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sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1

S.E.C. & CalPERS / Chowchilla Defaults / 5 More Cities Broke

It looks like California and it's bloated pension system is under federal investigation by the Securities Exchange Commission.
quote:
Federal regulators are investigating whether California violated securities laws and failed to provide adequate disclosure about its giant public pension fund, according to a person with knowledge of the investigation.

The Securities and Exchange Commission normally polices companies, but last year it brought its first enforcement action ever against a state, accusing New Jersey of securities fraud for misleading bond investors about the condition of its pension fund. The commission signaled, in its settlement with New Jersey, that it was going to look more broadly at the pension disclosures of states and cities.

The fund, the California Public Employees’ Retirement System, known as Calpers, lost about a quarter of its total investment portfolio during the financial crisis, leaving the state responsible for replacing billions of dollars each year and contributing to its huge deficit. The question is whether California adequately disclosed in the preceding years how risky the pension investments were and how much money it might need to cover any shortfall.
Read more: »www.nytimes.com/2011/01/07/busin···?_r=2&hp

Meanwhile Chowchilla failed to make a bond payment.
quote:
The 11,000-person town got into this situation through a massive collapse in home prices and bad fiscal management, not least of which was an $8 million city hall project. Earlier this year the city posted a technical default by depleting its bond reserve fund to make a payment.
Read more: »www.businessinsider.com/chowchil···APkcbBik

And finally of the the 16 major US cities most likely to go bankrupt in 2011 five of them are in California. San Diego made #1 but LA, SF, and SJ aren't far behind.

»www.businessinsider.com/americas···2010-12#
»www.businessinsider.com/americas···-calif-1

Of course Jerry Brown has the usual Democrat answer: Raise taxes... Not gonna happen Jerry!

»reason.org/blog/show/jerry-brown···ber-thos

It's going to be an interesting year.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


TearAbite
D'oh

join:2001-07-25
Rancho Cucamonga, CA
kudos:2
Mr Brown has quite a bit of work to do..


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
We needed our own Chris Christie.

»www.youtube.com/watch?v=Evtt-R7Rmdw


RR Conductor
NWP RR Inc.,serving NW CA
Premium
join:2002-04-02
Redwood Valley, CA
kudos:1
reply to sholling
I think somebody is jealous he doesn't have as good of a retirement. You know what, most government employees work dam hard for what they get, can you say the same of yourself? These politicians will cry and whine about this, but you can bet they won't hurt their bottom line.


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1

3 recommendations

said by RR Conductor:

I think somebody is jealous he doesn't have as good of a retirement. You know what, most government employees work dam hard for what they get, can you say the same of yourself? These politicians will cry and whine about this, but you can bet they won't hurt their bottom line.

I've been working full time since I was 13 and been out on my own and self supporting since I was 18. Why don't you tell us about your vast experience in the workforce? About how old you were when you moved out permanently and became entirely self sufficient. How much do you personally pay in state income taxes? Property tax? Not mommy and daddy's tax bills - yours. Perhaps if you had to help pay for those overly generous retirement benefits that are bankrupting the state it might bother you too.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


toby
Troy Mcclure

join:2001-11-13
Portland, OR
reply to RR Conductor
said by RR Conductor:

I think somebody is jealous he doesn't have as good of a retirement. You know what, most government employees work dam hard for what they get, can you say the same of yourself? These politicians will cry and whine about this, but you can bet they won't hurt their bottom line.

And therefore they should be able retire very early from one government job? Then move onto another government job?

All funded by the none government worker?

Think that is fair? no


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
reply to sholling
It looks like Jerry's budget is mostly smoke, mirrors, and tax increases. There are a few cuts in services but not enough - although ylen won't be happy. Non-union employees take a hit but the public employee unions that paid for Brown For Governor get off with little or no pain. He's not going to get the tax increase so I have idea why he's wasting 6 months and the cost of a special election before cutting deeper.

»www.ebudget.ca.gov/
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--

cmaenginsb1
Premium
join:2001-03-19
Palmdale, CA
reply to RR Conductor
said by RR Conductor:

I think somebody is jealous he doesn't have as good of a retirement. You know what, most government employees work dam hard for what they get, can you say the same of yourself? These politicians will cry and whine about this, but you can bet they won't hurt their bottom line.

LMAO, outside of some of the emergency workers most government workers do not work "damn hard" for what they get.

I love standing around in a room full of government workers at 3am all of them getting OT, except me.


Retired6
Premium
join:2002-11-09
Earth
Reviews:
·Time Warner Cable
reply to sholling
John Crombach will be cashing in..:+)

»www.vcstar.com/news/2011/jan/15/···rn-from/
--
I work hard. I play hard. I stay hard.


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
Milking the taxpayers.


dogma
XYZ
Premium
join:2002-08-15
Boulder City, NV
kudos:1
He's not doing anything illegal. But his pension alone won't solve the budget issue. I don't think there is anything that can be done to void pension contracts already in place.

With respect to the new Governors plan, Brown proposes $12.5 billion in cuts, including:

• Brown proposes cutting the take-home pay of unionized state employees in six bargaining units by between 8 percent and 10 percent. The units account for more than a third of the state’s general fund payroll.

• Brown also wants many State union workers to remain on three-day-per-month furloughs through June.

• Additionally, Browns budget proposal includes $1.7 billion in cuts to the state’s health program and $1.5 billion in spending reductions for its welfare-to-work program.

• Big cuts are also slated for programs for the disabled, including the mentally retarded and autistic.

• University of California system and other state universities also face $1 billion in cuts

• Browns budget proposes phasing out the funding mechanism for redevelopment agencies.

• An integral part of Gov. Jerry Brown’s new budget is that California’s voters — presumably in June 2011 — will decide to extend the “temporary” sales tax increases of 2009 until 2016. The tax will drop to 8.25% unless California’s voters want to keep the 9.25% rate for five more years.

Of note:
• Local jurisdictions will take responsibility for offenders of convicted “nonviolent, nonserious, nonsex offenses, and without previous convictions for such offenses.” These offenders will be fined or forced to do services for CalTrans of somesuch.

• Elimination of the Division of Juvenile Justice by June 30, 2014, and transfer authority of offenders to local governments. End of Juvie Court.

• Areas where Brown did not propose cuts or reforms include pensions, and because state employee pension funds are not adequately funded, if benefit formulas are not reduced, more money will need to be allocated for pensions.

The cuts are good. But the sales tax issue is up to California voters, and as sholling See Profile has correctly pointed out, without pension reform moving forward, these cuts are a drop in the bucket.

Again, this is a failure of Democracy. Pensions are such a sacred cow, even though it is technically impossible for the State to service the pension liability, all politicos are scared to approach the problem for fear that those pension beneficiaries will vote in some new Yes-critter. Which is indeed the truth as voters will always vote themselves free money.

»poway.patch.com/articles/breakdo···ducation

»civfi.com/2011/01/17/balancing-c···-budget/


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
Filed under there is never anything too frivolous to waste taxpayer dollars on: Berkeley to pay for sex employee changes.

»www.sfgate.com/cgi-bin/article.c···A3JL.DTL
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
reply to dogma
said by dogma:

He's not doing anything illegal. But his pension alone won't solve the budget issue. I don't think there is anything that can be done to void pension contracts already in place.

What I expect in 2013 is a change in federal bankruptcy laws to allow states to declare BK while banning judges from imposing tax increases. The latter is necessary because activist judges have been known to impose taxes to pay for pet projects. Judges would still have the flexibility to void out or modify pension contracts to cap payouts, end double-dipping, and limit payouts to only those 65 and over etc and with a reduced benefit. They would also probably require those holding bonds and vendors to accept less than full payment, and require the state to reduce employee headcount and to sell unnecessary assets.

The end result of a BK and 3-4 years of court supervision would be a sustainable budget starting point. Not that the unions won't pay their pet elected critters to reinstate everything but by then we'll have redistricting in place.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


jig

join:2001-01-05
Hacienda Heights, CA
you are insane. judges don't impose tax increases.

also, note that your federalist brothers in the Court believe that the states' sovereign immunity is not abridged by the bankruptcy clause. it's also been held that a state can't voluntarily give away that right by submitting itself to jurisdiction.

so, regardless of what newt thinks is a good idea, it may be unconstitutional, under a plain reading of the US CON that predates the 14th (and post-dates it).

you know i'm not a federalist. i don't see a reason why a state can't file bankruptcy, but there is such a thing as state sovereign immunity (regardless of which interpretation of the US CON you adhere to), and if you think statutory/regulatory health care reform is hard to get right, try walking the landmine field of bankruptcy law (few attys know it well, no lawmakers do) coupled with having to keep from completely abrogating the hint of state sovereignty. all with the eventual nuke-from-orbit awaiting from SCOTUS.

there are better ways to get out from under the pension debt. though, as you say, it'll lose some elected officials their jobs.
--
Catapultam habeo. Nisi pecuniam omnem mihi dabis, ad caput tuum saxum immane mittam.


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
said by jig:

you are insane. judges don't impose tax increases.

Google is your friend my friend. It's happened a few times. usually by threatening local officials with jail if they don't vote for a tax increase. Probably the most famous was a case where a federal judge threatened to jail local officials if they did not vote as told.
»books.google.com/books?id=956nQA···&f=false

In other cases judges have imposed taxes directly.
»www.umkc.edu/whmckc/collections/IKC0250C.HTM
quote:
Jul. 6, 1987: "Judge to order KC desegregation tax"; raised questions of legality in courts’ imposition of taxes.

also, note that your federalist brothers in the Court believe that the states' sovereign immunity is not abridged by the bankruptcy clause. it's also been held that a state can't voluntarily give away that right by submitting itself to jurisdiction.

Current federal law precludes state BK otherwise states which also prevents BK under state codes. Yes my friend there is more than one level of government. Either way I expect a change in the federal BK code in 2013 - once the union organizer in chief going back into private life.

there are better ways to get out from under the pension debt. though, as you say, it'll lose some elected officials their jobs.

Taxes are off the table. Besides the whores in Sacramento would just spend the money and increase pensions.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


dogma
XYZ
Premium
join:2002-08-15
Boulder City, NV
kudos:1

1 edit
reply to jig
said by jig:

i don't see a reason why a state can't file bankruptcy, but there is such a thing as state sovereign immunity
...
there are better ways to get out from under the pension debt. though, as you say, it'll lose some elected officials their jobs.

I understand that a state can't formally go bankrupt in the literal sense of the term, however what do you make of this?:
Say the state can't make its debt payments, and no one will lend it any more money. In that case, the federal government can step in and put the state into receivership. This would involve the assignment of an accountant to manage the state's debt, overseen by a judge. It would be a lot like bankruptcy, except instead of following a structured set of steps—informing creditors, appointing creditors' committees, a 120-day window to file a plan, etc.—a receiver has the authority to force creditors to renegotiate loans in a speedy fashion. However, the accountant in charge would not have the power to make decisions about the state's budget, such as which programs needed to be cut and which taxes had to be raised. (No state has ever gone into receivership.)
Or more specifically, each individual entity that the State controls, manages, or runs. But as the quote suggest, no State has ever gone into Federal Receivership. Thus no precedent.

However...here's where we do have precedent;

Many States have simply defaulted on their debts and obviously lived to tell about it.

States can and have walked away from their creditors citing "state sovereign immunity"; Pennsylvania, Maryland, Illinois, Indiana, Michigan, Louisiana, Mississippi, Arkansas, and the Territory of Florida all defaulted on or repudiated their debts in the early 1840s. Some eventually repaid, some restructured, some did nothing, but they all regained access to debt markets after a time. There is an academic literature on this; for example, see William B. English, Understanding the Costs of Sovereign Default: American State Debts in the 1840’s, The American Economic Review, Vol. 86, No. 1 (Mar., 1996), pp. 259–275.

Frankly, California (as well as about 18 other states) have no choice other than to default. There is no way the state could ever, possibly come close to funding the outstanding pension commitments it has. It's not improbable, it's impossible.

Many think that if a State defaulted, then no entity would ever loan them money again (buy their bonds)...but that's crazy talk. Just like Donald Trump filed BK, financiers were lined up for miles afterward trying to give Trump money. I don't think if a California creditor filed suit in federal court against California, and won a judgment, it would be noncollectable based on "state sovereign immunity". no?

Bonus edit (for our devout constitutionalists) :
Article I Section 10:
No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

But wait, theirs more
In Hans v. Louisiana, the Supreme Court of the United States held that the Eleventh Amendment re-affirms that states possess sovereign immunity and are therefore generally immune from being sued in federal court without their consent. In later cases, the Supreme Court has strengthened state sovereign immunity considerably. In Blatchford v. Native Village of Noatak, the court explained that

...We [the SCOTUS] have understood the Eleventh Amendment to stand not so much for what it says, but for the presupposition of our constitutional structure which it confirms: that the States entered the federal system with their sovereignty intact; that the judicial authority in Article III is limited by this sovereignty, and that a State will therefore not be subject to suit in federal court unless it has consented to suit, either expressly or in the "plan of the convention."

Sovereign means sovereign! If California "strategically defaults" on it's pensions, or even pays x percent on the dollar, no one can do anything about it.


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1

1 edit
Now that's down right interesting. So by passing a state law/constitutional amendment reducing pensions by say 50% and capping them at a maximum of $50k/yr and setting a legal minimum of age 67 the state can cut its losses without being successfully sued? A state constitutional amendment would defang the state courts too. Let's do it. I'd vote for that.

It could even include a clause not to backstop any city/county/agency pension plan that doesn't require working to age 67, ban double dipping, and cap benefits at $50K.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


jig

join:2001-01-05
Hacienda Heights, CA
i think you need to reread your links. the judges didn't impose a tax, they made judgments based on the existing law and ordered enforcement of the law, and possibly gave direction as to the repercussions of not following the law. at the very least, the local officials could have just gone to jail. your blame-shorthand is only consistent with whoever and whatever your current railing is directed against. by your logic, a judge who placed an elected official in jail for bribery, resulting in a special election (i.e., $$) per state law to replace the official, would be "imposing a tax." that's bullshit, and i'm being kind by calling it that.

dog - there's something called a "preference" in bankruptcy law. basically, if i file bankruptcy today, any outgo of funds in the past 90 days (sometimes a year, sometimes up to 10 years if fraudulent and in CA) can be reversed by the bankruptcy trustee in order to fairly pool funds to pay off creditors. it protects against a debtor who, for example, pays for a haircut from his mother by exchanging his 3 rental properties worth $1m each, then files bankruptcy alleging he no longer has any assets. the trustee can suck all that back in by calling them "preference payments," or payments made to preferred creditors within some time period of filing bankruptcy. so, the deeds are voided, or unperformed contracts are voided, and credit card payments are voided.... even payments on some legal judgments can be sucked back in.

i bring this up, because in 2006, SCOTUS ruled that a state agency that had received payment on debts right before the debtor filed bankruptcy WAS subject to the jurisdiction of the bankruptcy court, and had to cough up the payment and pool it with the rest of the assets. i have yet to read the case, and it may be an extremely narrow ruling, but the inference is that if a state agency can be forcibly subjected to jurisdiction to a bankruptcy court as a preference defendant (the state agency didn't want to give up the payment), then it may be able to subject itself to the jurisdiction of the bankruptcy courts without running afoul of the US CON.

i don't buy it, though. it may be completely up to the personal idealologies now on the Court, but I doubt a state can file bankruptcy. certainly, there isn't any code (bankruptcy law is code practice) that allows for it.

i'm going to assume that union contracts with the state somehow incorporate protections against the states just giving them the finger. my guess is that things have been put in place since 1840 that don't allow states to just waltz away from debt. however, speaking in practical terms, CA is too big to fail. even if it defaults, it will be able to borrow, especially if it takes the biggest bite out of pensions and not lender-held debt. if it's careful, it can get out from under the debt without abridging civil rights, which would make it subject to federal Jx based on the 14th amendment (that's the clause that allows singled out minorities to sue state police when they're victims of racial profiling and relatively harsh enforcement - protected class, unequal protection, etc). the problem is that there may be state laws (or even the state constitution) a forced debt reorganization would run afoul of, and i don't know the state laws well enough, but i bet the pension contract drafters know them perfectly.

other practicalities are that the state would have to defend a lot of civil suits and maybe criminal suits based on any totalitarian restructuring (whether or not they had any chance of validity). with the right representation, though, they could probably combine all the suits rather than get pecked to death piecemeal. it would be a tremendous undertaking, however, and impossible to keep secret due to the number of people required to do it right. so, nothing could be based on timing the restructuring, unless they wanted to forgo proper prep.

the nice thing (for the debtor) about properly filing federal bankruptcy is that all other cases are stayed, and no new ones can be filed without going through the bankruptcy judge/trustee. i forget what it does to the statute of limitations on a particular action, but i think the statute still runs, so basically you have a pinch point that filters out a lot of bullshit, but also tends to filter out a lot of little guys who may have a legitimate claim.

hell, i'm not sure about recusal, though. any state action would involve a state judge, and they have pensions too.

forcible debt restructuring is doable, and it would be a very interesting discussion. we'll see what happens. however, i'll reiterate that newt is an idiot. only a republican would label an immensely expensive and arduous task as a simple path to victory. it would definitely be easier to reboot the entire federal tax code than it would be to create a viable bankruptcy code for state insolvency.
--
Catapultam habeo. Nisi pecuniam omnem mihi dabis, ad caput tuum saxum immane mittam.


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1

2 edits
said by jig:

i think you need to reread your links. the judges didn't impose a tax, they made judgments based on the existing law and ordered enforcement of the law, and possibly gave direction as to the repercussions of not following the law. at the very least, the local officials could have just gone to jail.

I'm not sure where you are getting this idea. If you read the cases one judge ordered local officials to vote for a tax or go to jail. That's a tax increase by judicial order. No one should be able to tell anyone how to vote. In the other case the judge imposed a surtax by court order - which was later thrown out on appeal.

I rather like the Dogma solution. Instead of federal intrusion into state affairs just pass a state ballot initiative adding a clause to the state constitution limiting public employee retirement benefits to one state or local pension, not to start until age 67, and capped at 50% of average salary and no more than $50k/yr. You then establish the same standards for disabilities as private insurance and social security, and require all future retirement systems be defined contribution with a limit of a 2% employer match.

They can't sue a state in federal court and the amendment would preclude suits in state court.
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


Steve
I know your IP address
Consultant
join:2001-03-10
Foothill Ranch, CA
kudos:5
reply to jig
said by jig:

dog - there's something called a "preference" in bankruptcy law. basically, if i file bankruptcy today, any outgo of funds in the past 90 days (sometimes a year, sometimes up to 10 years if fraudulent and in CA) can be reversed by the bankruptcy trustee in order to fairly pool funds to pay off creditors.

I believe the term for this is "clawback", and it can apply to even legitimately paid-for items where the pay-ee had no involvement or knowledge of the bankruptcy. Sucks for them.

scross

join:2002-09-13
Cordova, TN
reply to sholling
The thing about CalPERS is a d@mned shame. As the article states, those folks used to be known as no-nonsense watchdogs - "Don't mess with us (steal from us) or else!" Then, under the Governator's administration, they were "gifted" with at least one or two new and powerful insiders who were on the take - willing to accept bribes (although they call it something else, of course) in order to steer CalPERS money into risky deals, over the objections of many others.

I happen to know some of the jokers involved in one of those deals - something like $10 to $20 billion of CalPERS money just went up in smoke, practically overnight. At least those jokers lost a fair share of their own money in the process, too - stupid b@stards. The last I heard they are still trying to put lipstick on that pig, and call it a pony!


TheRul
Why Not You?
Premium
join:2007-09-18
Gilroy, CA
kudos:1
As I read this, the only thing I can think of is, get your taxes done early, if you get a refund!!!
--
When you have a great straight man, it is easy to be Lou Costello


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1

1 edit
reply to dogma
I found two article links in a Volokh Conspiracy (law professors' blog) posting that you might find interesting. One deals with alternatives to state bankruptcy and the probably that elected officials deep in the pockets of the unions would use BK as a tool to wipe out bond holders while protecting their union masters' pensions - leaving us with a horrible credit rating and a pension bomb still ticking.

»volokh.com/2011/01/24/e-j-mcmaho···e-unions
»online.wsj.com/article/SB1000142···_opinion
quote:
For constitutional reasons, any federal law enabling state bankruptcy would have to be voluntary, meaning states would have to invite federal judges to play tough with their unions. But if Gov. Jerry Brown and the California legislature are unwilling to rewrite their collective bargaining rules—signed into law by Mr. Brown himself, 33 years ago—why assume they would plead with a federal judge to do it for them?

It’s more likely that a state like California would pursue bankruptcy if powerful unions and other budget-dependent interest groups saw this as a way to deflect some of the pain to bondholders. California is one of the states that constitutionally guarantees its general obligation debt, and whose bondholders are now seemingly untouchable. That could change with a bankruptcy option.
In "How Public Unions Took Taxpayers Hostage" the author looks at how we got into this mess. How and why crooked politicians betrayed the public trust and sold out the taxpaying public in order to gain/maintain power. How they traded away the taxpayer's money in exchange for fat campaign contributions and political support. Even liberal politicians tried to warn us but the temptations/addictions of and to power were too great for the political class.

»online.wsj.com/article/SB1000142···_opinion
quote:
Liberals were once skeptical of public-sector unionism. In the 1930s, New York Mayor Fiorello LaGuardia warned against it as an infringement on democratic freedoms that threatened the ability of government to represent the broad needs of the citizenry. And in a 1937 letter to the head of an organization of federal workers, FDR noted that "a strike of public employees manifests nothing less than an intent on their part to prevent or obstruct the operations of Government until their demands are satisfied. Such action, looking toward the paralysis of Government by those who have sworn to support it, is unthinkable and intolerable."
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


jig

join:2001-01-05
Hacienda Heights, CA
read section 4 of this:

»govinfo.library.unt.edu/nbrc/rep···ino.html

it's a little old, but read the whole thing to get an idea of the complexity of a state filing bankruptcy.

in particular, however, study this:

Eleventh Amendment immunity is not absolute; a state may waive its own immunity. A state's Eleventh Amendment waiver must be specific and must be "stated by the most express language."

The winning argument, in the current SCOTUS makup, would be that any general submission of a state to Bankruptcy court jurisdiction, which is what would have to happen if a state filed bankruptcy, would not be specific or stated by the most express language. It would, in effect, destroy 11th amendment immunity completely and possibly forever. Which would be in direct conflict with the US CON. So, for a state to file bankruptcy, you'd probably need an amendment to the US CON - not completely out of the question, but the $$ lobbying involved would be astronomically against such amendment.

This is what the creditors would argue - that the state couldn't file bankruptcy at all (thus, the debts could not be restructured or discharged under the Bankruptcy code, which provides haircuts to everyone). It's a strong argument no matter which area of the political spectrum you're from. I'm not sure why the talking heads aren't talking about that - probably because they like the news coverage, and "bankruptcy" is a sexy word.

Interestingly, unsecured bondholders are the unwashed masses in regular corporate bankruptcy, meaning they are last in line. I believe all the state bonds are unsecured debt (you don't get ownership of a state owned vehicle if the state defaults on the bond, for example). I don't know how the union pension contracts are written, but I doubt there's any secured obligations there. Those contractual obligations would also probably last in line. In truth, other than vendors who have sold solid assets to the state, pretty much all debt holders of the state are unsecured, I think. There may be some bankruptcy codes that give some priority to pensions (in a corporate context - there are no codes for a state to file bankruptcy), but I don't know.

But can a state just willy nilly decide who to pay and who not? Yes and no, and each and every such decision would be subject to the Young attack (read the linked article), where the head of an agency would be sued for all and sundry, needling the giant to death, so to speak. The ideal situation would be that the state would negotiate with the debt holders and cram something down everyone's gullet... but looking at how the UAW acted with GM, there will be no successful negotiation.

god, imagine if all future debt of the state would have to be secured against a real asset, to be affordable. that would be very, very bad. kind of teaches away from doing anything other than restructuring the public employee pension fund, ya? of course, debt being so expensive would seem to force the state to spend less... but less on what?
--
Catapultam habeo. Nisi pecuniam omnem mihi dabis, ad caput tuum saxum immane mittam.


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
said by jig:

The winning argument, in the current SCOTUS makup, would be that any general submission of a state to Bankruptcy court jurisdiction, which is what would have to happen if a state filed bankruptcy, would not be specific or stated by the most express language. It would, in effect, destroy 11th amendment immunity completely and possibly forever. Which would be in direct conflict with the US CON. So, for a state to file bankruptcy, you'd probably need an amendment to the US CON - not completely out of the question, but the $$ lobbying involved would be astronomically against such amendment.

Both Dogma and I have shown far better alternative to bankruptcy and the article that I posted above shows why BK wouldn't work even if it were legal. Either the administration would step in and try to impose a union rescuing settlement or they would judge shop, and the legislature would scramble to protect their source of campaign funding - the unions.

Interestingly, unsecured bondholders are the unwashed masses in regular corporate bankruptcy, meaning they are last in line.

Yes along with other unsecured creditors like the pension plan. This is why I will never-ever again buy a Government Motors or Chrysler product. The administration stole the assets of the secured bondholders and gifted them to their political allies in the union and got a frightened and utterly spineless court to go along with the largest robbery in US history.

I believe all the state bonds are unsecured debt (you don't get ownership of a state owned vehicle if the state defaults on the bond, for example).

Unsecured but backed explicitly in the state constitution (see article).

I don't know how the union pension contracts are written, but I doubt there's any secured obligations there. Those contractual obligations would also probably last in line. In truth, other than vendors who have sold solid assets to the state, pretty much all debt holders of the state are unsecured, I think.

The simple solution is to certify/ban public employees unions and impose changes to retirement to better fit the state's ability to pay and private sector equivalents i.e. retirement at 67, basing it on average compensation and not the last year, and lower/capped payments. There is no excuse for the current unavoidably corrupt system of government by, of, and exclusively for the benefit of public employees.
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"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--


sholling
Premium
join:2002-02-13
Hemet, CA
kudos:1
reply to jig
The state supreme court has ruled that cities and counties do not need union permission to lay off employees in order to cuts cost. That means that Brown should be able to layoff 20% of state employees without fear of courts interfering.

Read more: »www.sfgate.com/cgi-bin/article.c···C5jO56eE
--
"Government is the great fiction, through which everybody endeavors to live at the expense of everybody else."
--FREDERIC BASTIAT--