States set to go on bankruptcy bonanza

Posted: January 23, 2011
7:05 pm Eastern
© 2011 WorldNetDaily

Editor's Note: The following report is excerpted from Jerome Corsi's Red Alert, the premium online newsletter published by the current No. 1 best-selling author, WND staff writer and senior managing director of the Financial Services Group at Gilford Securities.

Just how many states will declare bankruptcy this year? That's the question Jerome Corsi's Red Alert is asking this week.

News reports indicate state policy makers, congressional leaders and officials in the Obama administration are already involved in behind-the-scenes discussions regarding whether declaring bankruptcy may be the only solution available to states with budget crises that cannot be resolved any other way.

"Beyond their short-term budget gaps, some states have deep structural problems, like insolvent pension funds, that are diverting money from essential public services like education and health care," Mary Williams Walsh wrote in the New York Times. "Some members of Congress fear that it is just a matter of time before a state seeks a bailout, say bankruptcy lawyers who have been consulted by congressional aides."

Corsi noted, "It is doubtful the federal government will bail out near-bankrupt states, despite the severe cutbacks in public welfare services the state budgetary crises are causing. Federal bailouts of the states would amount to nationalizing the states and could produce a constitutional crisis, especially if the federal government assumes as it usually assumes that the federal government has a right to control whatever the federal government pays for."

By pursuing bankruptcy, a state could seek to get out of contractual agreements to pay public-employee pensions the state may no longer be able to afford.

"Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout," Walsh noted.

Inevitably, states declaring bankruptcy could send major shocks through the municipal bond markets, with the unfortunate result that borrowing costs for all state and local governments may escalate dramatically, Corsi noted.

He added, "The problem is that state governments, unlike the federal government, cannot simply print money."

For more information on a potential state bankruptcy crisis, read Jerome Corsi's Red Alert, the premium, online intelligence news source by the WND staff writer, columnist and author of the New York Times No. 1 best-seller, "The Obama Nation."

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