Last Call

People differ on what will be done in 2011 when states run out of stimulus cash --  the gamut runs from borrowing more tho Chapter 8 bunkruptcy -- but all the "experts" agree:  state employees will be the biggest losers.  CNBC's Nicole Lapin:

The mere idea of bankruptcy sounds unpalatable to some governors, including Mark Parkinson from Kansas. “Declaring bankruptcy is not the answer to the budget crisis facing many states,” he said, adding that “the crippling public relations message bankruptcy would send to businesses and investors and the ripple effect on local communities is too high a price to pay for any potential upsides.” 

True, at first glance, it seems nuclear. But, the potential upsides to allowing states to declare bankruptcy are far too compelling to dismiss outright. Namely, it would give bite to the barking we’ve been hearing from the states’ governors, like Parkinson, letting them play hardball with their biggest creditors — bondholders and union contracts. 

Granted, union contracts can theoretically be restructured outside of bankruptcy, but in no meaningful way. State bonds, in essence, can’t be restructured without bankruptcy. 

I’m not suggesting that bankruptcy is the only option. It’s not even a good one to see to fruition, but the mere threat might reduce the burden on Congress to push through more stimulus or a state bailout. 

“Some of the biggest benefits would occur even if no state ever actually filed for bankruptcy,” Skeel tells me. “Creditors might agree to much more meaningful concessions if the alternative is a messy bankruptcy that would require even greater concessions.” 

Yay, abrogating union contracts is an "upside".   So what more cuts will state employees be asked to suffer?  They're already losing benefits and work hours left and right.  States want to declare bankruptcy so they can throw out state employee contracts and screw them over.

What, you thought bondholders and multi-billion dollar institutional investors like hedge fund giants were going to have to eat crap sandwiches on this?  Yeah, right.

And as before, nowhere...nowhere...in this article do I see "raising taxes in order to close budget gaps" as an option.  We're being told that bankruptcy and contract abrogation of state employees is the "only option" that must be considered before "turning on the printing press".

The reality is that allowing Congress to change federal law to allow states to consider bankruptcy before raising taxes is patently ridiculous.