Newt Gingrich Pushing Bill To Allow States To File Bankruptcy Allowing Them To Renege/Pensions...

Zero Hedge ^ | 10 Jan 2011 | Tyler Durden

[combat_boots]

Newt Gingrich Pushing Bill To Allow States To File Bankruptcy Allowing Them To Renege On Pension And Benefit Obligations

Submitted by Tyler Durden on 01/10/2011 09:48 -0500

Some unpleasant news for pensioned workers who believe that their insolvent state will be able to afford ridiculous legacy pensions in perpetuity. According to Pensions and Investment magazines, Newt Gingrich is pushing for legislation that will allow insolvent states to be taken off bailout support and file bankruptcy, in the process allowing them to renege on pension and other benefit obligations promises to state workers.

And if there is anything that will get government workers' blood pressure to critical levels, it is the threat that money they had taken for granted is about to be lifted, courtesy of living in an insolvent state (pretty much all of them). And 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.

From P&I:

[combat_boots]

Kewl. Tyler’s icon, big font and everything!

Thanks!

[MinuteGal]

The newly-elected Dim governor of union-controlled Illinois has proposed, among other brain-tics, a gigantic hike in cigarette taxes plus 75% state income tax increase....and he's blessed with a Dim-controlled legislature.

Pension problem (for the unions) solved by Gov. Quinn.

Leni

[radiohead]

I understand why states may want/need to file bankruptcy. What I don’t understand is what will happen to all the employees’ pensions. Do you just leave people who’ve done no wrong, worked 20-30 years, and thought they had a pension, do you leave them penniless? Will they be paid x cents on the dollar?

Would be better, or even feasible, to ask employees and retirees if they would take x cents on the dollar rather than have the whole state go bankrupt and they lose it all? Are the ‘cram down’ provisions available in business bankruptcies available if the state goes belly up, so that the state can force a settlement on the retirees?

[bill1952]

>Every AFSCME or similar public worker will be made whole on their pensions,

Thats not true.
While judges do rule, they still have to follow the bankruptcy framework and they cannot order anyone to pay anything that is not already there in the current asset list.

Only secured creditors get a shot at 100% and pensions are not secured anything.
The rest would be lucky to get 10%, and typically it is much less.

[blackdog]

You mean like General Motors?

[surfer]

Going bankrupt is better than a bail-out and if they go bankrupt they should be prohibited from ever offering a benefit that is unsustainable and pretty much any other Progressive program :)

[FreedomNotSafety]

I like it! Let's let these idiots see this through to its natural conclusion. Think Detroit and its large swaths of depopulated urban jungle. Think Youngstown were every year a little more city is plowed under and allowed to revert to meadows and forest. Think California were hardworking, law abiding taxpayers are being replaced with hardworking, lawless (not that most of CAs laws are worth following), underground wage earners.

[bill1952]

>Do you just leave people who’ve done no wrong, worked 20-30 years, and thought they had a pension, do you leave them penniless?

No. They get Social Security, just like the taxpayers who work all of their lives and foot the bill for those public pensions.

[Admin Moderator]

You’re welcome
You can do that too, just get the source and post it.

[bill1952]

That had nothing to do with the courts - TARP rescued them.

[FreedomNotSafety]

That is a good point. The UAW was made whole by the US government, presidential branch, not the bankruptcy courts.

At the state level the unions wont have, hopefully, a sugar daddy.

So I would support bankruptcy if tied to a law preventing bailouts.

Have you noticed the union pension plans are trying to become secured creditors? Why is that? I think it is because that would require some real math to calculate exactly how much money would be required to fund their benefits. The amount would be so high that taxpayers would finally revolt once and for all. Better for them to stay ambiguous and hope to dominate the political process.

[Iron Munro]

Can this be the same guy who made his bones back in 1994 with the conservative "Contract With America"?

Obviously old Newt picked up more from Nancy Pelosi than a Global Warming sofa photo-op when he shared the couch with her back in 2008.

Did she give him some special leftist one-on-one back in the congressional cloakroom after the photo-op?

[Mr. K]

Awwwwwwww the poor government workers will have tho *SHOCK* work the same as the rest of us lowly peons???

I worked as a contractor for the state govt - it was the most lazy, inneficient, stupid, backstabbing, corrupt, idiotic place I ever worked.

they could easily have done twice the work with half the people.

[napscoordinator]

>Do you just leave people who’ve done no wrong, worked 20-30 years, and thought they had a pension, do you leave them penniless?

No. They get Social Security, just like the taxpayers who work all of their lives and foot the bill for those public pensions.

Thank God they will not do this. The people who worked in the private sector making tons of money had every opportunity to work for the government except for those who have a felony which could be why most here bash the government. Sorry folks you can’t have a felony and work for the government. Anyway you can hope and pray that the pensions are just going to vanish but they won’t. Why we discuss this all the time is humorous. I guess it gives the wealthy civilians something to talk about. The reason that things are going haywire right now is because the stupid baby boomers are ruining EVERYTHING but that is nothing new. This generation SUCKS bad. Notice this talk of overblown pensions are starting now that the baby boomers are retiring with big huge pensions. Well the generation after them does not have the same pension plan at all but they are stuck with the same reputation. Totally stupid people never get that message.

[blackdog]

The why can a state judge rule that a school district which has no money has to give teachers raises or increases in spending for similar purposes must do so via court order?

New Jersey and California judges do it quite frequently.

[blackdog]

You can't have a felony and work for the government???

Huh?

For some it's a prerequisite. For others it's a life long achievment award.

[ken5050]

You raise interesting questions, but the comparisons you use are not quite equivalent. In a cramdown bankruptcy, which is an involuntary filing..i.e. one that is forced by creditors, (and not a voluntary filing, when the company gets to continue operating at it files the plan with the court)..and just about always leads to a liquidation..all the assets are gathered, and then the creditors get in line according to their position as determined by law, and the pie is split...senior bondholders are paid off in full..IN any state reorganization..you can’t have a cramdown..because that would negate an election..so the elected officials, who generally caused the problem..would have to come up with the solution..and there they will have to decide who gets what. Also, the state has no assets per se...other than the power to tax...unless we experience the greatest privatization ever..i.e. California selling off the Golden Gate Bridge..If bondholders are stiffed..then the state will never be able to borrow again at reasonable rates..Ultimately, it will be multiple levels of pain.. existing retirees will have to take substantial haircuts on pensions and medical benefits..current employees will have to take cuts in current pay levels..and future contractual benefits will ahve to be substantially reduced..as will the number of current municipal employees..and then bondholders will take a haircut...

[longtermmemmory]

from 11 usc 109 on municipalities being a debtor:

(c) An entity may be a debtor under chapter 9 of this title if
and only if such entity -
(1) is a municipality;
(2) is specifically authorized, in its capacity as a
municipality or by name, to be a debtor under such chapter by
State law, or by a governmental officer or organization empowered
by State law to authorize such entity to be a debtor under such
chapter;
(3) is insolvent;
(4) desires to effect a plan to adjust such debts; and
(5)(A) has obtained the agreement of creditors holding at least
a majority in amount of the claims of each class that such entity
intends to impair under a plan in a case under such chapter;
(B) has negotiated in good faith with creditors and has failed
to obtain the agreement of creditors holding at least a majority
in amount of the claims of each class that such entity intends to
impair under a plan in a case under such chapter;
(C) is unable to negotiate with creditors because such
negotiation is impracticable; or
(D) reasonably believes that a creditor may attempt to obtain a
transfer that is avoidable under section 547 of this title.

[PeterPrinciple]

Anyway you can hope and pray that the pensions are just going to vanish but they won’t.

---

They will vanish when the money runs out and not before. This will be true for all of us, whether you have a govt, corp, or personal retirement plan. You think anyone is safe with our own retirement plan in stocks and bonds?

[longtermmemmory]

chapter 9 specifically precludes much of that.