[untrained skeptic]

The article doesn't actually propose letting the states out of their debts. It suggests letting them void existing labor contracts and go back to the bargaining table with the unions. Those contracts represent a different kind of debt that the state has incurred. I think state employee unions generally have far too much power, but I'm not sure there is a sound reason to let the states get out of one type of liability while not allowing any flexibility on the rest.

However, it does seem that when it goes to the courts, the union members usually make out better than nameless investors holding bonds.

[ßuddaßudd]

Yes, the unions are the first place to start.

[SampleMan]

Although all contracts are equally valid, not all contracts have the same claim on assets.

In normal bankruptcy (not run by Obama) employees have first dibs on the assets of the entity to cover compensation for work already done. Second are the parties owed monies for work or goods delivered. Third are the entities debt holders. And last are stock holders.

In the case of states, stock holders do not exist, but another party does. That is the citizenry of the state. They are held accountable to meet the obligations of the state with their personal funds. Now the courts cannot legally raise taxes, but they can direct available funds once collected.

These state failures have the potential of turning a large number of people into economic conservatives. And in truth, that is the only thing that can ultimately solve their problems.