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Greek Tragedy Unfolds in Rhode Island

From Governing, insight into the future of American state politics:

Facing the prospect of a statewide financial crisis arising from Central Falls’ bankruptcy case, the Rhode Island Legislature took steps to assure municipal bond investors that their interests will not be impaired by pensioner’s claims. The new law enables the city’s receiver to subordinate the pensioners’ claims to bondholders, with chilling implications for public pensioners and employees who typically regard their claims to be ironclad by law as well as in the court of public opinion.This unprecedented statute is now under attack by unions and retiree groups that say it puts fat-cat investors ahead of the little people. A national police union leader claims that somebody “should go to jail for this” and vows to raise funds for retirees to file lawsuits, as the union lacks standing to represent them directly. However, this probably won’t be the last time we see lawmakers forced to move pension rights over to the passenger seat, lest they put their own state’s debt ratings into the category of Greece.

Carlyle said it:

Great is Bankruptcy: the great bottomless gulf into which all Falsehoods, public and private, do sink, disappearing; whither, from the first origin of them, they were all doomed.  For Nature is true and not a lie.  No lie you can speak or act but it will come, after longer or shorter circulation, like a Bill drawn on Nature’s Reality, and be presented there for payment, — with the answer, No effects.  Pity only that it often had so long a circulation: that the original forger were so seldom he who bore the final smart of it!  Lies, and the burden of evil they bring, are passed on; shifted from back to back, and from rank to rank; and so land ultimately on the dumb lowest rank, who with spade and mattock, with sore heart and empty wallet, daily come in contact with reality, and can pass the cheat no further.

All over America, people who thought they had great pension plans are going to be pinching pennies and hunting for part time jobs.  Lies cannot last, and both politicians and union leaders have been lying through their teeth to state workers all over this country. The bills are coming due, and they cannot and therefore will not be paid.

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  • Bruno Behrend

    The Bond Holders are not innocent in this, as they drank the same Kool-Aid as the mortgagees who bought $400K homes on $16,000 salaries.

    The worst of the lot here are the Municipal Bond Dealers, who are only slightly more well-heeled than the mortgage brokers at WAMU.

    Unions, Local Government, and states were all in on this corrupt self-delusion, and every last one of them deserves a massive haircut for their greed.

  • Greg Q

    Regardless of what Bond Dealers may “deserve”, if the municipalities of the State of Rhode Island want to be able to continue borrowing money, the bond Owners (many of who are people who’ve bet their retirement on those bonds, because they were supposed to be “low risk”) must get paid.

    BTW, it would be nice if your link to Governing linked to the relvant article, since I can’t find it on their web site.

  • Buce

    I’ve got a better idea: let’s have a priority for all creditors whose surnames begin with “M.” Would make a lot more sense than favoring a claque of institutional investors who, if anybody does, have the motive, the opportunity and the wherewithal to do he kind of due-diligence that would allow them to price this kind of risk into their loan package in the firt place. Or maybe there is a document in the file saying “and anyway, boss, if ever it ever looks like we are in trouble on this loan, we can just get Rhode Island to change the law.” If there is no such expectation and if we now do allow them to change the law, aren’t we paying them twice.

    And FWIW, I have read the Carlyle half a dozen times and I still haven’t the foggiest notion what exactly he is trying to tell me. But it was ever thus with Carlyle, not so?

  • Alan Kellogg

    Wait for the new class of homeless to hit the streets; people left bereft by the death of their pension schemes.

  • Luke Lea

    Great quote!

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