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How Can A City Go Bankrupt....easy Only In The Usa!

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California City Moves Closer to Bankruptcy Filing

http://www.bloomberg.com/apps/news?pid=206...&refer=home

By Michael B. Marois and William Selway

Feb. 27 (Bloomberg) -- Vallejo, a city of 135,000 outside of San Francisco, moved closer to bankruptcy after talks with its labor unions collapsed.

Bondholders will likely be asked to sacrifice some of their investment if the city files for bankruptcy protection, an attorney for the municipality said last night.

Vallejo is facing ballooning labor costs and declining tax revenue and is expected to run out of money within weeks. The city council is scheduled to consider a resolution tomorrow to file for Chapter 9 bankruptcy protection, after negotiations with labor unions to win salary concessions broke down Monday. The city has $59 million in debt outstanding.

If approved, Vallejo would become the biggest city and second-largest local government in the state after Orange County to file for bankruptcy. Municipalities throughout California are grappling with billions of dollars in labor and pension cost increases incurred during the late 1990s. The crisis comes as the worst housing slump in the U.S. in 26 years saps tax revenue.

Bondholders are ``creditors who would have to come to the table and it may be possible to adjust how much you are paying them and on what time period, which would in effect free up money that could be used as part of the plan to resolve the city's problems on a longer term basis.'' John Knox, a public finance attorney with the law firm Orrick, Herrington & Sutcliffe, told the city council last night.

`Last Resort'

Vallejo faces a $6 million shortfall and won't have any money left to pay salaries as of March 31, according to the city manager's office. The deficit is expected to grow to $13 million next year, according to budget documents.

Police and firefighting salaries, pension and overtime consumes $63.1 million, or about 74 percent of the city's $85 million general fund budget. The city has slashed $13 million in spending since December 2006, firing 47 workers.

``Bankruptcy is a last resort,'' said councilwoman Joanne Schivley. ``But guess what folks, that's where we are now at.''

Standard & Poor's on Feb. 21 changed its outlook to negative from stable on $59 million of city bonds. That debt, backed by water-system revenue, motor vehicle license fees and special district property assessments, is rated A and A-, the sixth- and seventh-highest investment grades.

Big Impact

Clark Stamper, who oversees $600 million of municipal bonds at Stamper Capital & Investments, including Vallejo debt, said a bankruptcy filing could encourage other California communities to consider the step should the city persuade a judge to reopen labor agreements.

``What happens in Vallejo is going to be the model for what happens across the state,'' Stamper said yesterday. ``It will have a big impact.''

Orange County in Southern California filed the biggest municipal bankruptcy in U.S. history in December 1994 after former Treasurer Robert Citron's wrong-way bet on interest-rate derivatives sold by Merrill Lynch & Co. lost $1.6 billion. The county of 3 million people is the third-most populous in California after Los Angeles and San Diego.

Desert Hot Springs, a town of 20,000 people north of Palm Springs, filed for bankruptcy in 2001, when it couldn't afford a legal judgment of almost $6 million.

Three years ago, the threat of bankruptcy loomed in San Diego as three mayoral candidates said a filing was one option for dealing with the city's soaring pension debts to police and other employees. Jerry Sanders, who won the election, never pursued that step.

Half Moon Bay, a small town south of San Francisco, has also considered bankruptcy because of a legal judgment that was handed down in November in a dispute with a real estate developer.

``Bankruptcy is a bad idea,'' Vallejo resident Andy Russo told the council during a standing-room-only informational hearing held last night in city hall. ``The stigma of bankruptcy will stick to us for a long, long time.''

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net ; William Selway in San Francisco at wselway@bloomberg.net .

Last Updated: February 27, 2008 06:08 EST

DOES THIS MEAN SLOWLY THEY WHOLE OF THE USA MIGHT GO BANKRUPT?

shocking

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Guest DissipatedYouthIsValuable
California City Moves Closer to Bankruptcy Filing

http://www.bloomberg.com/apps/news?pid=206...&refer=home

By Michael B. Marois and William Selway

Feb. 27 (Bloomberg) -- Vallejo, a city of 135,000 outside of San Francisco, moved closer to bankruptcy after talks with its labor unions collapsed.

Bondholders will likely be asked to sacrifice some of their investment if the city files for bankruptcy protection, an attorney for the municipality said last night.

Vallejo is facing ballooning labor costs and declining tax revenue and is expected to run out of money within weeks. The city council is scheduled to consider a resolution tomorrow to file for Chapter 9 bankruptcy protection, after negotiations with labor unions to win salary concessions broke down Monday. The city has $59 million in debt outstanding.

If approved, Vallejo would become the biggest city and second-largest local government in the state after Orange County to file for bankruptcy. Municipalities throughout California are grappling with billions of dollars in labor and pension cost increases incurred during the late 1990s. The crisis comes as the worst housing slump in the U.S. in 26 years saps tax revenue.

Bondholders are ``creditors who would have to come to the table and it may be possible to adjust how much you are paying them and on what time period, which would in effect free up money that could be used as part of the plan to resolve the city's problems on a longer term basis.'' John Knox, a public finance attorney with the law firm Orrick, Herrington & Sutcliffe, told the city council last night.

`Last Resort'

Vallejo faces a $6 million shortfall and won't have any money left to pay salaries as of March 31, according to the city manager's office. The deficit is expected to grow to $13 million next year, according to budget documents.

Police and firefighting salaries, pension and overtime consumes $63.1 million, or about 74 percent of the city's $85 million general fund budget. The city has slashed $13 million in spending since December 2006, firing 47 workers.

``Bankruptcy is a last resort,'' said councilwoman Joanne Schivley. ``But guess what folks, that's where we are now at.''

Standard & Poor's on Feb. 21 changed its outlook to negative from stable on $59 million of city bonds. That debt, backed by water-system revenue, motor vehicle license fees and special district property assessments, is rated A and A-, the sixth- and seventh-highest investment grades.

Big Impact

Clark Stamper, who oversees $600 million of municipal bonds at Stamper Capital & Investments, including Vallejo debt, said a bankruptcy filing could encourage other California communities to consider the step should the city persuade a judge to reopen labor agreements.

``What happens in Vallejo is going to be the model for what happens across the state,'' Stamper said yesterday. ``It will have a big impact.''

Orange County in Southern California filed the biggest municipal bankruptcy in U.S. history in December 1994 after former Treasurer Robert Citron's wrong-way bet on interest-rate derivatives sold by Merrill Lynch & Co. lost $1.6 billion. The county of 3 million people is the third-most populous in California after Los Angeles and San Diego.

Desert Hot Springs, a town of 20,000 people north of Palm Springs, filed for bankruptcy in 2001, when it couldn't afford a legal judgment of almost $6 million.

Three years ago, the threat of bankruptcy loomed in San Diego as three mayoral candidates said a filing was one option for dealing with the city's soaring pension debts to police and other employees. Jerry Sanders, who won the election, never pursued that step.

Half Moon Bay, a small town south of San Francisco, has also considered bankruptcy because of a legal judgment that was handed down in November in a dispute with a real estate developer.

``Bankruptcy is a bad idea,'' Vallejo resident Andy Russo told the council during a standing-room-only informational hearing held last night in city hall. ``The stigma of bankruptcy will stick to us for a long, long time.''

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net ; William Selway in San Francisco at wselway@bloomberg.net .

Last Updated: February 27, 2008 06:08 EST

DOES THIS MEAN SLOWLY THEY WHOLE OF THE USA MIGHT GO BANKRUPT?

shocking

I'm sure Latin America, particularly Venezuela, would be delighted to lend the US some money to tide it over. In exchange for a government more aligned with Latin American political interests, and an impossible interest rate.

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It's not good for muni bonds and their insurers IMO.

Sounds like it might not be good for the pensioners either. I wonder where they stand in the queue of creditors.

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Socialism is a heavy cost to bear. But then the socialists would rather the whole ship sink rather that throw the dead weight overboard.

Eh, you what, I take it from your reply that Northern Rock is a socialist company. For the slow of thinking, Capitalism is an economic model that can only end in failure. When someone figures out how to get infinite growth out of a finite planet please let me know.

The UK government is bankrupt, so it won't be long until our public services stop functioning.

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Guest muttley
its happened before New York almost went bankrupt in the 1970s

Not "only in the USA" either. Our own Liverpool nearly went bankrupt in 1985.

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Not "only in the USA" either. Our own Liverpool nearly went bankrupt in 1985.

Only if anyone wasn't aware of it :unsure: : the whole US went bankrupt in 1971. It defaulted on all it's gold liabilities to foreign central banks (call "Dollars").

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Sounds like it might not be good for the pensioners either. I wonder where they stand in the queue of creditors.

Probably a mute point - what assets does a bankrupt town have? Is there much of a market for second hand police cars?

As I've said before there will be some mightily pi$$ed off ex policemen.

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It's not good for muni bonds and their insurers IMO.

Muni bonds the bomb about to go off? The FED can not let this happen, It would make Russian default look like a walk in the park.

The spiral will go into overdrive if muni debt doesn't get paid/re-packaged, If muni's go bankcrupt the whole system will fail and spiral of non paid workers/non paid mortgages/non paid dept will go parabolic (Might explain commod's going loopy wheat +25% in a day?).

I guess this is what spooking the hell out the FED and but cutting rates much more has some very big risks, Pegs already under strain (Arabic countries close to riots) and with a big cut the USD might start to look like the next carry trade.

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Muni bonds the bomb about to go off? The FED can not let this happen, It would make Russian default look like a walk in the park.

...

Don't worry. The Fed will buy it all in the end. It's AAA after all, isn't it? No reason not to print a trillion more and monetize the muni bonds.

The US-Dollar - backed by subprime and muni bonds. (Whatever that means, paper backed by paper. :wacko: )

Edited by Goldfinger

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Probably a mute point - what assets does a bankrupt town have? Is there much of a market for second hand police cars?

I don't know ... but it's interesting to speculate what might happen. I seem to recall that Hackney got taken over by central government a few years back when they ran out of money ... as far as I can see the only alternative to such a bail-out is to let everything municipal dry up and blow away. The latter would make for an interesting social experiment, maybe they could sell the reality TV rights ;)

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I don't know ... but it's interesting to speculate what might happen. I seem to recall that Hackney got taken over by central government a few years back when they ran out of money ... as far as I can see the only alternative to such a bail-out is to let everything municipal dry up and blow away. The latter would make for an interesting social experiment, maybe they could sell the reality TV rights ;)

Bankruptcy would free the municipality of it's historic liabilities.

The municpality can buy up the old assets at a knock down price (who else is going to buy those cop cars and police uniforms???)

Sounds like a good deal for the current tax payers too.

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Bankruptcy would free the municipality of it's historic liabilities.

The municpality can buy up the old assets at a knock down price (who else is going to buy those cop cars and police uniforms???)

Sounds like a good deal for the current tax payers too.

So the only downside is that they won't be able to sell any bonds for a while? That does indeed sound like a good deal.

I guess it might be a problem if the municipality owns the freehold of their town hall, fire station, police HQ, park, zoo etc. :lol:

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  • 292 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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