We’ve argued that the hype over the muni crisis is a gift to smart investors.
We know that old fashioned, mum and pop retail investors have been deserting their muni holdings in droves, as an endless stream of headlines warns of TRILLIONS IN BANKRUPTCIES. Conversely, other more learned investors have been drooling over the fat yields now being offered by some strong-rated munis.
Meanwhile, regarding the state bankruptcy trope:
I have not seen any argument in support of state bankruptcy legislation that does not essentially boil down to politicians wanting to undermine collective bargaining agreements and pension commitments. (“We’ll tank the markets, but damn it, we will stick it to those unions!” Sounds vaguely like, “We’ll tank the markets, but damn it, we will get our $50 billion in spending cuts!” Seriously, can someone offer an approach to policy that does not involve an idle threat of a government becoming a deadbeat? Is a little maturity too much to ask here?)
[Law Professor David) Skeel seems to suggest that bankruptcy would be a good way to address labour relations. He writes, “the governor and his state could immediately chop the fat out of its contracts with unionized employees, as can be done in the case of municipal bankruptcies.” Immediately? Vallejo has been in Chapter 9 since May 2008 – before the financial crisis – because its unions have aggressively challenged almost every aspect of the proceedings. That’s for a relatively small municipality – does anyone think things would go smoothly for a large state in comparison? While it is true that collective bargaining agreements are subject to assumption / rejection in bankruptcy, there are hurdles for governments to prove that they have negotiated in good faith on the issue. This gets even funnier when one talks about the complexities of pensions and retiree health care commitments, and how state and local governments overlap in their responsibilities in that domain, both legally and functionally. How long would it take for that to be resolved in court? Whatever one thinks about labour relations generally, this is not a practical way of addressing political stasis and it is not providing state governments with any advantages that they do not already possess.
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