21 March 2014

California Nightmare

I posted many entries about the bankruptcy of the city of Stockton, California. (Go here, here, and here for a sampling.) I barely mentioned the bankruptcy of another California city, Vallejo. Vallejo emerged from Chapter 9 bankruptcy in 2009. Vallejo managed to cut its expenses drastically but it doesn't look like it went far enough. Go here to read an article suggesting that Vallejo will end up in another Chapter 9 soon--a Chapter "18" when all is said and done.

The article notes there are some reasons to believe that Vallejo will be able to escape the extraordinary embarrassment of two bankruptcy filings in a decade although the writer clearly believes Vallejo's current city council is willfully blind to fiscal reality. I tend to agree, at least in the medium term. The current economic upturn, feeble as it is, is due for another correction. The Federal Reserve continues to cut back on its bond-buying binge and eventually cities like Vallejo won't be able to catch up fully with their underfunded pension obligations.

So when we experience the next economic hiccup. expect to see Vallejo (and likely Stockton, too) back in bankruptcy court.

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