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 ...
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.
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.
+1
Thanks for saving me the effort of typing something similar. I probably wouldn’t have done as good a job anyhow.
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.
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.
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.
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.
They must have run out of other peoples’ money..........
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.
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'
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.
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...
Pay the unions, burn the bondholders.
Sounds like GM......the new standard of excellence : )
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.
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.
” 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!
“And notice how bond holders are the first to be screwed.”
Correct.
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