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vriguy (70.19)

Why not declare bankruptcy?



August 09, 2010 – Comments (6)

Why aren't at least some states (IL, CA, NY) declaring bankruptcy?  I've read that they cannot - but I see nothing in the Constitution barring them from doing so.  My reading of history is that the Colonies and the Confederate States at various times repudiated their debts - effectively the same as declaring bankruptcy.  Granted, if a state were to declare bankruptcy it would cause chaos and disrupt life, but it will allow the necessary re-structuring of contracts and pensions to take place, without which there is no recovery feasible (at least in the case of states like IL and CA). The legislators in these states have shirked hard choices for decades - allowing the debt to fester and grow.  It may be time to consider declaring bankruptcy.

6 Comments – Post Your Own

#1) On August 09, 2010 at 2:13 PM, chk999 (99.96) wrote:

They might find it a wee bit difficult to sell bonds if they did so.

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#2) On August 09, 2010 at 3:33 PM, vriguy (70.19) wrote:

After a year or two people buy your bonds again ... remember Argentina.

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#3) On August 09, 2010 at 4:33 PM, alstry (< 20) wrote:

It is called Chapter 9....and they is simply a question of when....

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#4) On August 09, 2010 at 5:10 PM, leohaas (29.78) wrote:

No judge would allow it. States can always increase revenues!

By the way, that is not what I recommend they do; it is also not what states want to do, but if they file for bankruptcy, it is what will happen...

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#5) On August 09, 2010 at 6:37 PM, MegaEurope (< 20) wrote:

I believe some US states partially defaulted in the early 1800s.  Not bankruptcy but they negotiated with lenders to restructure their debt.

If a state tried that these days, lenders would probably sue and it would end up in the Supreme Court.  Or if the credit markets collapse in response, the federal government would step in with a bailout.

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#6) On August 10, 2010 at 2:21 AM, alberta911 (< 20) wrote:

Arkansas defaulted back in the 1930s

Default is off the table for political and security reasons

like the guy that said Argentina ...they have defaulted as a country a few times but they are resource rich

Mountains out of molehills


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