When you purchase a debt obligation (like a bond, or a certificate of deposit) issued by an entity that lacks the wherewithal to pay you back, you lose your money. Anything else, including deposit insurance, is Socialism. I am not opposed to deposit insurance for banks, but it is pure and simple socialism, invented in the New Deal by Socialists.
It has some utility in the system, but it ought to be limited to small amounts per depositor.
I don't think that's the issue here. There's no doubt the bondholders will lose.
The question is: will the pension obligations (payments to the California retirement system) trump the bondholders? The City of Stockton owes money to both -- despite the fact that a good part of the money borrowed from bondholders went to meet obligations to the state pension fund.
I haven't followed all the details, but the bankruptcy court has basically said that state law (requiring the remaining pension obligations to be paid first) trumps federal law (which requires all of the creditors to be considered). That means the bondholders have to bear the burden, while the pension plan is made whole. Since their extravagant pensions are part of the reason Stockton is in bankruptcy, you can see the problem.
This is effectively what happened with GM: the federal bankruptcy court screwed all the secured bondholders and instead gave most of GM's assets to the unions. That's the point of the article: the government is flouting a century of precedent in bankruptcy law to achieve its own ends.
The FDIC is a joke. As banks fail they will not have enough money to cover the losses. Right now they allege they will cover each separate account up to 250k, e.g., held in one name, held joint with right of survivorship, and held with beneficiary. When push comes to shove they'll probably only honor one account and not up to 250k as they claim. That's if they cover anything.