Monday, September 29, 2008

EDITORIAL: Wachovia is gone. Lending consequences remain!

Over the weekend and as presaged here, the Federal Reserve intervened to enable CitiGroup to acquire the failing Wachovia Bank.

Nevertheless, tax payers of the City of Lancaster must live with the consequences of the Wachovia's irresponsible guarantee of convention center and hotel bonds, something that other financial institutions had declined to undertake.

Successful capitalism relies upon bankers acting prudently, not seizing momentary profits while disregarding the future likelihood of default. Sadly, for some the system broke down.

If the current and future commissioners stand firm and refuse to raise the hotel room sales tax to further subsidize the Convention Center at the expense of tourist business, the cost to county residents should not be that great. The county guarantee is for only 50% of convention center debt service. Due to an agreement achieved by the heroic outgoing county commissioners, Convention Center Authority funds must first be applied to pay debt service. So the county is in a strong position.

CitiGroup, which now will guarantee the bonds, will not want to own and operate a convention center, especially one in Lancaster!

On the other hand, the city tax payers have provided a 100% guarantee of the huge Marriott Hotel debt. And they are fully on the hook. Woe is Lancaster!