Should a state be able to declare bankruptcy in Federal court? NO!

Oh, those rascal politicians on Capitol Hill in Washington DC.  Oh, those rascal politicians in state offices scattered around the country.  What do we do about such rascals that have bloated government spending for decades and decades now?

So many states are facing red ink, and so many of those states won’t solve the problems on their own.  Instead?  Look to the federal government for bailouts of states.

But wait!  The federal government spending even more?  For more bailouts?  How?  How can the federal government keep coming up with more dollars out of thin air?  It’s unfathomable.

So now there are some tongues wagging on Capitol Hill to provide relief to fiscally undisciplined states without committing even more federal dollars to bailouts.  It’s called bankruptcy.  Legislation may soon materialize that would allow states to declare bankruptcy.

If you are one of the lucky Americans that hasn’t been wiped out in this disastrous economy and it just so happens that you’ve invested in municipal and state government bonds thinking that they were safe bets, well, all that could change.

If it changed, then where would you invest your money that would allow it to hold its value?  Every investment that’s only on paper or that’s only a few bytes on a computer chip has its risks, and the risks are getting bigger by the day.

Workers are already being punished by this economy by losing jobs and not finding new jobs.  Perhaps it’s time to punish the investors, too.  Well, at least punish the investors who don’t own stock in financial corporations that are “too big to fail.”

If a state were to declare bankruptcy under the proposal that’s wagging tongues on Capitol Hill, bondholders would be unsecured creditors.  So, how do you get your money from cashing in bonds from a bankrupt state?  I don’t know.  With no collateral, there’s nothing a bondholder could repossess that would coax the state to pay up.  Perhaps you could take the matter to court and seek a judgment against the state, but what good would that do?  There’s no mechanism at your disposal that would allow you to collect the money the state owes you.  Futility.  Utter futility.

Oh, and state pension funds?  Gone.  Sorry about your retirement.

What if bankruptcies spread through the states like wildfire?  Is it conceivable that the federal government might do likewise?  And then what?

I think this bankruptcy idea is dead in the water, as I don’t see how it could gain any traction with voters.

Sorry, all you political rascals.  You’ll just have to learn fiscal discipline.  Unless, of course, your objective is to cause the collapse of America as we know it.

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