[Sixstrings]

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.
http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?_r=2&src=busln

Hm, this is definitely an EconoDoom watershed moment. If it actually happens, and states start declaring bankruptcy, that's big news. All those retirees with state pensions will face restructured benefit payments. I assume bondholders would eventually get paid, but who knows when.

Can even Oilfinder deny doom like this?

From Zerohedge:

A few days ago we reported that Newt Gingrich was pushing for legislation to allow states to file for bankruptcy, "allowing Them To Renege On Pension And Benefit Obligations." As we speculated back then "obviously what this means for equity investors in assorted muni investments is that a complete wipe out is becoming a possibility, as Meredith Whitney's prediction, which everyone was quick to mock and ridicule, is about to come back with a vengeance."

Sure enough, this most recent development in the states' path to insolvency was quickly ignored as it was not a dipping mushroom cloud that could be bought. Until tonight: the NYT has just rehashed the post in an article that would not only validate the Whitney thesis if true, but make a Cramer-Bove out of everyone who has been caught on tape in the past two weeks kicking and screaming that there is no chance in hell the carnage predicted by the scourge of Citigroup (and yes, back in 2007 everyone said that Citi could never fail either).
http://www.zerohedge.com/article/nyt-reports-states-looking-ways-file-bankruptcy-muni-bondholders-be-gmed

[Armageddon]

Post this in the 'economy is recovering' thread.

[Plantagenet]

...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.

Too late.

The dems in Illinois have already shown they can just raise taxes by 60% or whatever it takes to pay the pensions and other debts. There's no way Illinois can now claim to be bankrupt when they simply have to raise taxes to meet their obligations.

[Sixstrings]

The dems in Illinois have already shown they can just raise taxes by 60% or whatever it takes to pay the pensions and other debts. There's no way Illinois can now claim to be bankrupt when they simply have to raise taxes to meet their obligations.

Which is why bondholders WILL get paid, just a question of when. States can't ever go truly bankrupt precisely because they have taxing authority. I'ts not like a business, states can ALWAYS tax.

So a bankruptcy is a restructuring, not a default. Pensioners will really take a hit, I wonder by how much. Lot of seniors on fixed incomes. And it's cold in Illinois.

EDIT: correct me if I'm wrong, but I don't think any state has ever declared bankruptcy, even in the Great Depression. This would be unprecedented.

[Plantagenet]

Pensioners will really take a hit, I wonder by how much. Lot of seniors on fixed incomes. And it's cold in Illinois.

Its no different than social security.

Seniors elected people through the 80s, 90s and 00s who voted in these benefits for them. Now seniors want to collect, and they'll vote out anyone who tries to cut their benefits.

Young folks will get ripped off, but they probably won't mind their taxes being raised to pay the benefits to seniors. After all, young folks are mostly democrats and Obama supporters----all they care about is whether or not the politician is "cool.".....

[argyle]

lol, and I thought that some euro-countries were in a tough position..

[PrestonSturges]

Quick somebody tell me again how the Democrats "never let a crisis go to waste."

Because the Republicans have been all over the chance to crush the public unions and pensions by letting the bond market crash, and they're working extra hard to make it happen.

[vision-master]

Hm, this is definitely an EconoDoom watershed moment. If it actually happens, and states start declaring bankruptcy, that's big news. All those retirees with state pensions will face restructured benefit payments. I assume bondholders would eventually get paid, but who knows when.

COLA's will be stopped or in my case only 1% a year increases from now on. Pension plans will most likey change for NEW employees. State pensions are covered by law and just can't be changed like private plans. Tax payers WILL pick up any shortfalls, get over it and quit worrying about ppl that do have pensions.

[Homesteader]

Hm, this is definitely an EconoDoom watershed moment. If it actually happens, and states start declaring bankruptcy, that's big news. All those retirees with state pensions will face restructured benefit payments. I assume bondholders would eventually get paid, but who knows when.

COLA's will be stopped or in my case only 1% a year increases from now on. Pension plans will most likey change for NEW employees.

So why does that require bankruptcy?

[vision-master]

It doesn't.

New rules for new employees.

It's been going on since the 60's.

[crude_intentions]

Young folks will get ripped off, but they probably won't mind their taxes being raised to pay the benefits to seniors. After all, young folks are mostly democrats and Obama supporters----all they care about is whether or not the politician is "cool.".....

My experience has been that most of the young liberal college crowd don't mind if you take someone else's money, The Rich, The Greedy, ect but touch theirs and they'll scream like mad men.

[Homesteader]

It doesn't.

Ergo they have some other reason to consider bankruptcy for states.

[vision-master]

Case law and state constitutions

History is on the employees’ side. State statutes, constitutions and case law consistently define a public pension as a contract between the state and its employees that cannot be impaired. For example, Alaska’s state constitution makes it clear that “membership in employee retirement systems of the state or its political subdivisions shall constitute a contractual relationship. Accrued benefits of these systems may not be diminished or impaired.” Eight other states protect workers in their constitutions. They are Arizona, Hawaii, Illinois, Louisiana, Michigan, New Mexico, New York and Texas.

In states without constitutional guarantees — Colorado, Minnesota and South Dakota fall into this category — statutes and court cases consider retirement benefits an unbreakable contract between the state and workers. That same protection is in the contract clause of the U.S. Constitution, which says: “No state shall … pass any … law impairing the obligations of contracts.”

http://www.stateline.org/live/details/s ... tId=504503

[Livewire713]

Young folks will get ripped off, but they probably won't mind their taxes being raised to pay the benefits to seniors. After all, young folks are mostly democrats and Obama supporters----all they care about is whether or not the politician is "cool.".....

My experience has been that most of the young liberal college crowd don't mind if you take someone else's money, The Rich, The Greedy, ect but touch theirs and they'll scream like mad men.

Just curious, how many young college liberals do you know to make such a statement? Most college students I know are broke and indebt to their eyeballs.

[Timo]

...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.

Too late.

The dems in Illinois have already shown they can just raise taxes by 60% or whatever it takes to pay the pensions and other debts. There's no way Illinois can now claim to be bankrupt when they simply have to raise taxes to meet their obligations.

Take a guess as to the income tax rates following the Great Depression. Go on. Guess. Or better yet, do the google and research how high taxes were back in the "good ol' days."

[Plantagenet]

The dems in Illinois have already shown they can just raise taxes by 60% or whatever it takes to pay the pensions and other debts. There's no way Illinois can now claim to be bankrupt when they simply have to raise taxes to meet their obligations.

Take a guess as to the income tax rates following the Great Depression. Go on.....research how high taxes were back in the "good ol' days."

You picture the "Great Depression" as the "good ol' days" and you favor raising taxes to the same levels we had in the Great Depression? The Great Depression that lasted 12 years?

Sorry----I have to disagree with you on that one. Wouldn't it be smarter to try economic policies very different then was done during the Great Depression, in hopes we can get the economy rolling again more quickly than Roosevelt managed to do?

[Timo]

My only point was that blaming the Dems for our current economic collapse pails in comparison to what our fathers and grandfathers went through (sorry Grandma). Taxes were in the 60% range back then. If that were to happen today, it'd be called socialism, and even i don't advocate that. At that time, however, it was simply taking care of business and doing what had to be done. Granted, times have changed, but that doesn't mean that civilization does not have its costs, just as always. Business is business, and to avoid self destruction, we all have to pay the piper. Not doing that and complaining about our situation only hastens the end.

[Newfie]

EDIT: correct me if I'm wrong, but I don't think any state has ever declared bankruptcy, even in the Great Depression. This would be unprecedented.

From the Jan/Feb issue of the Atlantic - Dire States article.

"In 1933, despite cuts, Arkansas could not stay solvent; it defaulted on $146 million worth of transportation bonds, a traumatic process that haunted the state for years. That was the last time a U.S. state defaulted on its bonds, but some economist are starting to worry again. "In California and New York," says John Hood of the John Locke Foundation, the fiscal crisis flirts with bankruptcy.""

[Livewire713]

The Illinois General Assembly raised the income tax rate from 3 percent to 5 percent. 5% income tax rate is about what any other state taxes their residents.

http://www.taxfoundation.org/taxdata/show/228.html

[the48thronin]

Just curious, how many young college liberals do you know to make such a statement? Most college students I know are broke and indebt to their eyeballs.

Funny thing that... I wonder if google research would find percentages of collage students "living on loans" and running up debt and those who have the ability to go to collage without using debt financing?

Most collage students I know reminds me of the guys I meet who say "everyone does it" that bought houses on ARMS, took drugs, ignored the traffic laws, or used liars loans to finance their flip homes businesses....

Got any numbers? Or are generalities all we need to justify any position?