Posted on 02/18/2010 3:57:41 AM PST by Brandonmark
Just days after becoming controller of financially strapped Harrisburg, Pa., in January, Daniel Miller began uttering an obscure term that baffled most people who had never heard it and chilled those who had: Chapter 9.
The seldom-used part of U.S. bankruptcy law gives municipalities protection from creditors while developing a plan to pay off debts. Created in the wake of the Great Depression, Chapter 9 is widely considered a last resort and filings under it are more taboo than other parts of bankruptcy code because of the resulting uncertainty for everyone from municipal employees to bondholders.
The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.
(Excerpt) Read more at online.wsj.com ...
The more munis that default, we all know it will be reported as better than expected and the more the markets will RAAALLLLEEEEE.
If the states start taking over more of the debts of their municipalities it will only insure more states like California will be looking to the Feds to bail them out.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/2/6_Donald_J._Saltarelli.html.
This is exactly what California must eventually do so that their fiscal insanity can end. Unfortunately, it will take a lot more testosterone than the Gubernator has.
There are three legs to the finances of government and only two of those legs ever get discussed. The three legs are government spending, taxes and issuing bond debt. Politicians have been talking about raising/lowering taxes and cutting/raising government spending for 40 years. All the while, their finances are net negative cash flow and they cover the gap by issuing bonds. It is everywhere and we are on to the point of having all this bad debt not being able to get paid off. The bond debt is the huge drug that keeps the politician and citizens from living in financial reality. And it has been going on for years .
More importantly, it is the public employee pension plans that are catching up with them. It is a particularly insidious form of spending.
Most taxpayers don’t understand actuarial mathematics, nor do they understand that many of the investment assumptions of return on these public pension plans are very optimistic. The net result is that as the wave of boomers in government jobs retire, they’re collapsing these defined benefit systems. Since Congress forced state/local governments to actually start accounting for their pension liabilities, the problem can no longer be hidden and/or kicked down the road for another day. The jig is now officially up.
More specifically, until investors stop buying “revenue anticipation bonds” - where pols issue debt that is supposed to be funded by future tax revenues.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/2/6_Donald_J._Saltarelli.html
That was a good listen, thanks!
LLS
There isn’t any provision for whole states to declare bankruptcy. FWIW.
Munis don’t matter. They are owned by the tax evading rich fatcats
Why not? State are brought into court all the time?
A state like California sits on a trillion, at least, of real property. Land, parks, building, colleges, airports, roads, highways, mineral rights. All of which would be better run in private hands. All of which would go from tax eating, union featherbedding, untaxed, into immense cash, tax paying, non union.
They are tax free because no one, zero, no one would buy them at that rate of return if they were taxed. Most are probably in pension funds.
They do matter, because a large portion of municipal budgets are funded in part by munis. Also, many pension funds are invested in them. When they fail, you can bet the unions will ensure the non-union taxpayers pick up the tab.
“The mess is not going to be over until people quit buying government bonds. “
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This is part and parcel of the “talk” about taking over 401(k)’s and IRAs by the Government and imposing a new 5% fee/tax on workers to fund their retirement years. All of that money would be used to purchase Treasury notes.
Also as a “benefit”, Wall Street would not have that 401(k) money pouring in every two weeks or so to prop up Stocks and Bonds.
These were once touted as as “safe and secure” investments by the financial soothsayers, how can this be?
every plumber knows sh!t runs down hill.
Municipal Bancrupcies will precede state bancrupcies.
To close their budget gaps, States are “taking” money from Cities and Counties. Cutting “revenue sharing” and other pass thoughs. My small town “lost” state money for road and drainage and the state is looking at taking back the realestate transfer tax revenue. If you talk to your city or county councilman, you will get an earful.
Muni’s are the canary in the coal mine.
Once one goes and other County/City/Town politicians learn that they can survive the scandal, the flood gates will open.
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