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JohnQPublic
20th January 2011, 06:43 PM
Path Is Sought for States to Escape Debt Burdens (http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?_r=1&src=busln)

By MARY WILLIAMS WALSH
Published: January 20, 2011

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care. Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by Congressional aides.

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors...

Glass
20th January 2011, 09:46 PM
It sounds to me like there would need to be changes to State Constitutions for the ability to go bankrupt to be available. Not quite sure why I think that but I suspect the fact that States are sovereign that nothing can get "over them" as it were. They would have to conceed subrogation of sovereignty for this to happen.

mike88
21st January 2011, 08:09 AM
If i had a paranoid mindset, i would think this is part of a well orchestrated plan by the fedgov to extend its control of states. problem, reaction, solution. It always takes two parties for a con to work, both parties think they are getting over on the other, only one actually does. Anyone still invested in a "pension" plan these days is living in cloud cuckoo land with respect to their counterparty risk if they believe their contribution will garner them any meaningful return in the future.

palani
21st January 2011, 08:19 AM
All bankruptcies occur in federal courts. The states have been instructed not to interfere with the obligations of contracts and this is precisely what bankruptcy is. The feds have no such restriction. The feds have no sovereignty and have no duty to be responsible.

In a situation like this a sovereign entity (as are the several States of the union) goes the route of insolvency and continues performance until the contract is extinguished. That is the responsible thing to do.

This is one reason why you do not want to be associated in any way with the federal government. They have the power to define irresponsible.

DuaneLuk
21st January 2011, 06:19 PM
THere is only one way to repair our economy. Stop the printing presses and follow a budget like we have to. A lot of services will be lost but until we stop there will be no healing. It is like picking a scab - the wound will never heal. To many people are in power to capitalize on the way we do business so our healing will leave a scare.

palani
22nd January 2011, 05:45 AM
THere is only one way to repair our economy.
There is no "our" economy. Get over believing that you own any part of it. Economy is a construct that is solely owned by government.