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Capitol of Pennsylvania Files for Bankruptcy Protection

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Published : October 13th, 2011
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Category : Opinions and Analysis





Back in December of 2010 we published a report in which well known bank and economic analyst Meredith Whitney warned of the coming debt defaults of local and state governments:

It has tenticles as wide as anything I’ve seen. I think next to housing this is the single most important issue in the United States and certainly the largest threat to the US economy.

In less than a year the Capitol of the State that once hosted the Constitutional Convention, Harrisburg, Pennsylvania, has become the first major government body to file for bankruptcy:

The city of Harrisburg, Pennsylvania, facing a state takeover of its finances, filed for bankruptcy protection following a vote by City Council, according to a lawyer for the council.

Mark D. Schwartz, a Bryn Mawr, Pennsylvania-based lawyer and former head of municipal bonds for Prudential Financial Inc.’s mid-Atlantic region, said he filed the documents by fax to a federal bankruptcy court last night. The filing couldn’t be confirmed with the U.S. Bankruptcy Court in Harrisburg.

The state capital of 49,500 faces a debt burden five times its general-fund budget because of an overhaul and expansion of a trash-to-energy incinerator that doesn’t generate enough revenue.

“This was a last resort,” Schwartz said in an interview after the council voted 4-3 to seek bankruptcy protection. “They’re at their wits end.”

In a copy of the Chapter 9 petition provided by Schwartz, the city lists both assets and debt of $100 million to $500 million. According to the copy, the city has 49 or fewer creditors.

The Pennsylvania Senate is scheduled to take up legislation next week that would make Harrisburg the first municipality in the state to be placed in receivership.

Source: Business Week

Most of the bond holders, just like those who held debt in the now government and union controlled General Motors, will be wiped out or forced to take reduced payments, which doesn’t bode well at all for the municipal bond markets. Zero Hedge weighs in:

And now that the precedent has been set (yes, Virginia, it can be done) watch as tens if not hundreds of other cash-strapped towns, cities, localities and other entities follow suit promptly to quite promptly.

And now, spin time.

For those who thought government jobs and pensions were safe from the economic contraction, think again. As cities and states face budgetary problems amounting to hundreds of billions of dollars, their only recourse will be to start cutting jobs and renegotiating pension commitments. Meredith Whitney had a gloomy forecast for this as well, claiming in June of 2010 that at least 2 million government jobs would be eliminated as city councils and state legislators are forced to tighten their belts.

Harrisburg is the first. It won’t be the last.

And, as we’ve opined previously, the States are soon to follow with their own debt problems. While the Federal government will likely step in with bailouts when we get to the State level, the real question that should be on everyone’s mind is, who will bail out the US government’s $150 trillion plus in future liabilities?

Written and published by Mac Slavo at



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While the Federal government will likely step in with bailouts when we get to the State level, the real question that should be on everyone’s mind is, who will bail out the US government’s $150 trillion plus in future liabilities?


This "real question" surely and necessarily sits on the more basic and finer supposition of union. If state A (American, European, or any particular way) needs no bailout and states B, C, D, do, and further when this comes at the expense of state A (and others), the underlying question seems rather for state A, why am I here - what benefit, what right, what ROI on my resource? The argument is human nature or rather the nature of human. If misery loves company, people as possible abhor misery.

The charlatan, fraud, qauck, leech, and sycophant to false patriotism or wrongly appropriated hero worship ironically miss the essential quality of this same vastly old gentile Virginia, which must remain from Patrick Henry, Give Me Liberty or Give Me Death. What is the essential nature of this comment. Patrick Henry never played devil's advocate.
Nor thus can the bankrupt man even in Illinois turn to Abraham Lincoln for the required other than props. There is no Frederick Douglas equate trumping moral high road today in the early 21st century, because as both purse and ceiling in the end the end of slavery "did not" solve all problems. Thus, to attend old Abe's court, a man must first get past Stephen Douglas, a fearsome watchman concerns essential dignity and liberty. Dead Stephen Douglas doesn't defend Abraham Lincoln, he obliterates flippant access to the man, even be modern day libertarians, who must acknowledge Stephen Douglas as both their better and their own. Hence, and more severely, the modern day devote of Lincoln with the bad budget skills for his or her part is by fidiciary act alone serving up self absorbed, high school level, shirk and jerk. Such a person for example has manifestly never comprehended the pre-saftety net libertarian dignity, patriotism, and essential fierceness of Stephen Douglas. Such a person, despite words and huff and puff and humphing eye rolls has therefore never even really approached the moral Abraham Lincoln.

One way or another, all row, all the time. Therefore, from no productive vantage can fiscal reality be distanced from, even the one that posits it as 'the real question.' All know the answer. The soft in leadership wait for predictable consequence to hear the chorus of the so afflicted and call this noise their mandate. Men and women of resolve sharpen blades, study emergency medicine, and start cutting necrotic gangrene even as they reorient the sails toward whatever head wind causes movement at all.

Rowing all the time. This effort is the procreancy required by the union. Prudent, its foundation finds the simple as simple just in beggars can't be choosers, and further says the nation's Declaration of Independence (Life, Liberty, and Pursuit of Happiness) to the country's Constitution, laws, and judiciary (inherited, present reality, and future), the nation also thus so takes what it gets by structural design. Further, if you aren't begging than you can choose. If you must choose, then you can do economics. If you can do economics, then you will know what the next move is. The EPA always consider the 'do nothing' option by law. Related, if you can't get what you want, can you improve your position? This last informs such as it is policy.

As this thing today in the paper expands and decays, government cannot cede its suppositional charter - the fidiciary sinew of the country. That connective tissue isn't the right of a community to declare bankruptcy, it's the underlying notion again that beggers can't be chooses. If the nation fails here, if it lets the so exposed voice the terms of how it will be, if it can't then find the ROI for its own existence, better off states have every right to question the need for the union at all.

I write from Illinois - a grim place today surely reeling in the harrow of Pennsylvania's situarion. Yet wrong people are in power today at the federal level to declare words regards this outcome. They suck not because they aren't doing everything in their power to defer the matter past some posited breaking point. Rather, it's because they don't have the cheek to speak to their betters on this regard and they don't have the integrity not to pander to destructive habit.

Expect a then rude reaction, counter movement and reeducation in this country regards Life, Liberty, and the Pursuit of Happiness. Expect new terms - hard even brutal but true not to sentiment regards inherent quality that must find paid support for its pedestal (however simple, small, paltry that has become) but to the duty of the times. America voted for Change We Can Believe In. Not a damned word of it was true.

That's a start.