereby private property is surrendered to the state. I teach economics; for the US taxpayers to surrender their money for the state to purchase stocks and bonds in the name of the collective is a communist policy. CAFR data shows the government as the major player in corporate cartels through their stock ownership.

And you had no idea of the magnitude of these trillions, did you?

Your use of the term “scientific” is ironic when I show where the looted money specifically is located. You seem to miss the point of the magnitude of our trillions sitting in these accounts while government claims debt and budget cuts that literally kill people while pushing the public to accept their status as debt-slaves to our self-appointed masters. Their excuse for our poverty is the War formerly known as "Terror," and that darned unpredictable market (you may want to read about that, too).

Try this on for size, too, andhowe: for whatever reason you don’t now get the significance of our looted trillions exposed in CAFR documents. No problem. Work on what you feel passionate for. Andhowever (little pun there), please allow those of us who see the connection between false flag attacks and jacking a lot of money to do our thing.

Trust the moderators of this site, and try a little humility to ask the author a question rather than jump to the attack :)


Thank you, synergist, for responding to my questions. Perhaps I put them a bit too sharply, but they were questions and not harangues. They are largely answered in the Ellen Brown article, which sees the CAFR problem more as maintaining public wealth, such as pension funds and rainy-day savings, in the face of corporate financial predations and not seeing them as Communist menaces or illegitimate taxation, as you apparently do. I don't quite understand why you find the existence of such governmental prudence alarming. I am largely reassured. The accounting figures for the CAFR are certainly not speculative, but your dark offerings about their origins and implications most certainly are. You parade a long litany of issues from illegal wars and false-flag attacks to the American Way which have no bearing on the issue at hand.

you're welcome; thank you for all you do for truth.

I recommend Ellen's book, Web of Debt. She's just as sharp in her criticism as I, just more polite in expressing it. Yeah, the monsters at the top of our oligarchy are menaces; you wouldn't be on this site if you assessed differently. This is just the money angle and its different aspects of using the public for their viciously selfish agenda.

The end of my articles are my resources that try to paint a comprehensive picture from the 250 or so I've written. I add that on every one. Some of us see the big picture and all the connections. Some of us are specialists that prove the facts on individual events. It's synergy that moves us all forward. When we all act in good faith with what we see as our best moves forward, we all move forward. And yeah, we're not going to understand everything that everyone is doing; we all have to choose where and how to invest our time and skills.

Keep moving forward :)

9/11 was/is a tactic in a broader political/economic agenda...

and likely the doorway to blow their oligarchy open. Of all the cities to fuck with, they chose the most dangerous. Fuck with New Yorkers? Bad choice. This arrogance and their very difficult task to pull-off 9/11 rips away the veil. 9/11 is/was one of many tactics, current and historical, for the purpose of an inside oligarchy to take away our freedoms and dominate us. 9/11 is an opening we can prove is an official lie. But we have to end the oligarchy or we're still at risk. Money is central to power. I'm trying to see and communicate the big picture of what this oligarchy is driving towards and the various "emperor has no clothes" obvious legal violations we can prove is criminal.

Thank you

United we stand.

CAFR's are legal, and legally mandated

(According to Burien.) What they are not, is talked about in the media, and by politicians.

I think that they are more than worthy of serious research and discussion. Especially if Burien is correct about the deliberate avoidance by some public officials.

Here's another article in the Examiner by Carl Herman, on the subject of CAFR's:

CAFR: UC budget fully funded with one-fifth of one percent of state of CA “investments”

Even if there's no direct connection to 911, it may well speak to politician's 'ability' to practice omerta about enormous political/economic entities.

Financial 9-11 Solutions From Ellen Brown

At the recent Deep Politics convention, Ellen Brown gave a talk entitled the "Financial 9-11" or something close to that. In a recent article she takes up on Burien's ideas and offers a sound solution about what to do with CAFR money- invest it in a state bank. Ellen's been pushing the state bank idea for sometime now and it's getting traction. 7 states have some type of state bank legislation in the works. Take the money out of the hands of the corrupt banking system and you're on your way to a better planet. Here's her latest post:

Another brilliant piece by Ellen Brown

Taking Back the Money Power: How Hidden Pools of Government Money Could Help Save the Economy

by Ellen Brown

Global Research, May 22, 2010
Web of Debt - 2010-05-21

For over a decade, accountant Walter Burien has been trying to rouse the public over what he contends is a massive conspiracy and cover-up, involving trillions of dollars squirreled away in funds maintained at every level of government. His numbers may be disputed, but these funds definitely exist, as evidenced by the Comprehensive Annual Financial Reports (CAFRs) required of every government agency. If they don’t represent a concerted government conspiracy, what are they for? And how can they be harnessed more efficiently to help allay the financial crises of state and local governments?

The Elusive CAFR Money

Burien is a former commodity trading adviser who has spent many years peering into government books. He notes that the government is composed of 54,000 different state, county, and local government entities, including school districts, public authorities, and the like; and that these entities all keep their financial assets in liquid investment funds, bond financing accounts and corporate stock portfolios. The only income that must be reported in government budgets is that from taxes, fines and fees; but the investments of government entities can be found in official annual reports (CAFRs), which must be filed with the federal government by local, county and state governments. These annual reports show that virtually every U.S. city, county, and state has vast amounts of money stashed away in surplus funds. Burien maintains that these slush funds have been kept concealed from taxpayers, even as taxes are being raised and citizens are being told to expect fewer government services.

Burien was originally alerted to this information by Lt. Col. Gerald Klatt, who evidently died in 2004 under mysterious circumstances, adding fuel to claims of conspiracy and cover-up. Klatt was a an Air Force auditor and federal accountant, and it’s not impossible that he may have gotten too close to some military stash being used for nefarious ends. But it is hard to envision how all the municipal governments hording their excess money in separate funds could be complicit in a massive government conspiracy. Still, if that is not what is going on, why such an inefficient use of public monies?

A Simpler Explanation

I got a chance to ask that question in April, when I was invited to speak at a conference of Government Finance Officers in Missouri. The friendly public servants at the conference explained that maintaining large “rainy day” funds is simply how local governments must operate. Unlike private businesses, which have bank credit lines they can draw on if they miscalculate their expenses, local governments are required by law to balance their budgets; and if they come up short, public services and government payrolls may be frozen until the voters get around to approving a new bond issue. This has actually happened, bringing local government to a standstill. In emergencies, government officials can try to borrow short-term through “certificates of participation” or tax participation loans, but the interest rates are prohibitively high; and in today’s tight credit market, finding willing lenders is difficult.

To avoid those unpredictable contingencies, municipal governments will keep a cushion of from 20% to 75% more than their budgets actually require. This money is invested, but not necessarily lucratively. One finance officer, for example, said that her city had just bid out $2 million as a 30-day certificate of deposit (CD) to two large banks at a meager annual interest of 0.11%. It was a nice spread for the banks, which could leverage the money into loans at 6% or so; but it was a pretty sparse deal for the city.

Meanwhile, Back in California

That was in Missouri, but the figures I was particularly interested were for my own state of California, which was struggling with a budget deficit of $26.3 billion as of April 2010. Yet the State Treasurer’s website says that he manages a Pooled Money Investment Account (PMIA) tallying in at nearly $71 billion as of the same date, including a Local Agency Investment Fund (LAIF) of $24 billion. Why isn’t this money being used toward the state’s deficit? The Treasurer’s answer to this question, which he evidently gets frequently, is that legislation forbids it. His website states:

“Can the State borrow LAIF dollars to resolve the budget deficit?

“No. California Government Code 16429.3 states that monies placed with the Treasurer for deposit in the LAIF by cities, counties, special districts, nonprofit corporations, or qualified quasi-governmental agencies shall not be subject to either of the following:
“(a) Transfer or loan pursuant to Sections 16310, 16312, or 16313.
“(b) Impoundment or seizure by any state official or state agency.”

The non-LAIF money in the pool can’t be spent either. It can be borrowed, but it has to be paid back. When Governor Schwarzenegger tried to raid the Public Transportation Account for the state budget, the California Transit Association took him to court and won. The Third District Court of Appeals ruled in June 2009 that diversions from the Public Transportation Account to fill non-transit holes in the General Fund violated a series of statutory and constitutional amendments enacted by voters via four statewide initiatives dating back to 1990.

In short, the use of these funds for the state budget has been blocked by the voters themselves. Bond issues are approved for particular purposes. When excess funds are collected, they are not handed over to the State toward next year’s budget. They just sit idly in an earmarked fund, drawing a modest interest.

What’s Wrong with This Picture?

California’s budget problems have caused its credit rating to be downgraded to just above that of Greece, driving the state’s interest tab skyward. In November 2009, the state sold 30-year taxable securities carrying an interest rate of 7.26%. Yet California has never defaulted on its bonds. Meanwhile, the too-big-to-fail banks, which would have defaulted on hundreds of billions of dollars of debt if they had not been bailed out by the states and their citizens, are able to borrow from each other at the extremely low federal funds rate, currently set at 0 to .25% (one quarter of one percent). The banks are also paying the states quite minimal rates for the use of their public monies, and turning around and relending this money, leveraged many times over, to the states and their citizens at much higher rates. That is assuming they lend at all, something they are increasingly reluctant to do, since speculating with the money is more lucrative, and investing it in federal securities is more secure.

Private banks clearly have the upper hand in this game. Local governments have been forced to horde funds in very inefficient ways, building excessive reserves while slashing services, because they do not have the extensive credit lines available to the private banking system. States cannot easily incur new debt without voter approval, a process that is cumbersome, time-consuming and uncertain. Banks, on the other hand, need to keep only the slimmest of reserves, because they are backstopped by a central bank with the power to create all the reserves necessary for its member banks, as well as by Congress and the taxpayers themselves, who have been arm-twisted into repeated bailouts of the Wall Street behemoths.

How the CAFR Money Could Be Used Without Spending It

California, then, is in the anomalous position of being $26 billion in the red and plunging toward bankruptcy, while it has over $70 billion stashed away in an investment pool that it cannot touch. Those are just the funds managed by the Treasurer. According to California’s latest CAFR, the California Public Employees’ Retirement Fund (CalPERS) has total investments of $360 billion, including nearly $144 billion in “equity securities” and $37 billion in “private equity.” See the State of California Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2009, pages 83-84.

This money cannot be spent, but it can be invested -- and it can be invested not just in conservative federal securities but in equity, or stocks. Rather than turning this hidden gold mine over to Wall Street banks to earn a very meager interest, California could leverage its excess funds itself, turning the money into much-needed low-interest credit for its own use. How? It could do this by owning its own bank.

Only one state currently does this -- North Dakota. North Dakota is also the only state projected to have a budget surplus by 2011. It has not fallen into the Wall Street debt trap afflicting other states, because it has been able to generate its own credit through its own state-owned Bank of North Dakota (BND).

An investment in the State Bank of California would not be at risk unless the bank became insolvent, a highly unlikely result since the state has the power to tax. In North Dakota, the BND is a dba of the state itself: it is set up as “the State of North Dakota doing business as the Bank of North Dakota.” That means the bank cannot go bankrupt unless the state goes bankrupt.

The capital requirement for bank loans is a complicated matter, but it generally works out to be about 7%. (According to Standard & Poor’s, the worldwide average risk-adjusted capital ratio stood at 6.7 per cent as of June 30, 2009; but for some major U.S. banks it was much lower: Citigroup's was 2.1 per cent; Bank of America’s was 5.8 per cent.) At 7%, $7 of capital can back $100 in loans. Thus if $7 billion in CAFR funds were invested as capital in a California state development bank, the bank could generate $100 billion in loans.

This $100 billion credit line would allow California to finance its $26 billion deficit at very minimal interest rates, with $74 billion left over for infrastructure and other sorely needed projects. Studies have shown that eliminating the interest burden can cut the cost of public projects in half. The loans could be repaid from the profits generated by the projects themselves. Public transportation, low-cost housing, alternative energy sources and the like all generate fees. Meanwhile, the jobs created by these projects would produce additional taxes and stimulate the economy. Commercial loans could also be made, generating interest income that would return to state coffers.

Building a Deposit Base

To start a bank requires not just capital but deposits. Banks can create all the loans they can find creditworthy borrowers for, up to the limit of their capital base; but when the loans leave the bank as checks, the bank needs to replace the deposits taken from its reserve pool in order for the checks to clear. Where would a state-owned bank get the deposits necessary for this purpose?

In North Dakota, all the state’s revenues are deposited in the BND by law. Compare California, which has expected revenues for 2010-11 of $89 billion. The Treasurer’s website reports that as of June 30, 2009, the state held over $18 billion on deposit as demand accounts and demand NOW accounts (basically demand accounts carrying a very small interest). These deposits were held in seven commercial banks, most of them Wall Street banks: Bank of America, Union Bank, Bank of the West, U.S. Bank, Wells Fargo Bank, Westamerica Bank, and Citibank. Besides these deposits, the $64 billion or so left in the Treasurer’s investment pool could be invested in State Bank of California CDs. Again, most of the bank CDs in which these funds are now invested are Wall Street or foreign banks. Many private depositors would no doubt choose to bank at the State Bank of California as well, keeping California’s money in California. There is already a movement afoot to transfer funds out of Wall Street banks into local banks.

While the new state-owned bank is waiting to accumulate sufficient deposits to clear its outgoing checks, it can do what other startup banks do – borrow deposits from the interbank lending market at the very modest federal funds rate (0 to .25%).

To avoid hurting California’s local banks, any state monies held on deposit with local banks could remain there, since the State Bank of California should have plenty of potential deposits without these funds. In North Dakota, local banks are not only not threatened by the BND but are actually served by it, since the BND partners with them, engaging in “participation loans” that help local banks with their capital requirements.

Taking Back the Money Power

We have too long delegated the power to create our money and our credit to private profiteers, who have plundered and exploited the privilege in ways that are increasingly being exposed in the media. Wall Street may own Congress, but it does not yet own the states. We can take the money power back at the state level, by setting up our own publicly-owned banks. We can “spend” our money while conserving it, by leveraging it into the credit urgently needed to get the wheels of local production turning once again.

Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest of eleven books, she turns those skills to an analysis of the Federal Reserve and “the money trust.” She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are,, and

Thanks to Carl Herman for discovering the CalPERS figures.

Ellen Brown is a frequent contributor to Global Research. Global Research Articles by Ellen Brown
"We'll know our disinformation program is complete when everything the American public believe is false."- William Case, CIA Director 1981