State Bankruptcies

As one reader commented, "It's funny how quickly we went from saying that states would NEVER file for bankruptcy, to today, where now we are talking about HOW it could be done."

Policy makers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts, including the pensions they have promised to retired public workers.

Unlike cities, the states are barred from seeking protection in federal bankruptcy court. Any effort to change that status would have to clear high constitutional hurdles because the states are considered sovereign.

But proponents say some states are so burdened that the only feasible way out may be bankruptcy, giving Illinois, for example, the opportunity to do what General Motors did with the federal government’s aid.

See it here; http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?pagewanted=2&_r=3&src=busln

Think about it; borrowing money for the states could start to become really expensive (as it probably should...then maybe they wouldn't keep doing it?) if Mississippi and Alabama are considered more likely to default than Minnesota or North Dakota....they might have to pay 2-3 times the interest than highly rated states pay.

I don't really see how that is any different than people with poor credit ratings paying higher costs than those with good credit ratings.

This discussion appears to be simply more evidence of how the dominoes may fall once something, or someone, pushes the first one over and sets the whole thing in motion.

Hat tip to Mike S.