Stockton California prepares for biggest municipal bankruptcy in history

[Ad Orientem]

http://www.nytimes.com/2012/06/28/us/st ... rt.html?hp

[RickV42]

Good article - I would bet there are going to be many more.

[zenne0105]

Over the past month, three California towns have filed for bankruptcy. First it was Stockton, then the resort town of Mammoth Lakes. Now, San Bernardino also took the plunge. Having these three California municipalities declaring Chapter 9 bankruptcies, Warren Buffet, the billionaire investor, said that he believes the recent bankruptcy filings of three California municipalities could create a climate where cities would more easily consider Chapter 9 as an option for alleviating debt woes.

[Reub]

I would say that right after this November's election we are going to hear about a lot of catastrophic failures and problems in our economy. And possibly QE3 as well.

[Pointedstick]

Over the past month, three California towns have filed for bankruptcy. First it was Stockton, then the resort town of Mammoth Lakes. Now, San Bernardino also took the plunge. Having these three California municipalities declaring Chapter 9 bankruptcies, Warren Buffet, the billionaire investor, said that he believes the recent bankruptcy filings of three California municipalities could create a climate where cities would more easily consider Chapter 9 as an option for alleviating debt woes.

That sounds great to me. It's good to wipe the debt slate clean every so often in this crazy mixed-up economy of ours, not to mention blowing away those irresponsibly unrealistic pension obligations.

[bree09]

Over the past month, three California towns have filed for bankruptcy. First it was Stockton, then the resort town of Mammoth Lakes. Now, San Bernardino also took the plunge.

Many said that, among the three California towns, Stockton, California's bankruptcy could be the largest case ever. And that is not the only record the town has broken of late. It also recently received what amounts to the largest parking ticket ever written. Article here: "Stockton parking garage fiasco". I guess it reiterates a simple financial lesson for us all.

[Ad Orientem]

The city of Atwater just declared a fiscal emergency possibly in preparation for filing for municipal bankruptcy. Atwater is about two hrs south of Stockton in the Central Valley. This whole area was ground zero for the real estate bubble. When it blew up it crushed the local economy. The real unemployment figures for this area are well north of 20%.

[BearBones]

That sounds great to me. It's good to wipe the debt slate clean every so often in this crazy mixed-up economy of ours, not to mention blowing away those irresponsibly unrealistic pension obligations.

But might not the federal gov't step in and buy out the obligations if such municipalites are deemed too big to fail? What would MM Theorists say about this?

[Pointedstick]

That sounds great to me. It's good to wipe the debt slate clean every so often in this crazy mixed-up economy of ours, not to mention blowing away those irresponsibly unrealistic pension obligations.

But might not the federal gov't step in and buy out the obligations if such municipalites are deemed too big to fail? What would MM Theorists say about this?

They certainly haven't so far. The feds have bailed out the government of California repeatedly, but not any municipal governments. I don't think any municipality will really ever be deemed "too big to fail". If a city goes bankrupt, it's not like it's sold off as scrap like when a company does. It may need to sell assets and break obligations, but the city itself will stick around.

[Ad Orientem]

That sounds great to me. It's good to wipe the debt slate clean every so often in this crazy mixed-up economy of ours, not to mention blowing away those irresponsibly unrealistic pension obligations.

But might not the federal gov't step in and buy out the obligations if such municipalites are deemed too big to fail? What would MM Theorists say about this?

They certainly haven't so far. The feds have bailed out the government of California repeatedly, but not any municipal governments. I don't think any municipality will really ever be deemed "too big to fail". If a city goes bankrupt, it's not like it's sold off as scrap like when a company does. It may need to sell assets and break obligations, but the city itself will stick around.

Back in 1975 Gerald Ford famously told New York City to drop dead when they begged for a bailout so who knows. But California is one of the biggest economies in the world. If push comes to shove I would be stunned if the Feds let California go broke. Of course it's also worth noting that there is no provision in the Bankruptcy Code for states to declare bankruptcy. Cities can. But states can't.