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Bankrupt California city to resume paying pension fund, but not bondholders
Yahoo News ^ | April 12, 2013 | Tim Reid | Reuters

Posted on 04/12/2013 9:20:33 AM PDT by Uncle Chip

LOS ANGELES (Reuters) - Bankrupt San Bernardino will resume paying into the state pension fund on July 1, but the California city will continue to renege on other debts including payments to bondholders, according to a new budget released late Thursday.

Nearly a year after it halted contributions to America's biggest pension fund, San Bernardino will resume payments to Calpers at the start of the new fiscal year - but continue to not pay other creditors, according to the budget.

San Bernardino will not make interest and principal payments on $50 million in pension bonds issued in 2005, according to the new budget. The city council on Monday will review the budget, a blueprint for how the city proposes to manage its finances since declaring bankruptcy last August.

San Bernardino's decision to resume its $1.2 million, bimonthly employer contributions to Calpers while continuing to defer pension bond debt will intensify the battle between the pension fund and Wall Street bondholders.

The case has been bogged down in disputes about the scope of documents the city must provide to its creditors. Unlike Stockton, where a judge approved the city for bankruptcy last week, a decision on San Bernardino's eligibility for Chapter 9 protection still appears some way off.

Both San Bernardino and Stockton are considered test cases in the titanic battle over whether municipal bondholders or current and retired employees will absorb most of the pain when a state or local government goes broke.

Calpers, which manages $256 billion in assets, is San Bernardino's biggest creditor, with the holders of its $50 million in pension bonds its second-biggest creditor. Calpers is opposing San Bernardino's quest for bankruptcy, the only city to have ever halted payments to the fund.

(Excerpt) Read more at news.yahoo.com ...


TOPICS: Business/Economy; Crime/Corruption; Government; News/Current Events
KEYWORDS: bankrupt; califbankrupt; california; califpensions; calpers; debt; pensions; sanbernardino; spending; unions

1 posted on 04/12/2013 9:20:33 AM PDT by Uncle Chip
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To: Uncle Chip

Bondholders should be able to sue to city commissioners who are, after all, responsible for the fiscal state of the city and the default on the bonds.


2 posted on 04/12/2013 9:22:27 AM PDT by IbJensen (Liberals are like Slinkies, good for nothing, but you smile as you push them down the stairs.)
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To: IbJensen
Bondholders should be able to sue to city commissioners who are, after all, responsible for the fiscal state of the city and the default on the bonds.

Better yet, bondholders get completely wiped out here and stop investing in debt ridden, mismanaged cities. One of the best things that could happen would be for investors to AVOID loaning corrupt, liberal Democrat cities more money.

And if bondholders won't learn a lesson from this and keep dumping their money into these cities, then they deserve to lose everything.

3 posted on 04/12/2013 9:25:42 AM PDT by Longbow1969
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To: Uncle Chip
"Both San Bernardino and Stockton are considered test cases in the titanic battle over whether municipal bondholders or current and retired employees will absorb most of the pain when a state or local government goes broke."

If bond holders take the hit then you can bet these cities and other financially shakey California cities will find it impossible to raise money via bonds in the future. Thus, taxpayers will get hammered even harder. It would be a good time for anyone living in such a city to sell their real estate and get the heck out of Dodge because property taxes are going to skyrocket.

4 posted on 04/12/2013 9:26:36 AM PDT by circlecity
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To: Longbow1969

+1

Thanks for saving me the effort of typing something similar. I probably wouldn’t have done as good a job anyhow.


5 posted on 04/12/2013 9:29:14 AM PDT by Nervous Tick (Without GOD, men get what they deserve.)
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To: Uncle Chip

Municipalities; GM; other companies with unions. We see this more and more. Politically connected groups get paid first despite what the law says about bondholders and secured creditors. The rule of law and the enforceability of contracts is being further undermined, and we are turning into a thugocracy like Russia as a result. Any fool who buys municipal bonds after this deserves what he gets.


6 posted on 04/12/2013 9:30:56 AM PDT by Opinionated Blowhard ("When the people find they can vote themselves money, that will herald the end of the republic.")
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To: circlecity
If bond holders take the hit then you can bet these cities and other financially shakey California cities will find it impossible to raise money via bonds in the future

You would think that. And I hope that is precisely what will happen. Sadly, creditors probably won't stay away. They always have a way of coming back to even bankrupt countries that go through default. New creditors see an entity that suddenly has no debt and figure it's safe for them to loan money at a better than average rate of return. Same thing happens to individuals that go through bankruptcy - they'll usually get credit offers not long after discharge. It's why we shouldn't ever be bailing out bondholders.

7 posted on 04/12/2013 9:35:21 AM PDT by Longbow1969
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To: Longbow1969

Total agreement here. I also apply the same line off thought to many lawsuits/taxpayer issues. Many people get POd about cities losing high dollar lawsuits and the taxpayers footing the bill. Well, those taxpayers elected the pols that put policies/laws in place/made decisions that resulted in said taxpayer ‘burden’.

So they may want to vote smarter rather than bitch. That way they won’t have to pay as much in the future.


8 posted on 04/12/2013 9:35:52 AM PDT by Norm Lenhart
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Click the Tree

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Please Donate Monthly to help end FReepathons
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9 posted on 04/12/2013 9:43:00 AM PDT by TheOldLady
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To: Uncle Chip

The Municipal Bond market is going to crash and burn if they do this.

People put their money into these bonds because they are considered a safe investment. The return on the investment after inflation is generally 0%. But if this goes through, then these municipalities will never again be able to fund their profligate spending through the sale of bonds.

Maybe this will be a good thing.


10 posted on 04/12/2013 9:52:30 AM PDT by P-Marlowe (There can be no Victory without a fight and no battle without wounds.)
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To: Uncle Chip

They must have run out of other peoples’ money..........


11 posted on 04/12/2013 10:04:00 AM PDT by Red Badger (Want to be surprised? Google your own name......Want to have fun? Google your friend's names........)
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To: Longbow1969

Exactly; wipe out the bondholders, and then investors actually start looking at the balance sheets on these democrat hell-holes. Dry up the line of credit, and then the pensions go bankrupt anyway because the money trough dried up.

The only alternative is a federal bailout, and unfortunately, that is likely to happen.


12 posted on 04/12/2013 10:08:20 AM PDT by henkster (I have one more cow than my neighbor. I am a kulak.)
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To: Uncle Chip; stephenjohnbanker; ding_dong_daddy_from_dumas; Gilbo_3; Impy; NFHale; BillyBoy; ...
RE :Nearly a year after it halted contributions to America's biggest pension fund, San Bernardino will resume payments to Calpers at the start of the new fiscal year - but continue to not pay other creditors, according to the budget.
San Bernardino will not make interest and principal payments on $50 million in pension bonds issued in 2005, according to the new budget. The city council on Monday will review the budget, a blueprint for how the city proposes to manage its finances since declaring bankruptcy last August. “

Holy crap, imagine investing in City bonds for a City that screwed its LAST bondholders to payoff $$$ city union retirees?

'Sorry we cant pay the (home) mortgage again this month because Christmas is coming and we promised the kids some really good presents this year'

13 posted on 04/12/2013 10:35:39 AM PDT by sickoflibs (To GOP : Any path to US citizenship IS putting them ahead in line. Stop lying about your position.)
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To: Uncle Chip

The Stockton and other looming municipal bankruptcies will likely collapse the municipal bond market and, equally likely, provide rich opportunities for skullduggery. Wealthy supporters of our corrupt administration cook up a deal with the Chicago thug. The said wealthy donors snatch up Stockton bonds at ten cents on the dollar on the q.t. After a suitable interval, Obama engineers a deal to have the Fed save the bondholders, paying them, say, 75% of par. Stockton is saved! Soros and Buffet pocket hundreds of millions in windfall profits! This is, in fact, a time-honored mode of getting fabulously wealthy off the misfortune of others in our great nation.


14 posted on 04/12/2013 10:44:56 AM PDT by Spartan79 (I view great cities as pestilential to the morals, the health, and the liberties of man.)
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To: sickoflibs
Holy crap, imagine investing in City bonds for a City that screwed its LAST bondholders to payoff $$$ city union retirees?

It's amazing but creditor's almost always find a way back. The logic is they see this big taxpayer funded entity that suddenly has no debt and figure it'll be at least another generation before it could mismanage itself into default again. It really is why we can't bail out these bondholders/creditors. Let them eat the losses until they finally learn to avoid these leftist, irresponsibly run cities.

'Sorry we cant pay the (home) mortgage again this month because Christmas is coming and we promised the kids some really good presents this year'

To a liberal, this is reasonable. You know, it's for the kids afterall...

15 posted on 04/12/2013 10:45:52 AM PDT by Longbow1969
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To: Uncle Chip; sickoflibs; All

Pay the unions, burn the bondholders.

Sounds like GM......the new standard of excellence : )


16 posted on 04/12/2013 11:28:10 AM PDT by stephenjohnbanker
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To: stephenjohnbanker

CalPERS is the Swiss Bank of the public employee unions, the judges, the politicians, the administrators, et al. They would sooner see every city in California collapse than allow CalPERS to take a hit.


17 posted on 04/12/2013 11:35:54 AM PDT by Uncle Chip
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To: sickoflibs

MORAL OF THE STORY: If you’re into muni’s for income stream — AVOID CALIFORNIA altogether.

With the tax and spend, anti-energy, pro-illegal policies of the state, and 1/3 of all welfare recipients to boot, bankruptcy is just a matter of time.

And notice how bond holders are the first to be screwed.


18 posted on 04/12/2013 11:44:20 AM PDT by SeekAndFind
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To: Uncle Chip

” CalPERS is the Swiss Bank of the public employee unions, the judges, the politicians, the administrators, et al. They would sooner see every city in California collapse than allow CalPERS to take a hit.”

Exactly!


19 posted on 04/12/2013 11:46:39 AM PDT by stephenjohnbanker
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To: SeekAndFind; sickoflibs

“And notice how bond holders are the first to be screwed.”

Correct.


20 posted on 04/12/2013 11:49:17 AM PDT by stephenjohnbanker
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To: SeekAndFind
RE :”With the tax and spend, anti-energy, anti-energy, pro-illegal policies of the state, and 1/3 of all welfare recipients to boot, bankruptcy is just a matter of time.”

Someone on MSNBC or maybe a lib read here was recapping the lib version of what happened in CA and concluded that all CAs problems were due to the CA GOPs successfully blocking tax increases over many years and decades, and now that the GOP has been FINALLY swept out of most state positions CA /Jerry Brown raised a number of taxes prompting its big turnaround that we see today.(CA State not the Cities)

Have to watch this one, He did raise the sales tax as did lib O Malley in Maryland(another single party state), a very regessive tax,(I buy using Amazon)

21 posted on 04/12/2013 11:56:29 AM PDT by sickoflibs (To GOP : Any path to US citizenship IS putting them ahead in line. Stop lying about your position.)
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To: stephenjohnbanker

Makes you wonder who will buy their bonds next, the same unions?


22 posted on 04/12/2013 11:57:28 AM PDT by sickoflibs (To GOP : Any path to US citizenship IS putting them ahead in line. Stop lying about your position.)
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To: sickoflibs

That would be my guess.....keep the float going as long as possible. Kinda reminds us of how we now handle our national debt : )


23 posted on 04/12/2013 12:23:17 PM PDT by stephenjohnbanker
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To: stephenjohnbanker

The national debt is much easier because the POTUS+Senate oppoint the Fed Chairman who creates unlimited $$$ to load back to them ie US treasury to spend.


24 posted on 04/12/2013 1:33:00 PM PDT by sickoflibs (To GOP : Any path to US citizenship IS putting them ahead in line. Stop lying about your position.)
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To: sickoflibs

Correct.


25 posted on 04/12/2013 1:34:21 PM PDT by stephenjohnbanker
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To: stephenjohnbanker

The same retired CA who are getting the bondholders money probably know that investing back in themselves (their city bonds) is a sure loss, they probably buy bonds from some place in TX instead, a GOP county.


26 posted on 04/12/2013 1:59:29 PM PDT by sickoflibs (To GOP : Any path to US citizenship IS putting them ahead in line. Stop lying about your position.)
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To: sickoflibs

A better move, for sure.


27 posted on 04/12/2013 2:04:24 PM PDT by stephenjohnbanker
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To: Uncle Chip

The “tax exempt” status should be removed from ALL governmet debt; it is just one more encouragement that polticians have in creating excess debt in the first place - because they can attract investors with the tax exempt earnings; something denied to private borrowers and something that ought to be denied the politicians. The argument that we would be paying “more” interest makes the erroneous assumption that we need and would be making us much borrowing even though the interest rate we had to pay was higher.


28 posted on 04/12/2013 3:29:05 PM PDT by Wuli
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To: Uncle Chip

Calpers is a giant government monopoly in California. No matter what any municipality in California did wrong, I have no sympathy for Calpers. Like Freddie and Fannie it should be “sold off in pieces” to a bunch of newly privatized non-profit, non-polictical pension investment outfits that afterward any enterprise, governmental or non-governmental was free to participate in, or not, as they chose. I say “non-profit” because like the old “mutal” insurance company model the “owners” are the policy holders and all “gross profits” (capital gains and investment earnings) minus all needed operations costs and reserves that should not be distributed accrue to the pension accounts of the pension policy holders - they are the investor owners. And, as with any “mutual” insurance company it does not mean it is not competitive or not out there competing for business.


29 posted on 04/12/2013 4:01:37 PM PDT by Wuli
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To: Wuli

This is a tough one. As much as I hate unions, I have a hard time sympathizing with someone buying San Bernardino bonds in 2005. It has been obvious for a LONG time that California & its cities are in a race to hell...


30 posted on 04/12/2013 4:08:13 PM PDT by Mr Rogers (Liberals are like locusts...)
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To: Mr Rogers

I am not in disagreement that muncipal bond buyers are responsible for doing their own due diligence, and as more see that “municpal bond” does not guarantee safety more will do better due diligence and cities that make unreasonable pension promises will get the lack of financial respect they deserve in the bond markets.

However, Calpers as a government near monopoly is a different story and I have no sympathy for it.


31 posted on 04/12/2013 4:16:05 PM PDT by Wuli
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