U.S. Cities Start Filing Bankruptcy

The headlines have started reporting cities and counties beginning to file for bankruptcy.

CENTRAL FALLS, R.I. — The city of Central Falls, Rhode Island — one of a handful of U.S. cities and counties facing fiscal collapse in the wake of the economic recession — has filed for bankruptcy.

The smallest city in the smallest U.S. state made the filing Monday as it grappled with an $80 million unfunded pension and retiree health benefit liability that is nearly quadruple its annual budget of $17 million.

"Everything was done to avoid this day," Flanders, a retired judge, said.

"We negotiated with ... the police and fire unions, without success, attempting to reach voluntary concessions, and we tried in vain to persuade our retirees to accept voluntary reductions in their benefits," he added.  

See it here; http://www.msnbc.msn.com/id/43987002/ns/us_news-life/ 

Notice the catch 22 here...the city is out of money so they go to the policeman and fireman and city workers and try to negotiate on their pensions and health insurance.  The retirees say no....and then the city has no choice but to file bankruptcy so in the end the retirees may lose more than had they negotiated.  This story is going to be repeated ad nausea.

Last week I talked to a local banker and he told me they had just turned down a school district for funding to build a new school...and it was all going to be financed by municipal bonds.  When the city asked the bank why, the bank said that they simply don't trust the government (local, state, federal) to honor their promises.

Understand the significance of this....if the banks don't trust government so they loan even LESS money than they have in the past few years....the whole economy will come to a screeching halt...or worse.  As we have said MANY TIMES....when the whole system is based on faith, serious problems may be coming as that faith vanishes.