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States about to be screwed : Feds Weigh the Bankruptcy option

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User ID: 1134640
United States
01/21/2011 02:41 AM

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States about to be screwed : Feds Weigh the Bankruptcy option
Muni bonds are tanking. Investors have pulled out $ 25 billion in the last 2 months. This brings up the whole notion of "full faith and credit" of govt bonds. Next up to bat > Treasury bonds. With moral hazard, the Feds have bailed out/backstopped the banks with $23 trillion dollars.
Is this the end of the line ? to a bond market crash ?

Path Is Sought for States to Escape Debt Burdens
Published: January 20, 2011

Stephen Crowley/The New York Times

Senator John Cornyn asked this month whether Congress should consider establishing a bankruptcy procedure for states. More Photos »

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


“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, so that states like California and New York and Illinois that think they’re going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans, and frankly if they don’t want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it.”

NEWT GINGRICH, former speaker of the House

rest :

[link to www.nytimes.com]
Even the structure of the atom has been found by the mind. Therefore the mind is subtler than the atom. That which is behind the mind, namely the individual soul, is subtler than the mind.

User ID: 1231580
01/21/2011 02:55 AM
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Re: States about to be screwed : Feds Weigh the Bankruptcy option
Hmmm....funny how the big banks, those 'Connected' in the financial services sector, and a few other 'Connected' industries [auto, ETC.,] ALL of whom fucked up big-time and/or are guilty of MASSIVE fraud, were bailed out [and continue to be bailed out here in the U.S. and in Europe, with back-door American backing].

All animals are created equal; but some are more equal than others.