From: Max Sawicky States as sovereign entities cannot go bankrupt and cannot be sued for default; that is my understanding, possibly wrong. But if they want to borrow in the future they dare not default.
^^^^^^^ CB: This seems correct to me. I don't think there is a provision in the bankruptcy statute for states. It's interesting to breakdown "bankruptcy" here. A bankrupt has his , her or its debts substantially forgiven ultimately. Creditors don't get all their debt. So, if the states could go bankrupt they would legally default on some debts. The threat of future high interest rates to borrow as the only whip and punishment on the states for defaulting might be vulnerable to attack from the left some time in the near future if enough states continue in the red. I mean Wall Street's power to charge higher interest rates on defaulting states might be vulnerable to attack by the People, so to speak, through the states and the Congress, especially if the states could be influenced to join with unions and foreclosed homeowners and others who have beefs with Wall Street now. Just thinking out loud. ^^^^^^^ Qualifying note: there is general obligation debt and revenue bonds (there is also short-term debt, not a big deal). The latter are tied to specific projects and revenue streams; default on them is not uncommon, but there are no legal consequences for the states' general funds. GO debt by contrast is backed by "the full faith and credit" of the state government. There has been no default on GO debt since the 30s (Arkansas). States will gut their budgets before defaulting on GO debt, since if they did default, their borrowing costs would increase, perhaps to a prohibitive level. ^^^^^^^^ CB': Same thought: can a movement be built to take some control away from Wall Street to use future high interest rates to control states on this. Afterall, Wall Street itself went bankrupt, and it isn' t being punished with future high interest rates or some equivalent punishment for moral hazard purposes. Not only that, Wall Street was bailed out not just forgiven debts as in bankruptcy with money from the People in the states. Why should states still be held in moral hazard to Wall Street when Wall Street is not held to moral hazard ? ^^^^^^^ High debt tends to be conflated with unbalanced budgets, but they are distinct. You can be way out of balance with no debt, where borrowing given BB rules is not feasible. My quick take on California is that its debt is not the big issue; its imbalance of revenues and outlays is. Kind of like Greece. ^^^^^^ CB: So they don't have sovereign _debt_ crises. ^^^^ Cities like all local govs are creatures of the state; they are at their mercy. ^^^^ CB: Exactemente. There is also a provision in the Bankruptcy statute for municipalities. Orange County went legally bankrupt. It was based on Wall Street interactions, though, I think. Bad investments. On Wed, Aug 11, 2010 at 2:15 PM, c b <cb31...@xxxxxxxxx> wrote: For states that "require" a balanced budget, what's the punishment for a legislature that doesn't balance its budget ? Removal from office ? No. Receivership by the federal government ? No. There are no consequences for the state government as there are no "higher powers" over the states on this, no ? Cities can be put into receivership by their states, however. Charles _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
