Monday, January 24, 2011

Bankruptcy to the Rescue

I'm wholly in sympathy with Alan White over at Credit Slips as he evaluates the proposal that we allow states to take bankruptcy:
Obviously, these Republicans' agenda is to shift credit crisis losses from state taxpayers to public sector union employees, consistent with their efforts to shift auto industry losses to workers in that industry.  Bankruptcy reform for homeowners is anathema, because it shifts losses from middle class people to banks and institutional investors.  It is unclear how bankruptcy for the states could be used to stiff union pension funds without also wreaking havoc with the bond market, and bond investors would normally be a favored Republican constituency.  For this reason, other conservatives are not so crazy about this idea.  Presumably, any legislative proposals for Chapter 9.5 would carefully craft priorities for favored constituencies.
He could pose this one as a pendant to the proposal pushed by the California Professional Firefighters last year that would require state approval before a city could file bankruptcy.  Just as the "state bankruptcy" proposal looks like an effort to beat up on public employees (and their unions), I take it the "limit city bankruptcy" proposal is an an attempt to give the unions more cover.  I can imagine a world in which they both succeed.

Come to think of it, what ever became of Anna Kreuger's proposal that we fashion a bankruptcy law for sovereign nations, floated via the great individualists down at Cato?

Idle afterthought: I do think it's a good joke that the idea of extending power to states is favored by the same crowd that gave us Seminole Tribes and its kindred, purporting to prove that any Federal interference with state  state sovereignty was a crime against humanity.  See, e.g., link.

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