Clearing up the State and Municipality Bankruptcy Reports:
Latest News flash: "For state governments, though, there are no printing presses and no lines of credit. States can actually run out of money" "In the previous two budget years, the federal government ended up bailing out struggling states. In fiscal years 2010 and 2011, states received a combined $127 billion in federal bailouts ... to cover more than a third of the total shortfall." "Washington is in a tizzy over the ever-expanding federal debt."
Earlier in the News: it's reported that a Michigan Town Is Left Pleading for Bankruptcy, but the State of Michigan isn't giving permission, because the state fears opening a floodgate for other municipalities. That's not the case in New York where NY law allows bankruptcy filing by any municipality with State permission already granted under NY Local Finance Law §85.80 Authority for municipality or emergency financial control board to file petition under federal statute. A municipality or its emergency financial control board in addition to, or in lieu of, filing a petition under this title, or the city of New York or the New York state financial control board, may file any petition with any United States district court or court of bankruptcy under any provision of the laws of the United States, now or hereafter in effect, for the composition or adjustment of municipal indebtedness.
Earlier News: The fear of state insolvencies has spooked various bond fund managers, who fear management fee decreases, after a report that, "The U.S. government will face pressure to bail out struggling states in the next 12 months, said Meredith Whitney." Meridith Whitney also said, "U.S. states won’t default, Instead, they will cut aid to local governments, putting them at greater risk." The new Congress is now under even greater restraints on borrowing. And Cuomo has promised to cap local taxes and Cuomo can't now shift State expenses to local governments without them going bankrupt.
Some people have faith in the claim some bondholders have over pledged revenue, but that is exactly the pledge that could be removed by a bankruptcy court. The Conservative Heritage Foundation has, "Congress should consider a way for states to file for bankruptcy or its fiscal equivalent. While such a law would raise some serious federalism issues, as long as states are allowed to enter into bankruptcy voluntary, it could be constitutionally acceptable."
Simple questions: 1. Will Congress borrow more money and increase the deficit to bailout States?
2. Will bond holders with pledged revenue still get paid first or even in total? (See Finance Bazaar)
3. Will Congress pass a State Bankruptcy Chapter 10?
4. Will New York Bondholders get hurt?
Answers; 1,2 NO 3,4 YES
