Stockton, CA bankrupt: Expect Cyprus like solution for bond holdersl

Six figure pensions and “free” healthcare for life for everybody! Photo: AP

WASHINGTON, April 1, 2013 ― It is official; Stockton, California has run out of other people’s money.

Bankruptcy judge Christopher Klein found the city had met the requirements to proceed with its municipal bankruptcy case. The judge stated that “by any measure” the city was insolvent, and that the creditors did not negotiate in good faith. Stockton is the largest city to have filed for municipal bankruptcy, so far. The liberal populace, hovering just outside the liberal Mecca of San Francisco, are left looking around for someone to blame, and more importantly, someone to pay the bill.


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It is not surprising that they quickly found the source of their pain, the bond holders; those money loving, rich old white guys who know nothing but greed. It is their fault that huge lifelong pensions and free healthcare for life, regardless of how long you worked for the city has not turned Stockton into the utopia it should have been. It is amazing how greedy some people are, they simply don’t care about their fellow man.

In a case that will most likely go to the US Supreme Court, the municipal bondholders will be pitted against the California Public Employee Retirement System. I believe it safe to assume that the bondholders will lose their investment a la Cyprus, as they accepted the risk of doing so when they purchased the bond, unlike the retirees who were given government guarantees.

As is the case in Europe, sticking the inevitable losses of an institution gone wild, money will flow out of the system like water through a sieve if (when) the bond holders are declared to be the losers. Both corporate and retail (individual) investors hold a combined total of nearly four trillion dollars in municipal bonds. What will happen when they find that that “safe” investment is about as safe as a bank account in Cyprus? Where will they take their investment dollars?

Contrary to popular leftist belief, most bond holders are not rich Wall Street investors. In reality, over 75 percent of outstanding municipal bond securities are owned by retail investors. While that may sound sterile, like some rich guy who doesn’t need the money, these are the people who worked their whole lives without a guaranteed pension and lifelong healthcare to supplement social security. These people, who in many cases are about to lose a chunk of their life savings to fund a bloated government pension fund are grandma and grandpa; they are the disabled neighbor whose settlement from an accident went into a fixed income fund. They are just people, like the ones in Cyprus who are going to lose hundreds of millions of dollars, all because they were foolish enough to lend it to the government.


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The government does not lose. They have the ability and the lack of ethics and morality to take whatever they wish, whenever they wish. Thousands more cities across this nation are a hairsbreadth away from following Stockton into bankruptcy. According to the Federal Reserve Bank of New York, between 1970 and 2011, 2,521 bond issues were defaulted on.

The city always won out, why should Stockton be any different? Be careful where you put your money; those with the ability to take it, will.


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Mike Shortridge

Mike is a former Marine who served in the Middle East. He is disgusted with both the Republican and Democratic parties, seeing them as two heads of the same beast. He writes from the conservative perspective, with a focus on making complex subjects easy to understand.

 

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