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Friday, January 21, 2011

State Bankruptcy, Say So Long to Your Pension and Your Investments

Here's some really scary stuff. There is now talk of providing a way for individual states to declare bankruptcy. States are barred from seeking bankruptcy protection in federal bankruptcy court. Since states are considered sovereign, there are many "constitutional hurdles" involved in trying to make this happen.

But the proponents say that bankruptcy may be the only way out because it would allow states "alter its contractual promises to retirees, which are often protected by state constitutions". Translated this would allow the state gubments to break promises made to former public employees. It seems as if it is these enormous pension funds that are sucking the life out of many state budgets and taking away from other "essential" services provided by the states. The funds have become so huge that there is no way left to fund them and no way out. Hey guess what! Remember that pension you were depending on? So sorry!

Here's how it might work:

".....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."

Well now I feel KINDA sorry for all those folks that may end up losing some of their pensions..........well what did you expect? You put your eggs in the basket of the gubment and your union and depended on THEM and not YOURSELF to provide for you. And now they may pull the plug on you. As I have heard Rush Limbaugh say many times, "nobody cares more about you that YOU." Of course when the rug is finally pulled out from under all these people there will be rioting in the streets in a manner that puts the European riots to shame. Yes, this is really scary stuff.

According to this article, the idea of a "state bankruptcy" would have a destabilizing effect on the state municipal bond market sending bond holders to the back of the line as unsecured creditors. Not a good thing either. This affects investors like ME who own municipal bonds (only a small amount, thankfully).........hell fire! If you loan people money, you expect them to pay it back! Well, not in this day and time I guess.

I wonder if congress figures out a way to clear all the "constitutional hurdles" and allows states to declare some form of bankruptcy, will the sovereignty of the states be somehow affected, and will the once sovereign states melt into the bankrupt mire of a gigantic central gubment and be completely beholding to the central power and its tyrannical leader? Anytime you start circumventing the constitution, bad things happen especially where states rights are concerned.

Yes, my friends, these are frightening times. These troubles are all caused by gubment making promises it cannot keep and spending like a drunken sailor and living way beyond its means. And they hold a gun to each of our heads demanding more and more!

Boy I hate more than anything to quote Jeremiah Wright, but, "America's chickens are coming home to roost!"

1 comment:

  1. It should all be very scary to folks, especially those who, as you say, depended on the government and unions to provide for them.

    Reminds me of something that Steve Cohen said, wasn't picked up by the media as much as his Nazi comments:


    "The first priority I have always believed of government is to keep people alive, their health care. The second is to get them educated. And the third is to get them a job."


    Unfortunately too many believe as he does. And as Thomas L. Freidmen idiotically inferred that America's one party rule doesn't allow them to "do anything BIG". That's how they judge whether they are doing good or not, whether they created any more BIG government handouts.

    Right Truth