30 July 2012

Municipal Bankruptcy

I posted here about amending the Bankruptcy Code to permit individual States of the United States to seek relief. So far no developments on that front but the continuing drip of municipal bankruptcies should alert us to the possibility of default at the State level. My birthplace of Pennsylvania is competing with California for the lead among cities that are teetering on the edge of insolvency. See the latest here.

Municipalities across America, at least in the North, have extraordinary unfunded pensions which, together with declining populations and real estate values have put matters on a collision course. So far the States have managed to scrape by but soon Illinois may end up like Valencia or California like Sicily.

Bankruptcy is certainly a more palatable alternative than a federal bailout but don't hold your breath waiting for Congress to act. It's only slightly less gridlocked than the Lok Sabha.

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