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Secret GOP Plan: Avoid A Massive Bailout By Pushing States To Declare Bankruptcy, Smashing Unions

This has been anticipated for months.  Watch bubble-state muni bond portfolios crater as ponzinomic reality sets in for California, Illinois and others.


From Reuters

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy.  This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program.  BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31.  And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

Republicans in the House of Representatives already want to stop state and local governments from issuing tax-exempt bonds unless they are more forthright about these future obligations. Republican Representatives Devin Nunes and Darrell Issa of California and Paul Ryan of Wisconsin have introduced a bill that would require state and local governments to estimate the size of public pension liabilities if their assets earned a more conservative rate of return than many plans currently expect. Failure to do so would result in the suspension of their ability to issue tax-exempt bonds

Greater transparency on these obligations can’t be bad. In fact, the federal government itself would do well to report deficit numbers not just on the current cash-in, cash-out basis but also incorporating the underfunding of promised pension and healthcare benefits to retirees.

But it’s about more than just openness. Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy.

Continue reading at Reuters...


Give States A Way to go Bankrupt

The Best Option for Avoiding a Federal Bailout

With liquidation off the table, the effectiveness of state bankruptcy would depend a great deal on the state’s willingness to play hardball with its creditors. The principal candidates for restructuring in states like California or Illinois are the state’s bonds and its contracts with public employees. Ideally, bondholders would vote to approve a restructuring. But if they dug in their heels and resisted proposals to restructure their debt, a bankruptcy chapter for states should allow (as municipal bankruptcy already does) for a proposal to be “crammed down” over their objections under certain circumstances. This eliminates the hold-out problem—the refusal of a minority of bondholders to agree to the terms of a restructuring—that can foil efforts to restructure outside of bankruptcy.

The bankruptcy law should give debtor states even more power to rewrite union contracts, if the court approves. Interestingly, it is easier to renegotiate a burdensome union contract in municipal bankruptcy than in a corporate bankruptcy. Vallejo has used this power in its bankruptcy case, which was filed in 2008. It is possible that a state could even renegotiate existing pension benefits in bankruptcy, although this is much less clear and less likely than the power to renegotiate an ongoing contract.

Whether states like California or Illinois would fully take advantage of such powers is of course open to question. During his recent campaign, Governor-elect Jerry Brown promised to take a hard look at California’s out-of-control pension costs. But it is difficult to imagine Brown taking a tough stance with the unions. Even in his reincarnation as a sensible politician who has left his Governor Moonbeam days behind, Brown depends heavily on labor support. He doesn’t seem likely to bring the gravy train to an end, or even to slow it down much.

Continue reading at the Weekly Standard...


One last link...

Fill this out - Forms for GOP Chairmanships - Politico

Want to be a chairman? Answer 20 questions first.

Incoming Speaker John Boehner (R-Ohio) and incoming Majority Leader Eric Cantor (R-Va.) distributed a four-page questionnaire to candidates for House chairmanships, asking them to detail everything from spending cuts to their specific plans for their committee to their commitment to enacting new GOP priorities.



Video - Public unions and you...

Polish posted this clip in comments, and it's very funny.  Profanity warning.


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Reader Comments (35)

Give States a Way to Go Bankrupt
It’s the best option for avoiding a massive federal bailout.


there's much more to the article...
Dec 10, 2010 at 1:00 PM | Registered CommenterDailyBail
Want to be a chairman? Answer 20 questions first.

Incoming Speaker John Boehner (R-Ohio) and incoming Majority Leader Eric Cantor (R-Va.) distributed a four-page questionnaire to candidates for House chairmanships, asking them to detail everything from spending cuts to their specific plans for their committee to their commitment to enacting new GOP priorities.

Read more: http://www.politico.com/news/stories/1210/46046.html#ixzz17jW18fyZ
Dec 10, 2010 at 1:03 PM | Registered CommenterDailyBail
Dec 10, 2010 at 1:08 PM | Registered CommenterDailyBail
Dec 10, 2010 at 1:12 PM | Registered CommenterDailyBail
This appears over at Counterpunch. It is on topic with good historical info.

Dec 10, 2010 at 1:13 PM | Unregistered Commenterjohn
Dec 10, 2010 at 2:02 PM | Unregistered CommenterHA65MPH
Dec 10, 2010 at 2:03 PM | Unregistered CommenterHA65MPH
I have a question regarding repo 105. Thus far I have found this:


Moving along, this short video makes sense:


But my question is, what happens when the securities involved are oversubscribed MBS/CDOs?
Dec 10, 2010 at 2:46 PM | Unregistered Commenterjohn
john...repo 105s are short term, end of quarter deals to remove trash from a balance sheet so it looks better to shareholders at earnings time...since these repo deals then close a few days later...and the shit is back on the books, i don't think it matters what securities are temporarily off-loaded...

just search for repo 105 in my search box...i've done probably 10 stories on it...there are great videos...you can do that on just about any topic...i've done close to 2500 stories now...so just about everything is here...and it's usually the best clips, etc...
Dec 10, 2010 at 2:57 PM | Registered CommenterDailyBail
more on build america bonds...


Bernanke Plays Politics, Loses
Dec 10, 2010 at 3:34 PM | Registered CommenterDailyBail
Give a way for states to go bankrupt, and you end what our forefathers fought for, States rights, and a weak Federal government. The States will become wards of the receivership, sure Union pensions will go as the freedom loving HA65MPH suggests, but it will also take out many private retirements and investments that have bonds in their investment packages.

Looks like Boehner is planning on bringing tyranny and poverty to a new level for Americans, and many will love him for it as shown above for the price of your soul. Watch and see what he does to their own blessed investments and pension.
Dec 10, 2010 at 4:57 PM | Unregistered CommenterS. Gompers
Another question I have is this. There seems to be an ongoing battle (apparently) between Wall Street and the Federal Reserve regarding the "creation" of "money" in its many forms. Can someone help me (more specifically, the general public in understandable terms) in answering this question?
Dec 10, 2010 at 5:40 PM | Unregistered Commenterjohn
Hmmm. Boy, I find it real funny that after 30 years as a teacher, no one, and I mean no one, ever said they wanted to be a teacher because teachers get paid a lot of money.---And now the GOP and the private sector want to cut the pay and benefits of teachers and other public employees. I can't see how this is going to help an economy which is already reeling from the drop in consumer spending.
Perhaps what needs to be done first is for an investigation into mortgage fraud by the banks using MERS to bypass county mortgage sale fees for the last 10 or 20 years. I read that now counties are complaining "...about the lost revenue after MERS was implemented..." And "Two lawyers in Reno, Nev., have filed suit in 17 states alleging that banks cheated counties out of billions of dollars." Perhaps this is where all the money went, not to paying public employees.---See article, "Bypassing county fees may cost banks--Large banks' pooling of securities from sold mortgages criticized; recoup of fees sought" . And the URL: http://www.thecalifornian.com/article/20101111/NEWS01/11110311/Bypassing-county-fees-may-cost-banks. Let's start here first before we go after taking any more money away from the working class to fix a problem the banks caused themselves.
Dec 10, 2010 at 7:21 PM | Unregistered Commentertentwing
I'm no fan of Boehner or the Republican Party in general. I'm an independent Conservative and I'm sick and tired of all bailouts. Why should taxpayers in fiscally prudent states subsidize profligate spending by the Liberal Blue states. They need to stew in their own Juices and sort out their own finacial predicament. I'm also against all the banker and corporate (to include GM and Chrysler) bailouts as well.
Dec 10, 2010 at 7:28 PM | Unregistered CommenterMeatdawg
LET THEM FAIL!!!!!!!!!!!!!!!!!!!!1
Dec 10, 2010 at 7:58 PM | Unregistered CommenterAint Bullshittin'
@polish...good clip...that was some funny shit...

@tentwing...no one is trying to hurt teachers...those salaries are paid by states...as long as you live in a state that doesn't have out of control deficits, you will be fine...what this is really about, as someone wrote above, is the unfairness of asking the rest of us to bailout the few profligate states that can't manage their own finances...california and illinois come quickly to mind...
Dec 10, 2010 at 11:35 PM | Registered CommenterDailyBail
@polish...liked it so much i added it to the story...

@meatdawg...you nailed it...let any state spend whatever they want on public employees...i could care less if they all make 6 figures in montana for example...just DON'T ask the rest of us to bailout such states when times get tough..

@gomp...enjoyed your comment and i agree...
Dec 10, 2010 at 11:41 PM | Registered CommenterDailyBail
I am not a teacher but I feel your pain. I call it the Larry Kudlowization of society. The criminals stole trillions of dollars and now blame the missing money on people who make 40k per year dedicating their lives to public service. It's just like the rapist blaming the girl for wearing a short skirt. The criminals know teachers and public employees are completely powerless. Unfortunately, the criminals have stolen so much money they have purchased the politicians and media. They have dupped, otherwise intelligent people (think DailyBail), into thinking that the fundamentally sound system of paying pensions over the past 80 years is flawed. These are the same people who believed in the 401k system because the stock market was going up. The GOPers are owned by Wall Street. Wall Street makes a lot more money from the 401k system, than the defined contribution system.

If you think public employees bankrupted the state you are as smart as Larry Kudlow. California is bankrupt from the people who don't work, the people who come here illegally to have their babies for free, to get a free education, free housing and free food. California is bankrupt because every two years people have to spend 25 billion dollars to save an owl or salmon. California is bankrupt because we live in a one party world where democrats and republicans give to the same wall streeters who put both of them in power.
Dec 11, 2010 at 12:34 AM | Unregistered CommenterBenny and the Talibanks
They have dupped, otherwise intelligent people (think DailyBail), into thinking that the fundamentally sound system of paying pensions over the past 80 years is flawed. These are the same people who believed in the 401k system because the stock market was going up. The GOPers are owned by Wall Street. Wall Street makes a lot more money from the 401k system, than the defined contribution system.


@benny...no reason to take shots at me...i am not going after teachers...i am going after states who have the audacity to ask the rest of us to pay for their irresponsibility...leave me out of this...
Dec 11, 2010 at 1:04 AM | Registered CommenterDailyBail
Not really taking a shot at you, I read DailyBail everyday and pass along articles to my friends and coworkers. However, you do insinuate in the title of this article and in many other articles that "unions" have caused bankruptcy to our nation and the companies they interact with. In reality, the "bloatedness" of union workers is a rounding error in the damage caused by the financial industry criminals, corrupt politicians and free handouts to those that don't work and are here illegally.
Dec 11, 2010 at 2:22 AM | Unregistered CommenterBenny and the Talibanks
"In reality, the "bloatedness" of union workers is a rounding error in the damage caused by the financial industry criminals, corrupt politicians and free handouts to those that don't work and are here illegally."

no argument from me on this...

"However, you do insinuate in the title of this article and in many other articles that "unions" have caused bankruptcy to our nation and the companies they interact with."

@Benny...there is no such insinuation in this headline...and i've never said that unions have bankrupted this nation or anything close...i have written and exposed union corruption, just like i write about all corruption...in the case of california, i have posted 1 article with a headline that said public-sector unions were bankrupting california...but it was an aggregated headline that i didn't write...and it is a convincing thesis that unions have contributed to the budget disaster that is california...that article speaks for itself...and you an argue with its author...

as for unions destroying corporations...this could only have been mentioned in connection with GM or Chrysler...i am NOT anti-union...not even close...i ahve problems with the teachers union in a general sense..but not teachers...i could write days and days about why i don't like the teachers' unions...bad teachers don't get fired, abuse, no\ accountability, etc...but again, i am not against teachers..my sister and her husband are both teachers...my aunt is a teacher...and i usually hear about the teacher union issues from them...they don't like the union either...

i reacted b/c you've hammered me in the past and then you don't show back up to respond when i defend my views...i'm not trying to pick a fight in any sense...i just think you've unfairly stuck it in your head that i blame unions for everything, and i'm trying to clear up that misconception...
Dec 11, 2010 at 2:37 AM | Registered CommenterDailyBail
This is an incorrect characterization of what's going on. Its State Democrats thats secretly planning to bankrupt the state by spending like crazy. They're the ones pulling the trigger. The GOP are just ones that say, if they want to commit suicide let them. I don't know why we should keep supplying them with bullets
Dec 11, 2010 at 4:29 AM | Unregistered Commenteroic
"as long as you live in a state that doesn't have out of control deficits, you will be fine..."

Which states would that be? if you look you will find most if not all are in varying degrees of decline. Part of this situation comes from the willingness to accept Federal Matching Funds for various things like schools and roads, etc.. Like an addict, they all clamored to be first at the trough. Since 9-11 those funds have been drying up as all available resources have been gobbled up to be swindled overseas, remember, the Iraqis were going to foot the bill (how did that work out?). After the funds started drying up, the states began acting just like an addict who's supply was suddenly cut off, they would borrow, steal (like overvaluing property for taxes as one example), and even prostitute ones self (like selling bonds with no idea how to pay them off).

Add to that the financial swindles at home that have ransacked pensions and other investments with fraudulent paper, and you have the perfect formula for letting the states fail, enter the receivership of the Federal Goobermint, and the United States of America instantly becomes the Federal State of Amerika.

It was the perfect game of gunboat diplomacy against the American people, Ironically the term gunboat diplomacy comes from the British Navy protecting its opium trade in China.


Then and only then can liberty die to the sound of thundering applause, and as you see by the thinking of some, they can't wait ...
Dec 11, 2010 at 5:20 AM | Unregistered CommenterS. Gompers
gomp...most states can save themselves...look at what new jersey did...erased a $13 billion shortfall without raising taxes...all spending cuts...i understand the issue of unfunded mandates from Washington, as well as matching funds which have dwindled...but all but approx. 4 states will be fine on their own after some work...so i say screw them...i don't want another bailout for california and illlinois under any circumstances...i'm so tired of this shit...
Dec 11, 2010 at 5:28 AM | Registered CommenterDailyBail
I don't believe all of them are as healthy as they may say, we still have not seen the full effects of the fraudulent bundled investments that were sold, nor do we know exactly who bought them.

Anything seem funny about that?

I know Ohio took a hit, and now the "snake oil salesman" from Lehman Bros (Lehman gave us our hit I am sure you are aware). will be Governor, and the ABA choice candidate will be AG, that will help.

Do you know anything on exactly who is holding all those worthless bundled investments?
Dec 11, 2010 at 5:40 AM | Unregistered CommenterS. Gompers
i've seen lists of holdings...as you would surmise, they are owned by hedge funds, banks, private-equity shops, penison funds, etc.....i'm not saying that most states are healthy financially...i am saying most states are within a range where they can solve their own problems with spending cuts and tax increases, or so combo of both...

there's no doubt that states and their various pension funds have been damaged by purchasing 'shitty assets' produced by the investment banks...some more than others...but really, when it comes down to it, it's buyer beware...i fault the investment managers and state treasurers as much as i do wall street...they should have never fallen for some of this crap...they were chasing higher returns - they were greedy - often because they had made certain pension promises that required a higher rate of return to fulfill...

so they were chasing yield...and they were suckers for wall street...you know that i don't forgive the fraud of wall street in any way, shape or form...i hate these fuckers for what they've done...but i also realize that it's nothing new...wall st. has been selling bullshit since day one...going back more than 100 years...it's a fool's game...always has been...it's why i became a short seller as a career...i don't believe any of the hype ever...i worked as an analyst for a big investment bank...i know the bullshit that i was required to spew on a daily basis about the companies within my universe, especially ones that we had brought public and were still managing and covering...it's why i left...the sell side of wall st. is complete nonsense...you can't believe any of it...yet these pension managers and state treasurers, bought into it hook, line and sinker...so fuck them for being so stupid...

it's late...i still haven't slept, and i'm angry, so you can excuse some of this...but my thesis remains the same...i don't forgive wall street and i don't forgive the fuck-ups on the state level who bought into the lies...don't forget that when you're on the buy-side, your JOB is to sift thru the wall street bullshit...you aren't supposed to believe anything you hear from the sell-side...this is the core priniciple of your job managing money for your state...don't believe the hype...

and in the end, because of greed and the need for higher yield due to big pension promises, these state stewards forgot the core principle...
Dec 11, 2010 at 6:02 AM | Registered CommenterDailyBail
Good answer, however, you did not mention the rating agencies who rated the fraudulent investments, any thoughts?
Dec 11, 2010 at 6:21 AM | Unregistered CommenterS. Gompers
gomp...well you know i have thoughts on the rating agencies fucktards...i think moody's and s&p should be fined billions and driven out of business...they are a corrupt culture just like the i-banks whose products they rate...their fraud is criminal in my view...and yet they've escaped without punishment...

and their business model hasn't even been fixed...they are still being paid by the banks whose products they are rating...congress didn't fix it with dodd-frank...lobbyists for moody's and s&p made sure they were protected...it's all a giant circle jerk of wall street insanity, and nothing has changed...we are truly and stupendously fucked for the next crisis go around...cuz it's coming again...
Dec 11, 2010 at 6:41 AM | Registered CommenterDailyBail
Hell they will all probably be rewarded for f@cking up America by being elected to Congress or Governors or whatever instead of going to jail, stranger things have happened...

Look at Ohio, third world here we come waiving the magic "R" all the way.

Unfortunately some will celebrate the entire way and continue re electing the f@cktards... And hell yeah it is coming again, all those wonderful little bundled investments haven't begun to explode yet. This might resemble more of a carpet bombing in the end, and it won't stop with the unions, it will affect many who had no idea it will affect them before it is over.

But the important thing is to keep celebrating.
Dec 11, 2010 at 2:09 PM | Unregistered CommenterS. Gompers
"then you don't show back up to respond when i defend my views"

Fair enough.

Unfortunately, I have to work 65 hours per week to pay for the Goldamn Sachs criminal activity and I only post on my home computer. So I usually say what I have to say and then let you respond. I don't like when this site turns into a tit for tat. We both have our say and leave it at that.

I do have some info that I think could be the lighting rod for illegal immigration if it were to go viral. The situation is the perfect case to stop the illegal handouts. Look for my next post on your site, later tonight. Unfortunately, I don't think I can legally give all the facts, but I'll try to give some big hints.
Dec 11, 2010 at 5:03 PM | Unregistered CommenterBenny and the Talibanks

Your handle is fucking killer.
Dec 11, 2010 at 7:39 PM | Unregistered CommenterCheyenne
The thing that burns me up ,is that although California is running out of money fast ,they still elect the same Liberal trash year ,after year ,after year. Jerry "moonbeam" Brown, who never had a real job in his life. Or Barbara Boxer ,who is one of the most useless , wastes of space in Washington. And yet they keep electing them. To hell with those people.
You made your bed ,now lie in it.
Of course not all the people are at fault. In my own state of New York , my vote is useless. They keep electing bums like Schumer ,and weiner,and now for Governor ,the same recycled trash ,Coumo. Makes you want to throw up.

As far as unions ,they are a wonderful thing,until their leaders decide to to wield their power like tyrants. And bully ,and extort, and crush business. Then they become the destroyers of all. The unions have been as much to blame as business for the messes we are in. But you would never know that ,by the venomous hate aimed at business today, the job creators.. Remember ,son, no bum ever gave you a job..

Mark Twain said it best......"if you want to know the measure of a man ,give him power", most of these rotten men are failures.

I will vote for Sarah Palin if she runs for president . Win ,or lose ,with her, i know i won't be robbed blind.
Dec 11, 2010 at 9:59 PM | Unregistered Commenterrock
Here is what Palin said about the bailouts in her debate with Joe Biden.

John McCain thankfully has been one representing reform. Two years ago, remember, it was John McCain who pushed so hard with the Fannie Mae and Freddie Mac reform measures. He sounded that warning bell.

"People in the Senate with him, his colleagues, didn’t want to listen to him and wouldn’t go towards that reform that was needed then. I think that the alarm has been heard, though, and there will be that greater oversight, again thanks to John McCain’s bipartisan efforts that he was so instrumental in bringing folks together over this past week, even suspending his own campaign to make sure he was putting excessive politics aside and putting the country first.

In September 2008, McCain suspended his campaign to go to Washington to help negotiate a government response to the financial crisis, resulting in a $700 billion bailout bill."

And here is what Palin says in “Going Rogue” about the bailouts, on page 270.

"[T]he House of Representatives rejected a Bush-backed economic bailout plan in a vote in which two-thirds of Republicans voted no. The impression this made on the electorate was not helpful to our cause. Millions of Americans were poised to go bankrupt or lose their savings, and the perception was that Republicans had failed to respond."

I don’t think you can avoid the conclusion that Palin supported the bailout package.


Many Republicans as well as Democrats voted for TARP including your next Speaker of the House.


(if anyone can interpret this video let me know, LOL)

both sides clearly voted in S. 900 (Gramm-Leach-Bliley Act ) as well, repealing the Glass Steagall Act making it easier for the "job creators" to rob us blind and then receive their taxpayer expensed reward for drilling America in the corn hole.

The House passed its version of the Financial Services Act of 1999 on 1 July 1999 by a bipartisan vote of 343-86 (Republicans 205–16; Democrats 138–69; Independent 0–1), two months after the Senate had already passed its version of the bill. and of course when offered up on a platter for "Slick Willy" to sign, he did so gleefully.


Once a TARPinista, always a TARPinista rock. Millions of Americans are still going bankrupt and losing their savings.
Dec 11, 2010 at 11:21 PM | Unregistered CommenterS. Gompers
great links gomp...excellent stuff...
Dec 13, 2010 at 5:07 AM | Registered CommenterDailyBail

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