Pensions are paid to people who worked for them
Bond holders know they are at risk when investing and seek out returns commensurate with that risk.
Close, but public pensions are paid for by taxation. The reason municipal bonds are rated the way they are is the municipality has the ability to raise taxes to meet their obligations. By failing to meet obligations when monies are available is unlawful, and immoral.
In this case, the municipality well outspent their incoming revenue. They are obligated to pay their creditors first, by law.
When companies go bankrupt (see the airlines), the pension obligation falls to the PBGC (Pension Benefit Guaranty Corporation), an agency of the US Govt. The PBGC then becomes liable for paying at least some portion of the pension.
When municipalities go bankrupt, they continue to collect taxes, though not at a rate to cover debts. They need to work with all creditors to reorganize their debt. But to just not make a payment is plain wrong.
“Pensions are paid to people who worked for them
Bond holders know they are at risk when investing and seek out returns commensurate with that risk.”
Yeah, but when they raid the whorehouse, they take the piano player too. PE pensions are due for a huge haircut. I mean after they screw the bond holders and still have no money, just who’s going to be next? Plus, here in CA (Stockton) the courts have already said that pensions can be cut in a municipal bankruptcy, so it WILL happen. Taxpayers are about done with overpaying PE’s both during their “working lives,” and in retirement.