A Path Is Sought for States to Escape Their Debt Burdens

A Path Is Sought for States to Escape Their Debt Burdens

www.nytime s.com

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout

House Republicans, and Senators from both parties, have taken an interest in the issue

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This is a reasonable proposal, despite some of the constitutional issues. It is certainly a far better solution than a federal bail-out or an outright default by the states.

Just like families, some states are far better run than others and by not allowing them to deal with their debts independently, but rather require them to seek a federal, thus collective solution whereby the entire nation has to backstop their incompetence is the not right way to go.

The unions in these states have milked them dry. They negotiated/extorted budget busting contracts that were economically impossible to pay for. The politicians, only in the game for a short time and not caring about the long-term implications and needing union support, agreed with these contracts. The people of the state voted the politican into office and now it is time for the people who voted them in and the unions who played the extortion racket to pay the piper.

States like California have been incompently managed for decades. They have a massive safety net, sanctuary cities inviting illegals to come and take from the social service system (take a look at the new thread where last years cost for medical treatment for illegals alone in CA was $600M).

California has also consistently been rated one worst places to conduct business, yet they continue to push for harsher building codes - not on the issues that might make sense like earthquake and mudslide issues, but rather on "green construction". The refuse to tap into their oil reserves and impose high taxes which drives businesses out of the state. California has had a net exodus of people (illegals not included) for over 10 years. You would be a fool to start a business in California.

There is no way that the citizens of the country should have to pay for this folly. Let these states declare bankrupcy and let them get out from under the burden of these public sector contracts and actually get in the business of running their state competently.

Eariler this week was the news of Berkeley being set to offer sex changes to city workers. Fine, except that Berkeley is in debt and borrowing money from the state which is in massive debt. In a federal bail-out scheme, all states will thus be paying for sex change operations of city employees in Berkeley. How is that a reasonable outcome? You can also toss abortion into the mix.

Its not been real money or fiscal responsibility to these folks for some time. Time to make them stand up and take responsibility for their actions.

As far as the impact to the muni-bond markets, who cares? An investment in a municipal bond is an investment and as such has inherent risks. What is going on now is a perversion of the marketplace whereby the quality of the bonds are inflated by the notion that the state can not default or declare bankrupucy and as such there is a federal backstop. Eliminate that backstop and the interest on those bonds will go up. If nobody wants to buy them too bad. If they get their house in order folks will buy them. I have not held a mutual fund that invests in municipal bonds in years. Why? Because a State of California muni bond is a crappy investment and a false one at that. The people who complain about the impact on the muni bond market are the folks who relish in the artifical high quality debt they are selling to foolish clients. You better believe that shops like Goldman Sachs will be pushing hard against making this happen. They make $billions trading muni bonds and packaging them in to phony securities.

Its about time. If folks want the states to be soverign, let them be soverign and dig themselves out of this jam they created

www.nytimes.co m
(visit the link for the full news article)

The unions in these states have milked them dry. They negotiated/extorted budget busting contracts that were economically impossible to pay for.

Agreed. Why should a "flag turner" be making $30/hr? I've seen more skill go into cleaning the toilets at Dennys. Why not pay the guy what he's worth... maybe $10-14/hr. All I'm saying is if they actually ran like a normal business and cut costs where they could, the bids would be 1/3 the price!

reply to post by dolphinfan

This is a reasonable proposal, despite some of the constitutional issues. It is certainly a far better solution than a federal bail-out or an outright default by the states.

Or the worst offenders can eat it and cut spending like normal people do when they find themselves out of money. It is never ok to violate state or the Federal Constitution. What this creates here is a moral hazard. If the states don't have to exemplify any modicum of fiscal responsibility because the feds will come running with buckets of cash to "put out the fire" then where is the incentive to be responsible with the people's money?


ETA:
They don't have to declare bankruptcy. All they have to do is cut. Now they have to liquidate which means the cuts will be abrupt and harmful to the people.

I guess planning is a thing of the past too.

This crisis has obviously taught very few anything about the concept of moral hazards.

This is such a no-brainer. Close the FED, every branch and/or any fractional reserve based banking entity right up to the BIS, World Bank and IMF. Institute accountability and transparency laws. Charge the existing bankers, international bankers, interfering corporations and politicotools with treason. If every state/colony/country in the world did this, the playing field would be leveled and the allegedly "human" trash could be dumped in the garbage where it belongs. This could all be done under rule of law.

Another option is that every person in the world files a UCC to reclaim property.

Either proposal is ambitious, but necessary if you want to take back your life and your property. But whatever works ;-)

Cheers - Dave