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  1. #1
    Gird your loins Daisy Hill's Avatar
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    12.12.17 @ 08:58 PM
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    Default Is the way out for States' economic woes bankruptcy?

    With states across the nation buried by debt, social programs and pension funds, will bankruptcy be the way out?

    Seems unreasonable...after all, if you owe taxes to the state, bankruptcy will not get you out of your debt, but the states may be allowed out of pension programs through the same means? and so much for those "safe" bond investments.


    Plans being drawn up to let states declare bankruptcy
    Pensioners and investors in state bonds could lose out


    Senator John Cornyn, a Texas Republican, has asked the Federal Reserve chairman, Ben Bernanke, about the possibility of drawing up a bill allowing states to go bankrupt.
    By MARY WILLIAMS WALSH

    updated 1/21/2011 7:39:56 AM ET

    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.
    Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.
    But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.
    Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care.
    Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

    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.
    Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

    “All of a sudden, there’s a whole new risk factor,” said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton administration.


    For now, the fear of destabilizing the municipal bond market with the words “state bankruptcy” has proponents in Congress going about their work on tiptoe.

    No draft bill is in circulation yet, and no member of Congress has come forward as a sponsor, although Senator John Cornyn, a Texas Republican, asked the Federal Reserve chairman, Ben S. Bernanke, about the possibility in a hearing this month.
    House Republicans, and Senators from both parties, have taken an interest in the issue, with nudging from bankruptcy lawyers and a former House speaker, Newt Gingrich, who could be a Republican presidential candidate.
    It would be difficult to get a bill through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.
    Lawmakers might decide to stop short of a full-blown bankruptcy proposal and establish instead some sort of oversight panel for distressed states, akin to the Municipal Assistance Corporation, which helped New York City during its fiscal crisis of 1975.
    Still, discussions about something as far-reaching as bankruptcy could give governors and others more leverage in bargaining with unionized public workers.
    “They are readying a massive assault on us,” said Charles M. Loveless, legislative director of the American Federation of State, County and Municipal Employees. “We’re taking this very seriously.”
    Mr. Loveless said he was meeting with potential allies on Capitol Hill, making the point that certain states might indeed have financial problems, but public employees and their benefits were not the cause.
    The Center on Budget and Policy Priorities released a report on Thursday warning against a tendency to confuse the states’ immediate budget gaps with their long-term structural deficits.

    “States have adequate tools and means to meet their obligations,” the report stated.
    No state is known to want to declare bankruptcy, and some question the wisdom of offering them the ability to do so now, given the jitters in the normally staid municipal bond market.

    Slightly more than $25 billion has flowed out of mutual funds that invest in muni bonds in the last two months, according to the Investment Company Institute.
    Many analysts say they consider a bond default by any state extremely unlikely, but they also say that when politicians take an interest in the bond market, surprises are apt to follow.
    Mr. Maco said the mere introduction of a state bankruptcy bill could lead to “some kind of market penalty,” even if it never passed. That “penalty” might be higher borrowing costs for a state and downward pressure on the value of its bonds. Individual bondholders would not realize any losses unless they sold.

    But institutional investors in municipal bonds, like insurance companies, are required to keep certain levels of capital. And they might retreat from additional investments. A deeply troubled state could eventually be priced out of the capital markets.
    “The precipitating event at G.M. was they were out of cash and had no ability to raise the capital they needed,” said Harry J. Wilson, the lone Republican on President Obama’s special auto task force, which led G.M. and Chrysler through an unusual restructuring in bankruptcy, financed by the federal government.
    Mr. Wilson, who ran an unsuccessful campaign for New York State comptroller last year, has said he believes that New York and some other states need some type of a financial restructuring.
    He noted that G.M. was salvaged only through an administration-led effort that Congress initially resisted, with legislators voting against financial assistance to G.M. in late 2008.
    “Now Congress is much more conservative,” he said. “A state shows up and wants cash, Congress says no, and it will probably be at the last minute and it’s a real problem. That’s what I’m concerned about.”
    Discussion of a new bankruptcy option for the states appears to have taken off in November, after Mr. Gingrich gave a speech about the country’s big challenges, including government debt and an uncompetitive labor market.

    “We just have to be honest and clear about this, and I also hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy,” he said.
    A few weeks later, David A. Skeel, a law professor at the University of Pennsylvania, published an article, “Give States a Way to Go Bankrupt,” in The Weekly Standard. It said thorny constitutional questions were “easily addressed” by making sure states could not be forced into bankruptcy or that federal judges could usurp states’ lawmaking powers.
    “I have never had anything I’ve written get as much attention as that piece,” said Mr. Skeel, who said he had since been contacted by Republicans and Democrats whom he declined to name.

    Mr. Skeel said it was possible to envision how bankruptcy for states might work by looking at the existing law for local governments. Called Chapter 9, it gives distressed municipalities a period of debt-collection relief, which they can use to restructure their obligations with the help of a bankruptcy judge.
    Unfunded pensions become unsecured debts in municipal bankruptcy and may be reduced. And the law makes it easier for a bankrupt city to tear up its labor contracts than for a bankrupt company, said James E. Spiotto, head of the bankruptcy practice at Chapman & Cutler in Chicago.
    The biggest surprise may await the holders of a state’s general obligation bonds. Though widely considered the strongest credit of any government, they can be treated as unsecured credits, subject to reduction, under Chapter 9.
    Mr. Spiotto said he thought bankruptcy court was not a good avenue for troubled states, and he has designed an alternative called the Public Pension Funding Authority. It would have mandatory jurisdiction over states that failed to provide sufficient funding to their workers’ pensions or that were diverting money from essential public services.
    “I’ve talked to some people from Congress, and I’m going to talk to some more,” he said. “This effort to talk about Chapter 9, I’m worried about it. I don’t want the states to have to pay higher borrowing costs because of a panic that they might go bankrupt. I don’t think it’s the right thing at all. But it’s the beginning of a dialog.”
    This article, headlined " Path Is Sought for States to Escape Debt Burdens," first appeared in The New York Times.

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  2. #2
    Atomic Punk Dave's Dreidel's Avatar
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    12.12.17 @ 05:27 PM
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    Default

    Yeah, if you own state and or municipal bonds, you are probably going to get f'd.

    Bondholders are supposed to be protected, but tell that to the bond holders in the bail outs in 2008, they got left holding the shaft.
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  3. #3
    Eruption Naked Wake's Avatar
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    12.11.17 @ 12:57 PM
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    Default

    I'm no expert on this tangled mess but I think I'd be really disappointed if they allowed states to declare bankruptcy. All the people that worked for the government are now in positions where they need that money. They can't go out and get a job because in many cases they're too old. Who would hire them?

    They say that the brightest flame burns quickest, and that's certainly the case with the US. We basically built the credit system and other countries watched with great anticipation over the last 100 years and now it's blowing up in our faces.

  4. #4
    Forum Frontman It's Mike's Avatar
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    12.12.17 @ 07:02 PM
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    Default

    not sure how riots in the streets are the solution to economic woes.

  5. #5
    Atomic Punk edwardv's Avatar
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    12.12.17 @ 05:40 PM
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    Default

    You would have figured this would cause the bond market to sink today but it did not.If they do this and its wide spread the next depression is here. Asshole motherfuckers.
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  6. #6
    Atomic Punk lovemachine97(Version 2)'s Avatar
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    12.12.17 @ 10:51 PM
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    Default

    Well, it'll never happen in Union-controlled CA where I am, at least.

    These politicians haven't really come to terms with the fact that overreaching, overspending government has led them to running out of money.

  7. #7
    Atomic Punk Dave's Dreidel's Avatar
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    Default

    The main thing they are wanting to go bankrupt on are the pension plans of state workers.

    Nice.

    I am sure the state representatives and the members of both the House and Senate are going to take some money out of their pensions too.

    Sarcasm mode now off....
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  8. #8
    Atomic Punk
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    Men and women worked hard, gave their professional lives, sacrificed time with their families and many sacrificied other opportunities because of the pensions and retirement plans they had in front of them.

    To break that commitment would be criminal and immoral.

    If this country or if the states want to, going forward, take similar plans off the table for future workers, fine. That's their perogative.

    It's entirely within their right to change things for new employees going forward...but for all those people who've spent their lives working towards something they're about to receive and have these incompetent, corrupt, greedy politicians weezle their way out of it by declaring bankruptcy instead of making the hard budget decisions necessary to ensure those people get what's theirs is absolutely unacceptable.

    If they claim bankruptcy to avoid paying what those people earned, than I hope every one of those capital buildings burn.

    Yep. You heard me. I went there.
    Stay out of it, dude.


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  9. #9
    Good Enough Tropical Storm Tracey's Avatar
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    11.18.17 @ 07:19 PM
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    Default

    Quote Originally Posted by broken9500 View Post
    Men and women worked hard, gave their professional lives, sacrificed time with their families and many sacrificied other opportunities because of the pensions and retirement plans they had in front of them.

    To break that commitment would be criminal and immoral.

    If this country or if the states want to, going forward, take similar plans off the table for future workers, fine. That's their perogative.TST

    It's entirely within their right to change things for new employees going forward...but for all those people who've spent their lives working towards something they're about to receive and have these incompetent, corrupt, greedy politicians weezle their way out of it by declaring bankruptcy instead of making the hard budget decisions necessary to ensure those people get what's theirs is absolutely unacceptable.

    If they claim bankruptcy to avoid paying what those people earned, than I hope every one of those capital buildings burn.

    Yep. You heard me. I went there.
    Amen!

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  10. #10
    Eruption
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    Default

    What's going to happen when states can do this then other states that aren't having issues have to pay more taxes to cover the other states?

    Let's say California goes under, is everyone from Texas OK with paying double taxes to cover California's bankruptcy?


    This was in 2008:

    Last edited by xaminer; 01.22.11 at 10:33 PM.
    Your favorite band sucks.

  11. #11
    Baluchitherium loveevhsince79's Avatar
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    Default

    Quote Originally Posted by broken9500 View Post
    Men and women worked hard, gave their professional lives, sacrificed time with their families and many sacrificied other opportunities because of the pensions and retirement plans they had in front of them.

    To break that commitment would be criminal and immoral.

    If this country or if the states want to, going forward, take similar plans off the table for future workers, fine. That's their perogative.

    It's entirely within their right to change things for new employees going forward...but for all those people who've spent their lives working towards something they're about to receive and have these incompetent, corrupt, greedy politicians weezle their way out of it by declaring bankruptcy instead of making the hard budget decisions necessary to ensure those people get what's theirs is absolutely unacceptable.

    If they claim bankruptcy to avoid paying what those people earned, than I hope every one of those capital buildings burn.

    Yep. You heard me. I went there.
    You're right Broke but in some cases, the states allowed the unions to negotiate benefits that they could not afford even before the economic downturn.

    This sounds insane but maybe it could work. If they could work on all aspects, not just take away the pension but lower the pension payouts, lower everything that is being paid out, have things reorganized by the bankruptcy judges, perhaps it would be better than an all out collapse.

    I'm just angry that it is happening at all. The overspending needed to stop a long time ago. Now they have to have a bankruptcy judge force them to do it. This is like the difference between Ford and GM. Ford saw what was coming and they did everything that was necessary to stay afloat. Hell, they even sold the rights to use their logo to stay out of bankruptcy. GM, on the otherhand, had to be forced to make changes. And who has come out better between those two companies?
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