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Why Congress Should Consider Bankruptcy for States
CNBC Finances ^ | 1/21/2011 | Jonathan Henes

Posted on 01/23/2011 10:33:37 PM PST by ErnstStavroBlofeld

In 1975, New York City was on the brink of bankruptcy. The city lacked the cash to make municipal bond payments while continuing to pay for vital services and public retiree and healthcare benefits. The city was on the verge of defaulting on its municipal bonds. The city pursued three options: seeking aid from the federal government, negotiating a deal with its public unions or filing for bankruptcy. The federal government rebuffed the city’s request for a bailout. Faced with the option of a municipal bankruptcy, the unions agreed to invest $2.5 billion of their pension funds in municipal bonds, which were used to bail out the city. The union’s investment put the pensions of thousands of public employees and retirees at risk, but it enabled the city and the unions to avoid bankruptcy and positioned the city to build a strong, long-term fiscal foundation.

In short, New York City avoided bankruptcy because it had the option to file for bankruptcy.

Unlike New York City and other municipalities, states cannot file for bankruptcy.

(Excerpt) Read more at cnbc.com ...


TOPICS: Business/Economy; Government
KEYWORDS: bankruptcy; finance; states; uscongress
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1 posted on 01/23/2011 10:33:41 PM PST by ErnstStavroBlofeld
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To: ErnstStavroBlofeld

Sure. Let them bankrupt so that they can continue to create lefty programs and raise taxes while in 20 years, they can bankrupt again.


2 posted on 01/23/2011 10:49:43 PM PST by HeartlandOfAmerica (Insane, Corrupt Democrats or Stupid, Spinless Republicans - Pick America's poison.)
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To: ErnstStavroBlofeld

So let me get this straight private banking institutions are to big to fail, so taxpayers have to bail them out. But instead of lending out the money they recieved they spend the money on buying up smaller banks and investing it in foreign currency.

Yet our own states are NOT too big to fail?! WTF?!


3 posted on 01/23/2011 11:02:04 PM PST by Tempest (I put money ahead of people)
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To: ErnstStavroBlofeld

Not we witness that dance with the public unions that will decide how much they’ll take from us in taxes today, and how much they’ll have to steal from our 401k’s to make good on the pension promises.


4 posted on 01/23/2011 11:14:12 PM PST by IncPen (Educating Barack Obama has been the most expensive project in human history)
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To: ErnstStavroBlofeld

No. The states should be forced to repudiate all debts and close many useless offices.


5 posted on 01/23/2011 11:29:28 PM PST by familyop (cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote.)
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To: HeartlandOfAmerica

Let them fail and declare bankruptcy.However Congress must put clauses in the legislation that they get one bite from the apple and they must completely reform their union pension contracts and how they budget money.Bankruptcy is a much more better route that complete default.


6 posted on 01/23/2011 11:31:07 PM PST by ErnstStavroBlofeld
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To: familyop

Bankruptcy is better than the entire state going insolvent like California is heading to.


7 posted on 01/23/2011 11:33:18 PM PST by ErnstStavroBlofeld
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To: ErnstStavroBlofeld

I look forward to the latter option/event. But the mere public mention of the possibility of slimy, bipartisan members of Congress plotting and scheming to allow states to declare bankruptcy is accelerating the bond collapse. General interest rate hikes follow. Business in most locales will slow more, and in turn, shrink revenues. Will we see former and current public employees (teachers, regulators, all) rioting in the streets and getting into fights with the few remaining police, as happened in Greece?

On second thought, the outcomes from either option should be most arousing to any real, hard working conservative interested in getting his income from the production of useful items for private sector customers. ;-) But the more honest option would be that of defaults.


8 posted on 01/24/2011 12:21:57 AM PST by familyop (cbt. engr. (cbt), NG, '89-' 96, Duncan Hunter or no-vote.)
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To: familyop

Something is going to happen and its going to be very bad.Both options are not pretty, but the states are sinking.


9 posted on 01/24/2011 12:26:42 AM PST by ErnstStavroBlofeld
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To: ErnstStavroBlofeld

So the federal government cannot tax the rest of us for unresponsible spening which is politically based or otherwise..?


10 posted on 01/24/2011 3:33:09 AM PST by aces
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To: ErnstStavroBlofeld

I’ve thought about this for a bit. And I have come to the conclusion that I think that it would be a good thing if a state of the United States were permitted to claim bankruptcy.

With that being said I do have a few conditions of my own.

1. The State wishing to declare bankruptcy would have to relinquish it’s standing as a ‘state’. It would assume the status of a territory of the United States.

2. It would lose the right to elect Senators and Congressmen to the Federal Congress while under Territory Status.

3. Although the Territory that was formerly a state could elect State Senators and State representatives to their “Territory House” Formerly known as the State Senate and State House of Representatives. They would not be able to elect a Governor. The territory Governor would be appointed from Washington D.C with the Full Congress and Senate passing approval by 66% of the voting members.

4. The Territory would not lose Territory status and Regain Statehood until the Following minimal requirements are met:

A. Territory status will be for a period of not less than 10 years.
B. A Territory must have a positive balance in their ‘books’ for at least two years consecutively.
C. No City or County within the Territory may be or have been in bankruptcy Status for at least 4 years prior to the Act of Reinstatement of Statehood being granted.
D. All Debts and obligations incurred by the former State that brought about the State Bankruptcy must be discharged for a period of 4 years prior to the Act of Reinstatement of Statehood being granted.

If you think about it these conditions are very unreasonable. Bankruptcy should have consequences and losing political power and a place at the Federal Hog Trough should be among them.


11 posted on 01/24/2011 3:36:40 AM PST by The Working Man
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To: The Working Man

CORRECTION:

If you think about it these conditions are very unreasonable

Should have Been

If you think about it these conditions are very reasonable.


12 posted on 01/24/2011 3:39:03 AM PST by The Working Man
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To: ErnstStavroBlofeld

Don’t let them “Bankrupt” let the liberal-Democrats suffer! Bankruptcy would be the easy way out for these failed socialist states: though it would kill the public-employees unions, it would be the lesser of two evils (or the greater of 2 depending on your point-of-view)!

JS


13 posted on 01/24/2011 4:00:04 AM PST by JSDude1 (December 18, 2010 the Day the radical homosexual left declared WAR on the US Military.)
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To: The Working Man

No, I like the way it read first ;), it should be unreasonable on them-but of course they need a “spanking” they won’t forget! LET THE “GROWN-UPS” RULE for a while.

J.S.


14 posted on 01/24/2011 4:04:33 AM PST by JSDude1 (December 18, 2010 the Day the radical homosexual left declared WAR on the US Military.)
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To: ErnstStavroBlofeld

The states are still sovereign entities, to the extent that they did not voluntarily yield a portion of their sovereignity when they joined the Union under the Constitution. Let them do what every sovereign has to do when faced with too much debt and not enough revenue - default.

That won’t get them out of the woods by any stretch of the imagination. First, to the extent that they secured any of the defaulted debt with, e.g., toll-road receipts, the secured lenders will still be able to foreclose on their collateral. Second, they won’t get a free ride because new debt will become prohibitively expensive (free markets are like that). Third, they’ll have to institute austerity measures in any event because if they don’t, the taxes they’ll have to impose will be so vicious they’ll drive almost all of their productive businesses out of state.

Let ‘em default; let ‘em prove the hard, cold truth of Madam Thatcher’s observation that “socialism is only fun until you run out of other peoples’ money.”


15 posted on 01/24/2011 4:11:10 AM PST by Oceander (The phrase "good enough for government work" is not meant as a compliment)
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Ping for later.....


16 posted on 01/24/2011 8:56:53 AM PST by Rabble
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To: ErnstStavroBlofeld
Bull-crap. States should have no possible relief under bankruptcy laws that allow “reorganization” or debt forgiveness. They have the ultimate protection from financial hardship: the power to tax!

Not enough money to pay the state's bills? Tax the stupid citizens that elected the idiots that can't live within a reasonable budget. Keep raising their taxes until they elect a government that will control spending, or the state chases away all the residents who are responsible for the payment of the taxes to support the government.

When all its citizens have moved away, and no more tax collections are possible, hold an auction to sell all the assets the state has impounded for tax deficiencies to neighboring states.

The only role for a “bankruptcy judge” at this point is for one who will declare that the state has no residents who can be taxed, or assets, and the proceeds of the liquidation auction will be allocated ratably to a certain list of qualified creditors.

17 posted on 01/24/2011 9:55:58 PM PST by tdscpa
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To: tdscpa

Its better than defaulting.Then state bonds would be worth absolutely nothing.


18 posted on 01/24/2011 11:05:07 PM PST by ErnstStavroBlofeld
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To: ErnstStavroBlofeld

Wrong.

The citizens of the state that borrowed more than it can pay back under existing tax rates should raise taxes high enough to pay back its borrowings. When it has to raise them high enough that its citizens flee, and it has no more unfortunate democrat citizens left to tax, it will foreclose for taxes all the property in the state, hold a liquidation auction, and disappear.

If there are enough Republican voters in the state, it will not borrow more than it can repay.


19 posted on 01/25/2011 12:01:40 AM PST by tdscpa
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To: tdscpa

Something needs to be done. Its between the worst to two evils, bankruptcy or default. For many states, its past the point of no return fiscally. California and Illinois are about to collapse financially


20 posted on 01/25/2011 12:04:58 AM PST by ErnstStavroBlofeld
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