It looks like bankruptcy may be the only way out for a number of struggling municipalities and even a couple of states. It's looking more and more like there won't be any federal bailouts for individual states, and the states and cities might have to bite the bullet. Harrisburg, Pa. might be the first major city to file for bankruptcy protection, and it might happen as soon as next month.
Early estimates indicate a loss of 900,000 municipal jobs in 2011 due to lack of funding. According to Leader Capital's John Lekas, this might cost the U.S. one percent of GDP next year.
“If states get no further federal assistance, the steps they will have to take to eliminate deficits will likely take a full percentage point of GDP. That in turn, cold cost the economy, 900,000 jobs next year.”
Municipal bankruptcies are handled under Chapter 9 and would force municipalities to use GAAP accounting going forward. Lekas also points out that going BK enables the municipalities to default on their pension obligations and back out of their union contracts, which are the two largest expenses for every municipality.
New York City almost went bankrupt in the 1970's, and was saved by the quick thinking of Lazard's Felix Rohatyn. Perhaps the opportunity exists for a new generation of bankers to follow in Rohatyn's footsteps and set profit aside to work for the greater good and find novel solutions to the current crisis.
I thought Harrisburg got some sort of bailout when they defaulted on those muni bonds they issued or did that fall through?
Well, Eddie, at least you're less gloomy than the guy on tech ticker this morning.
I see continued stress in state and city budgets, and I think a state or two might have to get bailed out, but I'm not seeing state bankruptcies or MAJOR municipal bankruptcies imminent.
This time around, New York City is in excellent financial shape (no comment on the state.)
I have a feeling that with all of the recent state tax hikes and the continued economic recovery, most states will be just fine if they can figure out how to reduce their pension obligations.
By the way, I think I remember someone calling for a Hindenburg at the local minima back in August. Seems like more of a Graf Zeppelin, eh?
Still have plenty of time before expiration. If there's a major terrorist attack in the next few days like they're predicting, those DXD calls are golden (not to sound like a merchant of death or anything; I'd rather lose the entire investment than see anyone get hurt in an attack).
Everything he said in the video you linked to makes perfect sense to an Austrian economist. Deflation is actually a good thing for the consumer.
Umm....states are going to get bailed out. California is in a 200 billion hole, which compared to tarp at 700 isn't that huge. What you will see is that California is going to (about) to go into bankruptcy and the feds step in and guarantee the debt - I mean if Cali goes into bankruptcy its going to have to get handled in federal court anyway, so they'll broker a deal in congress. Then there will be a bunch of "me too" states and the total bailout will be close to maybe a trillion. Think TARP 2.0.
Not if the Tea Party takes over the House. I would look for a bare-bones bailout of certain states. (Not going to speculate.)
Will any banks sell me/anyone CDS on state pension bonds? I'm interested in buying.
I'm sure any bank will sell you or create them if you can buy about $100 million worth.
lol. I find myself boned once again by the old saying, it takes money to make money.
Let them go bankrupt and see if they can ever raise money again. Maybe states and local governments will learn to spend within their means.
Real funny how PA is going bankrupt. No shit. It is Alabama between Pittsburgh and Philadelphia. Funny how all these Democrat strong holds are tanking. I guess you can only redistribute wealth so much before it becomes time to pay the piper.
Pennsylvania is actually a pretty conservative state for the Northeast, much moreso than CT which is doing just fine right now.
I think the situation is a lot more complicated than Dem vs. Republican. The problem is too much spending AND low taxes. Public pensions haven't helped much, either.
Too much spending is the problem. Wasted money that they could of spent wisely and efficiently. Taxes are plenty high enough
Cali and NY top the list of bankrupt states. The also have notoriously high state taxes. That and huge social welfare problems.
Bleeding hard working Americans even more is not the answer. We have paid out pound of flesh. Time to reduce the size of government, spend less, become more efficient and competitive.
I challenge anyone in NYS to tell me that the state government is worth what we pay it. Please, someone defend Albany.
I take it you are mad as hell too, Anthony. For years I have thought upstate New York and downstate New York should split. Not because one is better than the other, but the differences between the two economies are irreconcilable. The way both areas view the role of government is also very different. Once the gubernatorial elections are done, we will see what I am talking about.
1.) NYS pays more into the federal government than it gets out. 2.) It's a densely populated state. 3.) The state's got more difficult terrain than most states. It's basically littered with the Appalachian Mountains.
Per capita, a state like New York and certainly a city like New York need a lot more infrastructure spending than a state like Nevada.
Major Cities in NYS (cities, not metro):
NYC - 8 Million people (give or take) Albany - ~100K Syracuse- ~140K Rochester- ~ 220K Buffalo- ~ 270K
Alabama
Birmingham - 240K Montgomery - 200K Mobile - 200K Huntsville - 160K
NYS - 49K SQ Miles of land
Alabama - 52K SQ miles
Without NYC, NYS is basically Alabama
That's a good way to piss off people from Alabama, bro.
If NYS splits I want NYC take Albany. That place is a black hole for the state. How many years have we not had a budget passed on time?? It is embarrassing. Completely worthless state government. NYS continually loses jobs down south because of our taxes and lack of competitiveness. If it wasn't for NYC, New York would be Alabama.
In fact, I bet Alabama is better. The weather is nicer, taxes lower and more companies are there.
Hahha so true Ed.
I am originally from LI, grew up in the Finger Lake region, went to Syracuse and with HSBC, spent a lot of time in every city in the state and can really say without NYC, New York would be a very rural state. All the cities are along the old canal system and the state as a whole just is not competitive. Without the university the city of Syracuse would be a ghost town. Rochester is a little better, as is Buffalo. Albany exists because of the govt. State taxes are high as well as all the ancillary taxes. I have watched countless business leave the state or close up shop all together.
One of the firms I worked for in the early 90's (no longer in business) was headquartered in Rochester. What a shithole. We did have our Christmas party at the Kodak Mansion one year, though, and that place isn't a shithole, lol.
We had offices in Rochester, Buffalo, and NYC (obviously) and you could always pick out the guys who worked upstate.
Uncle Eddie, having grown up near the Eastman House, I can assure you Rochester is the only city I know of where a house like that is a stone's throw from the hood. Both my parents (and all my grandparents) worked at Kodak at one point in their lives, so it is tough to watch the city turn into....well....a shithole. Something tells me you didn't experience the luxury of a Nick Tahoe's garbage plate at 4 in the morning. Without that experience, you really missed out on man in its drunkest form, at least outside of the southeast US.
Hahah, I think Roc is a decent little city. I actually like Buffalo a lot. Not enough to live there forever, but it would be fun for a year. Great food also.
If you look at most of these bankrupt states you find a pattern of spending and borrowing when times were good with no thought of bad times. This philosophy leads to ruin for individuals and we are seeing that governments are no different. We need to come to grips with less service from the government.
In Philly there is a finance issue. What does the Mayor do first? Close fire houses. If you as a person were losing money would you stop eating or shut off cable first? We all know the answer, but when it comes to a politician they always do what will hurt the people the most so that we will over react and approve anything they want.
1) Everything North of the Tappan Zee Bridge is Canada
2) Illinois makes New York seem like a beacon of bureaucratic efficiency
4.) FWIW, Illinois has a 3% flat tax for income.
5) God bless Texas
6) Cook County sales tax, flat theft across board
Cheer up Midas. Once Rahm becomes Mayor of Chicago everything will be just fine.
States will be bailed out, no question. The spreads on Treasury CDS will widen when that happens, but not nearly as much as the ones for individual states. If a state bailout happens right around the time of QE2, we could finally see the momentum of treasuries reversed.
I'll say one thing for California: they are self correcting when they absolutely have to be. They threw a sitting governor out on his ass over the Enron mess, and their progressive thinking on drug laws are probably going to drag the rest of the country into the light when it comes to the ridiculousness of prohibition.
They've also got the most economic resilience of just about any state because their native economy is so large.
What is funny is that the "self-reliant" states like AL and AK have suckled at NY, IL and CA's teat to the tune of tens of billions of dollars per year, year after year after year.
Fed taxes in vs out ($ bil) AL: 42/25 AK:9/4 MS: 26/12
CA: 240/290 IL: 80/100 NY: 145/169
http://www.taxfoundation.org/research/show/22685.html
We must hope treasuries go down down down
Get. Fuckin real there will be. No bail out
900,000 government jobs lost = 1% of current GDP??? I call BS on that statistic.
Remember from econ 101: GDP = private consumption + gross investment + government spending + net exports.
Given 190+ million gainfully employed even in this crappy economy, how could this = 1% of all economic output?
Perhaps something like .25% of GDP, or maybe even nill for those of us who don't look at the economy from a purely Keynesian perspective.
I used to love getting drunk at JD Oxfords. HSBC used to put me up at the Hyatt which is in a weird ghetto-esq part of town. I always ate well when I was there.
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