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Pension Crisis
San Bernardino Stiffs Wall Street

Reuters reports that San Bernardino is stonewalling its creditors and has paid them nothing for the past three years, defaulting on $10 million of $50 million outstanding. In the meantime, it has continued to pay into CalPERS, California’s public pension fund, making monthly installments “in full.” More:

The missed payments illustrate the trend among cities in bankruptcy to favor payments to pension funds over bondholder obligations, which has increased the hostility between creditors and municipalities […]

The non-payment of the bond debt and the city’s lack of interest in talks with its pension bondholders just weeks before it must produce a bankruptcy exit plan should serve as a wake-up call to Wall Street issuers of debt to struggling cities, according to Michael Sweet, a bankruptcy attorney with Fox Rothschild in San Francisco.

This “wake-up call” to Wall Street comes just as the city is set to produce a bankruptcy plan in the coming weeks. Municipal bondholders around the country will have their eyes trained on the city as that plan is released.

There is a shrinking pool of resources in states going through blue model collapse, but lots of people who want them—bondholders, taxpayers, pensioners. None of will emerge from the crisis unscathed, and though CalPERS has the clear advantage over creditors now, it may not always.

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  • MartyH

    I hope the city’s plan does not include any more borrowing from Wall Street-they might not get many takers, and certainly not at a favorable interest rate. Although anybody who loans them money now deserves what they don’t get.

    • Kevin

      You’d think – but there always some to be some fool willing to loan them money again. I assume the new lenders’ agents will have a short time horizon and plan to sell the bonds to gullible or desperate investors. Rinse and repeat.

      Eventually municipal bond investors will realize the politics of the situation make them the first one to get stiffed when citiestun into trouble – but for now city officials are able to trade on their predecessors fiscal rectitude and borrow at lower rates. The Fed’s never ending QE also has investors desperate for anything that seems to promise even modest returns.

  • fastrackn1

    I am not sure that municipalities biting the hand that feeds them is a smart strategy in the long run.

    • rheddles

      Office holders do not serve for the long run. So they don’t care about it. Voters should, but they’re too ignorant of what is going on. But fear not, they will pay in the long run.

    • bannedforselfcensorship

      Union goons live in the same city you do, as an official. Banksters live in NYC.

  • ToursLepantoVienna

    I suspect we’ll be seeing more of this. It will not end well.

  • KenPrescott

    If I were a bond fund manager, I’d require any new bond issues to be backed by the full faith and credit of the municipality’s employees. Not the citizenry, the employees.

    The notion of the city’s employees all living in a van, DOWN BY THE RIVER, is personally amusing.

    • hutch1200

      Very original. I like that. Cops being nicer to tourists, maybe give them a break on a meter. Teachers, worrying about pension investments/allocations, LIKE THE REST OF US DO! No more, screw it they’ll just have to raise taxes…….I’m OWED! End defined benefits & they go on Medi-care when it’s time….like the rest of us! Next time they see the guy in the cubicle next to them porn-surfing all day, instead of issuing building permits, maybe they’ll speak up. If it affects their workload, maybe.
      UGH. I can dream. Can’t I, or has that been regulated now too?

  • hutch1200

    I live in a “Financially Distressed” rust belt city that has the middle class fleeing. Our $$$$ Crisis was supposed to be fixed in 1985! But we are in the same boat here, all this time later. But you talk to locals and they vote Democrat because “Their cousin in law’s nephew mops floor for the school district”. Your taxes go up $250/year in a town where the median income is between 27.5k & 33k.
    And you’ll eat dog food @ 85 while that floor mopper retires to Boca @55! I hope he lets you know how warm it is all winter on his Obama-phone.

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