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Thread: Judge: Stockton, Calif., Can File for Bankruptcy

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by drippinhun View Post
    This has absolutely nothing to do with big government. Rather it is a sharp decrease in tax revenues brought on by the economic devastation of the 2008 recession and the housing market collapse.
    This has everything to do with big government, and them making promises for relatively short-term gain that were unsustainable over the long haul.
    If you claim sexual harassment to be wrong, yet you defend anyone on your side for any reason,
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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by Northern Light View Post
    The city went bankrupt trying to cover its
    contributions to public pensions. At least it wasn't because of pet projects, but because of its desire to fulfill a fiduciary obligation to the public.

    The first city of many across the U.S., to be sure. I'm curious what austerity measures will now be forced upon the public as part of a bankruptcy deal.
    Quote Originally Posted by CanadaJohn View Post
    No, I don't believe so - I believe it was the issuance of bonds, approved by bond insurers. I don't know what goes on in the US, but here, bond insurers would not be able to approve such a bond issue because of the nature of the expenditure and the questionable ability to pay.
    Quote Originally Posted by Erod View Post
    The whole state is bankrupt...to the tune of -$127 billion.

    Capitol Alert: State auditor: California's net worth at negative $127.2 billion
    That 127 billion isn't counting unfunded state pension liabillities.

    Its closer to 200 billion.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by The Man View Post
    Just one big reason why there should be no such thing as guaranteed defined public employee pensions, they're unsustainable and need to be phased out. Public employees can fund their own 401Ks if they want to retire some day.
    This is why most companies moved to retirement accounts that a company contributes to. Only a few unionized industries still do pensions, and theyre going bankrupt too, like GM, airlines, etc. I dont know why anyone who starts a career today would rather have a pension that the compnay owns, than a investment acct that the employee owns.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Some points on the initial ruling:

    1. I agree with the initial ruling allowing Stockton to proceed with its bankruptcy. The city was clearly insolvent by any reasonable legal definition. That decision does not restructure the city's debts. It merely opens the door to the process by which the debts will be restructured.

    2. The case has some interesting legal ramifications. California's law places pension obligations ahead of other creditors; federal bankruptcy law does not. The end result will have implications as to the credibility of similar state pension protections. If the ruling requires CalPERS to take a haircut, along with all the other creditors, then the decision will mean that pension protections have to be handled at the federal level. If not, then it could bolster the credibility of such state-based protections and one might witness additional states adopting legislation toward that end.

    My early guess is that the decision will actually wind up being a fairly narrow one. It will be based on federal law. However, as the judge initially found that the "capital markets creditors" acted in bad faith e.g., they did not pay their agreed share of mediation costs, the ruling could protect contributions that have already been made to CalPERS while imposing a haircut against future contributions.

    My personal opinion is that the creditors who loaned funds to Stockton for purposes of funding its pension obligations failed to conduct their due diligence. They did not adequately study the city's cost structure and consider revenue stream scenarios against that cost structure. In the context of a burst housing bubble that dramatically reduced real estate valuations, a scenario where the city would take a significant and enduring hit to revenue was the most likely one.

    That the supposedly "sophisticated" lenders missed the proverbial elephant is and ought to be their problem. The excuse "we didn't know" is not believable, as empirical evidence from financial distress cases demonstrate that when an entity begins borrowing to meet basic obligations, that's a huge red flag. The city had a fragile financial structure and the fragility of that structure was readily apparent had due diligence been undertaken and or had these lenders had a reasonable understanding of financial structures. The city was in a "speculative" situation whereby it was borrowing to cover its cash payment obligations (as opposed to expenditures that could readily be deferred or cut or assets that could be used for security). The bottom line is that taxpayers should not be expected to fund the bad risks undertaken by others.

    Having said that, I do believe all creditors, including CalPERS should share in the restructuring. However, the bad faith and naivete of those making the risky loans, among other factors, should be considered in the court's determination of how those haircuts will be spread.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by donsutherland1 View Post
    Some points on the initial ruling:

    1. I agree with the initial ruling allowing Stockton to proceed with its bankruptcy. The city was clearly insolvent by any reasonable legal definition. That decision does not restructure the city's debts. It merely opens the door to the process by which the debts will be restructured.

    2. The case has some interesting legal ramifications. California's law places pension obligations ahead of other creditors; federal bankruptcy law does not. The end result will have implications as to the credibility of similar state pension protections. If the ruling requires CalPERS to take a haircut, along with all the other creditors, then the decision will mean that pension protections have to be handled at the federal level. If not, then it could bolster the credibility of such state-based protections and one might witness additional states adopting legislation toward that end.

    My early guess is that the decision will actually wind up being a fairly narrow one. It will be based on federal law. However, as the judge initially found that the "capital markets creditors" acted in bad faith e.g., they did not pay their agreed share of mediation costs, the ruling could protect contributions that have already been made to CalPERS while imposing a haircut against future contributions.

    My personal opinion is that the creditors who loaned funds to Stockton for purposes of funding its pension obligations failed to conduct their due diligence. They did not adequately study the city's cost structure and consider revenue stream scenarios against that cost structure. In the context of a burst housing bubble that dramatically reduced real estate valuations, a scenario where the city would take a significant and enduring hit to revenue was the most likely one.

    That the supposedly "sophisticated" lenders missed the proverbial elephant is and ought to be their problem. The excuse "we didn't know" is not believable, as empirical evidence from financial distress cases demonstrate that when an entity begins borrowing to meet basic obligations, that's a huge red flag. The city had a fragile financial structure and the fragility of that structure was readily apparent had due diligence been undertaken and or had these lenders had a reasonable understanding of financial structures. The city was in a "speculative" situation whereby it was borrowing to cover its cash payment obligations (as opposed to expenditures that could readily be deferred or cut or assets that could be used for security). The bottom line is that taxpayers should not be expected to fund the bad risks undertaken by others.

    Having said that, I do believe all creditors, including CalPERS should share in the restructuring. However, the bad faith and naivete of those making the risky loans, among other factors, should be considered in the court's determination of how those haircuts will be spread.
    Don't disagree with anything you say.

    Regarding the part in red, do you think it's possible that the lender knew the risks, but secretly/internally chose to ignore it because they thought that in a worst case scenario they could get some sort of "bail out"?
    If you claim sexual harassment to be wrong, yet you defend anyone on your side for any reason,
    then you are a hypocrite and everything you say on the matter is just babble.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by radcen View Post
    Don't disagree with anything you say.

    Regarding the part in red, do you think it's possible that the lender knew the risks, but secretly/internally chose to ignore it because they thought that in a worst case scenario they could get some sort of "bail out"?
    It's plausible, and some combination of bad understanding and assumption that others would cover the costs of their risks were probably involved. The latter assumption might have created a disincentive for due diligence/nurtured complacency. Hopefully, we'll learn more as the case is heard, as it could shed insight into risk management and also moral hazard (assumption of bailouts) issues.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by Deuce View Post
    One city goes bankrupt, therefore liberalism bad.
    Good deal more than one city/town.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    So, when does California follow suit?

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by Fenton View Post
    That 127 billion isn't counting unfunded state pension liabillities.

    Its closer to 200 billion.
    Millions, I think - only the federal government wastes hundreds of "billions" on a regular basis.

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    Re: Judge: Stockton, Calif., Can File for Bankruptcy

    Quote Originally Posted by jonny5 View Post
    This is why most companies moved to retirement accounts that a company contributes to. Only a few unionized industries still do pensions, and theyre going bankrupt too, like GM, airlines, etc. I dont know why anyone who starts a career today would rather have a pension that the compnay owns, than a investment acct that the employee owns.
    From back in 2005...

    Who knew? Speculation about which welfare state will be the first to buckle under the strain of the pension and medical costs of aging populations usually focuses on European nations with declining birthrates and aging populations. Who knew the first to buckle would be General Motors, with Ford not far behind?

    GM says health expenditures -- $1,525 per car produced; there is more health care than steel in a GM vehicle's price tag...

    Health care for retirees and their families -- there are 2.6 of them for every active worker -- is 69 percent of GM's health costs...

    George F. Will - What Ails GM
    The Clintons are what happens...
    when you have NO MORAL COMPASS.

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