Reuters: Republicans Are Trying to Intentionally Bankrupt California and Illinois to Weaken Unions → Washingtons Blog
Reuters: Republicans Are Trying to Intentionally Bankrupt California and Illinois to Weaken Unions - Washingtons Blog

Tuesday, December 7, 2010

Reuters: Republicans Are Trying to Intentionally Bankrupt California and Illinois to Weaken Unions

The New York Times points out that some states like California and Illinois are at risk of default, and that a default could spread to other states:

While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years.


Some of the same people who warned of the looming subprime crisis two years ago are ringing alarm bells again. Their message: Not just small towns or dying Rust Belt cities, but also large states like Illinois and California are increasingly at risk.


The finances of some state and local governments are so distressed that some analysts say they are reminded of the run-up to the subprime mortgage meltdown or of the debt crisis hitting nations in Europe.

Analysts fear that at some point — no one knows when — investors could balk at lending to the weakest states, setting off a crisis that could spread to the stronger ones, much as the turmoil in Europe has spread from country to country.


Next year is unlikely to bring better news. States and cities typically face their biggest deficits after recessions officially end, as rainy-day funds are depleted and easy measures are exhausted.

Douglas Borthwick of Faros Trading writes:

The most important thing missing from the tax extension was the expected extension of the Build America Bond program.

The Build America Bond program has been the municipal market's saviour over the past 18 months.


We are concerned that no one is looking at the growing problems in New York, California and Illinois, three states that comprise 25% of the US GDP. The expiration of the Build America Bond program could prove to be a terrible price for the US to pay and we expect squabbles in the US Congress regarding the bailing out of States in 2011 that could easily rival that which we have witnessed from the European Union over Ireland and Greece.

And see this, this and this.

Reuters' columnist James Pethokoukis claims that the failure to extend the Build America Bonds program is an intentional plan by the GOP to bankrupt states such as California and Illinois, as a way to weaken unions:

Congressional Republicans appear to be quietly but methodically executing a plan that would a) avoid a federal bailout of spendthrift states and b) cripple public employee unions by pushing cash-strapped states such as California and Illinois to declare bankruptcy. This may be the biggest political battle in Washington, my Capitol Hill sources tell me, of 2011.

That’s why the most intriguing aspect of President Barack Obama’s tax deal with Republicans is what the compromise fails to include — a provision to continue the Build America Bonds program. BABs now account for more than 20 percent of new debt sold by states and local governments thanks to a federal rebate equal to 35 percent of interest costs on the bonds. The subsidy program ends on Dec. 31. And my Reuters colleagues report that a GOP congressional aide said Republicans “have a very firm line on BABS — we are not going to allow them to be included.”

In short, the lack of a BAB program would make it harder for states to borrow to cover a $140 billion budgetary shortfall next year, as estimated by the Center for Budget and Policy Priorities. The long-term numbers are even scarier. Estimates of states’ unfunded liabilities to pay for retiree benefits range from $750 billion to more than $3 trillion.

Some Republicans hope the shock of the newly revealed debt totals will grease the way towards explicitly permitting states to declare bankruptcy.


From the Republican perspective, the fiscal crisis on the state level provides a golden opportunity to defund a key Democratic interest group. For the GOP, it’s an economic and political win.

And see this.

My friends on the right hate unions.

My friends on the left love unions.

But I hope that people on both sides of the aisle can agree that intentionally bankrupting any state is as stupid as cutting of one's nose to spite one's face.

There is no United States without the states. And the unintended consequences intentionally driving a state into bankruptcy would be enormous.


  1. I do not understand well the purpose. Who benefits from bankrupt states: the central government? Is it a maneuver to further centralize the USA or rather, as I think it's the case in Europe, one to force budget cuts while massively transferring to Big Capital in yet another, quite draconian capital accumulation process?

    I have the strong impression that all this financial madness is largely a late version of the original (and sustained/cyclical) accumulation of capital into the oligarchy. In other words, an upgraded and globalized version of the enclosures and such.

    This was postponed once and again in the last 8 decades by transference of some wealth (crumbs maybe but a growing amount of crumbs) from the oligarchies to the working class (and also to the middle classes, so important to keep the ideological backbone), leading to an illusory version of Capitalism that a friend calls "welfarism". Why was it postponed because the USSR and the general threat of proletarian revolution was real. Finished the Cold War and after exhausting all the rest of the fuel in the financial bubble, the oligarchs interest is to recapture all that wealth and therefore to impoverish some large sectors of society, even in the developed countries.

    But it does not seem like forcing bankruptcy of the states would benefit this reactionary plan, they probably intend instead to cause in California, Illinois, etc. the same as in Europe. However it seems to me that California and Illinois are much larger and important for the global economy than Greece or Ireland.

  2. I am shocked by the numbers I am reading, concerning the debt owed by states. However, as you imply, we are all in this together and need to figure out a solution (maybe involving debt forgiveness) as a country. Not just hatefully and spitefully destroying a state to destroy a labor union.

  3. There has to be a force capable of stopping the madness at the state and local level. California has public nurses making more than $300,000 a year.

    Republicans are no longer competitive in many states due to the flood pf illegal aliens. Their anchor babies are legally voting. I have met many illegal aliens who told me they vote and vote Democrat.

    I moved out of California. Why should I pay taxes to support insane unions, Democrat politicians and illegal aliens who made California unlivable to anyone who is not a millionaire?

  4. The big mistake private industry unions made was throwing in with government unions. At least private industry unions are involved in the productive economy. Government unions' and private unions' interests are NOT the same.

    By failing to see the danger inherent in government unions (they eventually 'kill the goose'), private union members have sealed their fate. Republicans might be able to speed the endgame up, but the math would bring about their demise regardless.

  5. Ha. Ha. You have got to love those Republicans especially Sen. Boner and the gay caballero Sen. Grammcraker. If Debt is Prosperity, then we are the richest county in the world! Ha. Ha. All in just 10 years!

    At least they are upfront about their intentions of following the Bush/Obama administration agenda of bankrupting America into submission to the World Banksters and the new economic world order!

    God, how they hate Independence and government for and by the people and they especially hate any social services for the people including: Employment Benefits, Social Security, Unions, Social Services and public ownership of Lands and Natural Resources and public owned Infrastructure including highways and bridges.

    Republicans pray for the day that Austerity kicks in for Americans and the States are bankrupt and in receivership by the Bank of International Settlements and the International Monetary Fund.

    The ultimate goal of the World Banksters fiat money debt scheme is International monetary control of each nation by international Totalitarian corporate rule.


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