But then there's a key question: what happens when states run out of money and there's no bailout from the Feds? Without the possibility of bankruptcy, I can't see a way out.
There is a CA city that went bust. I suppose its in state receivership. In any case, 90% of its current income goes to service pension obligations.
Familiar with this? Not Bell(flower).
yitbos
Since Reagan fired the air traffic controllers, the public employee unions have managed to use their purses—filled with public funds — to claw their way into virtual control of some governments. This is an intolerable situation. It is one thing to let private sector unions to have a seat at the table, quite another to have nion of “public servants” to have such a place. Already the “permanent government” prohibits any meaningful restraints on policy change. Noe they have the power to bust the budget.
The union compensation packages are unsustainable. Unions have two options.
The first is to renegotiate a compensation package that is sustainable.
The second is to have the states go into bankruptcy, lose most of the benefits as unsecured creditors and have a revised compensation package imposed upon item at time of economic crisis where they will receive bad publicity and little sympathy.
They will choose the second option
Moral of story: Do not invest in blue state debt instruments.
It’s a great idea.
The problem is left wing judges won’t let Union contracts be re-negotiated.
I doubt that a revision/extension to the US bankruptcy code to allow states to go BK would go through in the current political environment.
The idea is flawed, IMO. States are political sovereigns, and they have the power to either raise taxes or fix their budgets. Allowing them to default on their state debts puts the issue of taxes and spending into the bankruptcy courts’ laps, and that’s not a place we want to see state spending and taxation go.
The states will have to grow a pair and address their issues. This is why the new governor of NJ is attracting so much attention - because he grew a pair and decided to take the issues on without flinching, without apology and without delay.
Morris has done at least what I think is some good writing on this - I am not too sharp on financial matters...
Mark Levin mentioned one of these columns on his program and said he was going to check these remedies out...
http://www.dickmorris.com/blog/the-coming-catastrophe-state-governments
“The Republican solution to state financial distress should be simple: The Party should insist on a change in the federal bankruptcy law providing for a procedure for state bankruptcy (none now exists). This process must call for abrogation of all state and local public employee union contracts as is usually done in private sector bankruptcies.
By freeing states and local governments (including school boards) of their union obligations on wages, work rules, staffing, and pensions, they have a chance to survive and, indeed, to prosper. But merely subsidizing these massive expenditures just prolongs the misery of the states in question.”
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http://www.dickmorris.com/blog/why-we-need-to-let-states-go-broke/
08.10.10
Here’s the key: The reforms must require that states abrogate their public-employee union agreements in the bankruptcy process, just as private corporations like Delta and Chrysler have done. The wage hikes, the work rules, the pension plans all go out the window.
Few states will have the starch to cut benefits for those now receiving them. But most will cut pensions for current workers and all will slice them for future employees. Even the threat will be a powerful bargaining tool.
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http://www.dickmorris.com/blog/smash-the-union-thug-ocracy/
11.08.10
The House must create a federal bankruptcy procedure for states that cannot make ends meet requiring, as happens in corporate bankruptcies, that the state governments abrogate all their union contracts. The new state bankruptcy procedure should offer all states – and through them, their localities, counties, and school boards — the ability to reorganize their finances free of the demands and constraints of their union agreements.
This measure will return our state and local governments to the sovereignty of the people and take them away from the thug-ocracy of public employee unions.
When states like California and New York come to Washington begging for relief, they will threaten us with the closure of their schools and the release of their prison inmates if we deny them subsidy. Liberals and President Obama will try to portray the battle as school children vs. niggardly Republican legislators.
But the real fight will be between school children and citizens on the one hand and unions on the other. The House must shape the issue so that it exposes the real cause of the state shortfalls: The excessive agreements public employee unions have won over the years.
Govt. Pensions must STOP!! It’s INSANITY to think they can be sustained!! insanity!! STOP THE UNIONS....NOW!!
This is why I think the European Central Bank (ECB) and other EU authorities are probably already working up a plan to put the worst problem banks in Portugal, Spain, Ireland, Italy, Greece and Spain into a pre-planned bankruptcy condition (known as receivership in Europe) so they could do an orderly shutdown of these banks and combine whatever assets are left into stronger, more viable entities.
Oh, that would work just swell. A federal law allowing states to force a "cram down" on bondholders wouild have investors rushing to the exit in any bond auction being held by a state nearing insolvency, driving interest rates up dramatically for such a state and possibly making it impossible to sell bonds at any price.
And investors won't ever again be fooled by creation of "senior" securities, supposedly standing at the head of the line for repayment, after seeing what happened to holders of such securities in the auto bailouts last year: Obama picked their pockets and handed the money to the union thugs who own the democrat party,
Illinois: Between Iraq and a Hard Place ... to live