Tuesday, April 02, 2013

Stockton: the meteor of California

Herman Melville called abolitionist John Brown "the meteor of the war" because his raid set in motion events that precipitated the Civil War.  Now a federal judge may have planted the seeds to California's decline by ruling that the city of Stockton can declare bankruptcy:
But despite yesterday’s ruling, the fight over debt in Stockton, and the rest of California is far from over. Not only did [Judge] Klein open the door for the city’s bondholders to take significant payment and principal cuts, but he also left open the possibility that the California Public Employees’ Retirement System (Calpers) would see their payments cut, too. Under state law, cities may not cut their payments to Calpers. But a federal court could rule that U.S. bankruptcy law trumps state law. That would open the door for hundreds of California cities to cut their payments to Calpers, which would only send the state government deeper into debt because Sacramento would have to make up the missing payments.
California's retirement fund is already underfunded to the tune of $87 billion because cities and towns are struggling with the worst economy in the Union.  If the quarter-trillion dollar Calpers system starts to unravel as municipalities start to bail out, we could be looking at another "too big to fail" bailout.


MikeAOR said...

I'd love to see how the State of California will prevent payment reductions to Calpers when the money simply isn't there anymore. Can't be too long now.

BTW, can you believe that 10,000 Maniacs unplugged concert was TWENTY years ago now? Ugh. . .

Eric said...

I'm going to date myself here but I saw 10,000 Maniacs at Radio City Music Hall, opening for R.E.M., in 1988.

Anonymous said...

If the quarter-trillion dollar Calpers system starts to unravel as municipalities start to bail out, we could be looking at another "too big to fail" bailout.

Municipal bond insurers rarely experienced material losses until Wall Street crashed the economy. Bloomberg News determined that the federal government lent, spent or guaranteed $12.8 trillion to Wall Street and the banks in 2008-09. Mathematical "reality," so unrelenting for contracted pensioners, was sweet and kind to the money men.

Pension benefits, unlike a bank's right to exist, are protected by both federal and state law. Nevertheless, thanks to their continued taxpayer-funded existence, creditors will surely use their clout to threaten Stockton's (and California's) future debt financing unless their losses are alleviated.

Golly gumdrops! Who will take it in the shorts: the workers and taxpayers, or the banks? It's such a tantalizing question!