Gingrich Touting State Bankruptcy Bill to Gut Pensions

There has been an interesting lack of commentary on an effort underway by Newt Gingrich and his allies to enable state governments to declare bankruptcy as a way to slash pension obligations, and given the lack of mention of other creditors, perhaps only pension obligations.

The latest sighting was via an article today in Pensions & Investments:

Former House Speaker and possible GOP presidential contender Newt Gingrich is pushing for federal legislation giving financially strapped states the right to file for bankruptcy and renege on pension and other benefit promises made to state employees…

Mr. Gingrich discussed the proposal in a Nov. 11 speech before the Institute for Policy Innovation, an anti-big-government group based in Lewisville, Texas. According to a transcript of the speech on Mr. Gingrich’s website,, he said: “I … hope the House Republicans are going to move a bill in the first month or so of their tenure to create a venue for state bankruptcy, so that states like California and New York and Illinois that think they’re going to come to Washington for money can be told, you know, you need to sit down with all your government employee unions and look at their health plans and their pension plans and, frankly, if they don’t want to change, our recommendation is you go into bankruptcy court and let the bankruptcy judge change it, and I would make the federal bankruptcy law prohibit tax increases as part of the solution, so no bankruptcy judge could impose a tax increase on the people of the states.”….

So far, proponents of the legislation said they have not yet recruited a congressional sponsor for the proposed measure. “We’re still shopping for the guy who is going to carry it,” Mr. [Grover] Norquist said.

Nonetheless, union executives are concerned that the proposal — which has been promoted on conservative websites recently — is part of a well-orchestrated and hitherto underground campaign now surfacing as Republicans settle into leadership positions in the new Congress.

I’m quite puzzled by this initiative and wonder if readers have any insight.

First, the obstacle to states filing for bankruptcy is a Constitutional issue, namely sovereign immunity (which is conferred both by the Constitution itself and reinforced by the 11th Amendment). The reason is that bankruptcy court is a Federal court, so it cannot have jurisdiction over a state. So I don’t see how a mere bill changes this issue and the odds of getting a Constitutional amendment passed are just about zero. What am I missing here?

Second, the Gingrich crowd is keen to restrict the judges from imposing new taxes in a bankruptcy. Isn’t this also a Constitutional issue and hence open to court challenge?

Third, the proponents are stressing that the purpose of the bill is to allow states to repudiate union pension funds. There is no mention of, say, getting out of bad swap contacts or renegotiations other creditor interests. Yet the a bankruptcy process puts all creditors on hold as the judge sorts out who gets what based on the seniority of claims and the borrower ability to pay. If the bill is going to restrict judges in terms of options for dealing with the bankrupt estate, does that also mean that it will try to restrain judges from restructuring state obligations ex pensions?

Then again, while it would be nice to think that the Constitutional issues make this all a lot of sound and fury signifying very little except to further intimidate unions, I wouldn’t place much faith in the Roberts court doing the right thing.

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  1. Paul Repstock

    Yves, Yves…I think I know the answer!

    It’s global warming. The pond dried up and the neuts had to leave the slime at the bottom of the pond. Now understandably, they are angry about that.

    ..Post deleted due to low ranking..:D

    1. Paul Repstock

      I often say dumb and intemperate things. But, for a public official and apparently someone with presidential aspirations to attempt to facilitate or compell breach of contract seems way beyond ethical in my books??

      1. eric anderson

        If you’re so religiously opposed to breach of contract, I guess that means you must be in favor of making homeowners with underwater mortgages pay every last farthing, with no bankruptcy out, just like student loans. Right?

        Sauce for the goose.

        1. Doug Terpstra

          Nice try, eric, but of course you know very well you’re comparing kumquats and pomegranates—entirely different contracts, no equivalency, not even close.

          Mortgages have tangible collateral, which the lender retains in case of default per well-defined contract, under which default is a perfectly legal and ethical option, with recourse and penalties spelled out clearly. In case you hadn’t noticed banks do it all the time on their own holdings; it’s kosher business—unlike bailouts, which is the salt in the wound here. Public pensions have no such default option.

          ASU Law Professor Brent White spells it out clearly here: “‘Walking away’ not immoral”

      2. Doug Terpstra

        Well said. Newt’s mamma named him well. Yves might have included a newt as antidote, but they are not very attractive or cuddly. It’s not surprising that Clinton’s stealth partner in crime should crawl out of the swamp now as Social Security and pensions are in the crosshairs.

        Per Wikipedia:

        “A newt is an amphibian of the Salamandridae family … Adult newts have lizard-like bodies and may be either fully aquatic, living permanently in the water, or semi-aquatic, living terrestrially but returning to the water each year to breed.”


        “Many newts produce toxins in their skin secretions as a defense mechanism against predators. Taricha newts of western North America are particularly toxic … Most newts can be safely handled, provided that the toxins they produce are not ingested or allowed to come in contact with mucous membranes, or breaks in the skin.[7] After handling, proper hand-washing techniques should be followed due to the risk from the toxins they produce and bacteria they carry, such as salmonella.”

    1. DownSouth

      Putting issues of fairness aside (How do you tax a public sector employee at 90% and a private sector employee at a fraction of that?), I believe your proposed solution would do precious little to ease the budget woes of the states.

      Take California for instance. The median household income is just a tad bit more than $61,000. California ranks ninth in the nation in household income, with Maryland and New Jersey leading the pack at slightly more than $70,000.

      But very few public pensions in California exceed $61,000—-less than 10%. In California, the average CalPERS member recives slightly more, $1,881 per month, or $22,572 per year. Approximately 41 percent of CalPERS retirees receive $12,000 per year or less in benefits. About 81 percent of retirees receive $36,000 per year or less, with 91 percent of CalPERS retirees receiving $54,000 or less per year. Out of a total of 674,000 retirees, only a miniscule 200 make in excess of $200,000 per year and 15,000 make in excess of $100,000 per year.

      However, even though your proposal would have almost no budgetary consequences, it would have tremendous rhetorical impact. It would completely disembowel the propaganda blitz being orchestrated by the champions of corporate greed and selfishness and their drive to stigmatize and scapegoat public sector employees.

  2. Campbeln

    Well… how many times do we have to be shown that the halls of power in the US have either no education about the Constitution (unpossible) or simply contempt for it?

    Sure… make the point that they know it’s unconstitutional on it’s face and they are doing it merely to score political points and/or clearly signal to the states that help ain’t-a-commin’. But if the American people were engaged and themselves educated these games would fall flat on their face.

    ‘Course one would believe that the forth branch would step in and provide the eduction and attention when something like this came to the fore. Instead we have an entire party trial balloning something clearly unconstitutional, our internal boarder “secured” by breaches of the 4th Amendment, and on and on an on…

    What happened to my country? Or did I simply take too many notes in American History class?


  3. Tao Jonesing


    The difficulty here is in understanding what states have actually obligated themselves to in the various contracts to which they are a party.

    First, through contract, it is entirely possible that states have obviated the 11th Amendment by agreeing to be subject to federal bankruptcy proceedings. Stranger things have happened. I just don’t know.

    Second, if states have voluntarily subjected themselves to federal jurisdiction, it is unlikely that they have done so with respect to pension obligations. Unions just don’t seem to be that sophisticated. Yeah, there are union members who sit on the boards of directors of various Federal Reserve banks, but they have no clue. They’re there just to be made to felt important while getting their own payoff.

    The best way to think of the current initiatives is as simply another way to privatize profits and socialize losses. There really is nothing in federal law to prevent state legislatures from binding themselves to private lawsuits by banks and private investors even as they renege on standing obligations to their current and former employees (and their citizens). The “leadership” of Ireland and Greece did it. Why can’t the “leadership” of California and Illinois do the same thing?

    What are you, a commie or something? :-) Leaders are supposed to be able to sell out their followers. After all, followers are just a commodity, right?

    The sad fact is that Gingrich is actually providing states a way out of their budget woes. Unfortunately, that path comes with the price of surrendendering state sovereignty. But hey, the leaders will become rich off of it, so that’s okay.

    Smiles, everyone.

    1. Yves Smith Post author

      I’ve seen various references to state not being able to BK, but yes, the logic has always struck me as strange, since I’ve never seen an argument that would seem to invalidate involuntary bankruptcy. But why do you think would pensions be exempt from a voluntary state BK?

      Depends on what that bill is going to say. If it is crafted only to go after pensions, it’s merely a Trojan horse for union busting.

      1. maynardGkeynes

        The reason is that Federal Courts, unlike state courts, are courts of limited jurisdiction under the Constitution. That means jurisdiction must be asserted and can’t be waived. In diversity cases, for example, the Federal Court has jurisdiction only in disputes between citizens of different states. The parties from the same state cannot voluntarily waive this requirement to gain access to Federal diversity jurisdiction, nor can Congress pass a bill allowing it. It is forbidden by the Constitution. Similarly, if a Federal bankruptcy court lacks original jurisdiction over State claims, neither the states, the Congress, nor the parties can appear there by means of a voluntarily waiver of jurisdiction. The Constitution forbids it, or perhaps better put, the parties cannot give a Federal court jurisdiction that the Constitution has not already given it.

      2. Jim Haygood

        In the Wikipedia link, a 1999 case styled Alden v. Maine is cited. The Supreme Court split 5-4, with the minority asserting that states had ceded their sovereignty upon ratifying the constitution.

        Congress is given constitutional authority to establish uniform bankruptcy laws, which might conceivably include states, and might even trump the diversity issue for the specific purpose of federal bankruptcy jurisdiction.

        If I were a vendor getting stiffed by the state of Illinois and could afford it, I’d certainly have a go at submitting an involuntary bankruptcy petition and asking the district court on an equitable basis to assert jurisdiction, despite the absence of explicit provisions for state bankruptcy in the existing federal statute.

        Illinois (‘Land of Obama,’ as the license plate slogan will read someday … NOT!) is a failed state. It needs adult supervision, before it digs its hole even deeper with a killer tax hike.

      3. Jim Haygood

        As Dan the Man pointed out below, the judicial precedent is already established. Wikipedia:

        Central Virginia Community College v. Katz, 546 U.S. 356 (2006), is a United States Supreme Court case holding that the Bankruptcy Clause of the Constitution abrogates state sovereign immunity. It is significant as the only case allowing Congress to use an Article I power to authorize individuals to sue states.

    1. attempter

      They believe the non-rich are sub-human, not citizens, and therefore it’s impossible to have a valid contractual obligation to them. If a government or corporation signed a contract incurring a pension obligation, by definition that “contract” was extorted by thugs. It has no more validity than if extorted literally at gunpoint.

      That’s really what they believe. I’m don’t know if they’ve gone so far yet as to formally elaborate this ideology, but it is their ideology.

      So they think comparing an obligation to a bank with an obligation to workers or citizens is comparing apples and oranges. The former is a valid contract, the latter is not. Simple. (Needless to say, any contract between power and subhumans is valid where the benefit runs upward.)

      That’s the essence of class war.

      Until we fully understand and fully reciprocate this ideology, we’ll continue to lose. We must simply turn it right-side up.

      1. Tim Goswell

        I couldn’t agree with you more.

        Currently reading Matt Taibbi’s “Griftopia” and just came to the following passages, which pretty much correspond to the way I understood it:

        “In essence, the partners of Goldman Sachs held the thousands of AIG policyholders hostage, all in order to recover a few billion bucks they’d bet on Joe Cassano’s plainly crooked sweetheart CDS deals.” pg 118


        “As is well known, the counterparties to Joe Cassano’s CDS deals received $22.4 billion via the AIG bailout, with Goldman and Societe Generale getting the biggest chunk of that money.” pg. 119

        Now imagine if the “counterparties” to this supposedly sacred, “impossible to break”, contract had been wounded or traumatized veterans returning from either of the privatized wars for profit in Iraq or Afghanistan?

        From the oligarchs’ perspective, a contract made with war veterans (hence part of the non-rich and therefore sub-human by definition) would not be worth the toilet paper it was written on. In that case, instead of receiving $22.4 billion they would have been lucky to get enough for a lice-infested straw mattress in a homeless shelter, and perhaps a bowl of soup.

        1. MSnDC

          And so what? GS understand people like themselves and are comfortable dealing with the same. Rail against them all you want, its a small social circle with enormous power unlikely to change. If you want change run for office.

        2. attempter

          During the 2008 campaign, phony “war hero” McCain himself wanted to gut the VA.

          I haven’t heard much from the Dems on that; maybe their perceived need to look as militaristic as the Reps helps shield the VA. But with the Reps coming back to power, we can expect to see it on the firing line again.

      2. DownSouth

        Attempter said: “Until we fully understand and fully reciprocate this ideology, we’ll continue to lose. We must simply turn it right-side up.”

        I wonder what some of the more moderate civil rights thinkers would have to say about that. A few quotes that might be germane:

        In your struggle for justice, let your oppressor know that you are not attempting to defeat or humiliate him, or even to pay him back for injustices that he has heaped upon you.
        –Martin Luther King, Jr., “The Most Durable Power,” The Christian Century, 5 June, 1957

        To meet hate with retaliatory hate would do nothing but intensify the existence of evil in the universe. Hate begets hate; violence begets violence; toughness begets a greater toughness. We must meet the forces of hate with the power of love; we must meet physical force with soul force. Our aim must never be to defeat or humiliate the white man, but to win his friendship and understanding.
        –Martin Luther King, Jr., Congressional Record, 20 May, 1959

        The unprecedented price demanded—-and at this embattled hour of the world’s history—-is the transcendence of the realities of color, of nations, and of altars.


        I am very much concerned that American Negroes achieve their freedom here in the United States. But I am also concerned for their dignity, for the health of their souls, and must oppose any attempt that Negroes may make to do to others what has been done to them. I think I know—-we see it around us every day—-the spiritual wasteland to which that road leads. It is so simple a fact and one that is so hard, apparently, to grasp: Whoever debases others is debasing himself. That is not a mystical statement but a most realistic one, which is proved by the eyes of any Alabama sheriff—-and I would not like to see Negroes ever arrive at so wretched a condition.


        For black people, though I am aware that some of us, black and white, do not know it yet, are very beautiful. And when I sat at Elijah’s [Muhammad] table and watched the baby, the women, and the men, and we talked about God’s—-or Allah’s—-vengeance, I wondered, when that vengeance was achieved, What will happen to all that beauty then? I could also see that the intransigence and ignorance of the white world might make that vengeance inevitable—-a vengeance that does not really depend on, and cannot really be executed by, any person or organization, and that cannot be prevented by any police force or army; historical vengeance, a cosmic vengeance, based on the law that we recognize when we say, “Whatever goes up must come down.” And here we are, at the center of the arc, trapped in the gaudiest, most valuable, and most improbable water wheel the world has ever seen. Everything now, we must assume, is in our hands; we have no right to assume otherwise. If we—-and now I mean the relatively conscious whites and the relatively conscious blacks, who must, like lovers, insist on, or create, the consciousness of the others—-do not falter in our duty now, we may be able, handful that we are, to end the racial nightmare, and achiever our country, and change the history of the world. If we do not now dare everything, the fulfillment of that prophecy, re-created the Bible in song by a slave, is upon us: God gave Noah the rainbow sign, No more water, the fire next time!
        –James Baldwin, The Fire Next Time

        1. Chester Genghis


          I appreciate your reminders re: dignity & non-violence, but I don’t think Attempter was calling for anything that would compromise your/our principles.

          The right has frequently accused the left of inciting Class Warfare, but truth is quite the opposite. There is a Class War going on right now. It is being conducted by the Haves against the Have Nots, and the Haves have become increasingly emboldened as they get closer to their goals.

          The Haves have been winning the associated rhetorical war largely because the Have Nots have been reluctant to acknowledge the truth and join the fray. Timid appeals for “civility” etc. are not enough. There is a Class War. We need to recognize it for what is & label it as such.

          1. attempter

            Yes, and for a specific example of what I mean, I often argue that since the banks launched this war of aggression upon us, all “contracts” we had with them, e.g. mortgages, are null and void. All the land reverts to the people. The banks get zip. (And every cent they extracted, e.g. in “bonuses”, is of course to be restituted.) That’s the legal order I’d enshrine to replace the lawless void the banks have imposed.

            It’s often said that “nobody disputes that the mortgage holders owe someone the debt, it’s just that the banks have made it impossible to tell who.” Well, I dispute it, for the reason I just said – if you owe someone $5, and he beats you, tries to kill you, and burns down your house, who would still think you still owe him the $5? (Besides, since we’ve had another $14+ trillion stolen to bail out these criminal organizations, that of course has to count against any bank debts.)

            We owe the banksters nothing. On the contrary, they must restore every cent they stole.

          2. attempter

            So I forgot to conclude: That’s an example of what I mean by turning things rightside up. Nothing that’s not in the main current of what morality and justice demand.

          3. DownSouth

            • Chester Genghis said: “There is a Class War. We need to recognize it for what is & label it as such.”

            I think you, attempter and I are all on the same page on that one. The question is: What’s the best way to fight the war?

            • Chester Genghis said: “I appreciate your reminders re: dignity & non-violence, but I don’t think Attempter was calling for anything that would compromise your/our principles. “

            Well even if he was, I’m not saying Attempter was wrong. I’m saying there are differences of opinion and I just don’t know who’s right.

            There are those who argue the philosophy and tactics of King and Baldwin were more efficacious. Others argue that it was the more strident Civil rights activists like Elijah Muhammad and Malcolm X who were the real agents of change. Sometimes, when I watch the sparring between King and Malcolm X, I think it was a beautifully orchestrated good-cop/bad-cop routine. (Is that being too cynical?)

            But something worked, didn’t it? We now have a non-white president, an accomplishment that would have been unthinkable in the days of King and Malcolm X.

            • Chester Genghis said: “Timid appeals for ‘civility’ etc. are not enough.”

            I think I might agree with that. Certainly the appeals of a MLK or James Baldwin appeal to some. But the appeals of an Elijah Muhammad or Malcolm X appeal to others. Maybe it took the combined efforts of both schools to effect change? One thing’s for sure, and that is they were both working toward the same goal as articulated by Baldwin: “I am very much concerned that American Negroes achieve their freedom here in the United States.”

            And then there’s the quote by the early 19th-century parliamentarian, Sydney Smith, that always sticks in my mind and that I believe has some validity. In arguing in the English Parliament for the Reform Bill that would expand the voting franchise and make the way which England chose its members to Parliament more equal, he intoned:

            The talk of not acting from fear is more parliamentary cant. From what motive but fear, I should like to know, have all the improvements in our constitution proceeded? If I say, Give this people what they ask because it is just, do you think I should get ten people to listen to me? The only way to make the mass of mankind see the beauty of justice is by showing them in pretty plain terms the consequence of injustice.

        2. Tim Goswell

          James Cone, who teaches at Union Theological Seminary in New York and is the author of “Martin & Malcolm & America” recently discussed Martin Luther King and Malcolm X with Chris Hedges. And he had this to say:

          “There are many ways in which Malcolm’s message is more relevant today…..”

          “King’s message is almost entirely dependent on white people responding to his appeals for nonviolence, love and integration. He depends on a positive response. Malcolm spoke to black people empowering themselves. He said to black people, “You may not be responsible for getting yourself into the situation you are in, but if you want to get out, you will have to get yourself out. The people who put you in there are not going to get you out.” King was appealing to whites to help black people. But King gradually began to realize that African Americans could not depend on whites as much as he had thought.”

          “King began to see that Malcolm was right in what he was saying about white people….Malcolm saw that white people did not have a conscience that could be appealed to to bring justice for African Americans. King realized that near the end of his life…..”

          And Chris Hedges concludes with the following observation:

          “King and Malcolm would have excoriated a nation that spends $3 trillion waging imperial wars and trillions more to fill the accounts of Wall Street banks while abandoning the poor. They would have denounced liberals who mouth platitudes about justice while supporting a party that slavishly serves the moneyed elite. These men spoke on behalf of people who had nothing left with which to compromise. And for this reason *they* did not compromise.”

          1. Chester Genghis

            I think the comparison between the civil rights movement and today’s Class War is not really fitting.

            Through the prism of MLK, the civil rights struggle was about a (largely) powerless minority appealing to the majority’s sense of fairness, justice, and basic humanity. MLK succeeded to a considerable extent, just as the gay rights movement is succeeding/will succeed using the same appeal.

            But the Class War is about the depredations of a powerful minority against the majority. I think better comparisons might be the upheaval & concentrations of power and wealth caused by the Industrial Revolution in England circa 1830-1860 or the Gilded Age in this country circa 1890-1930.

            But given the choice of MLK or Malcolm X as a leadership model for what we face now? I’d definitely go w/ Malcolm X.

            No sense in appealing to fairness or decency w/ Newt Gingrich, Grover Norquist, & the rest of that lot…

          2. attempter

            I think we still need the tactics of Gandhi and King, but the mindset of Malcolm X. (Gandhi also wasn’t really appealing to the better angels of the British nature, but just trying to wear them down. Of course, all he needed them to do was leave. Our geographically indigenous criminals are in a different position.)

            I just finished a post discussing this and the Ibanez case in the class war context.


        3. Larry Elasmo

          We are not going to get anywhere by appealing to the conscience of war mongers or Wall Street banksters.

          Malcolm X was right and his words are just as relevant today as they were in the 1960s: “Non-violence is fine, as long as it works”.

          1. Paul Repstock

            Attempter. my solution is at the bottom. Ghadi ji was right!

            They are nothing without the help our our brothers and sisters who draw paychecks from the military.

          2. Paul Repstock

            An addition to Attempter and DownSouths’ conversation above.

            If 1000 people had stood with the protester in front of the tank in Tianeman Square, there would be no Chinese Comunist Party today. I think it is possible that the next person who wants to be actually ‘Elected’ president of the United States will need to be willing to lie down in front of the tanks. Persons who are compliant with party politics will probably be ‘appointed’ in the interim. But, without moral conviction, there will be little credibility.

  4. Erik

    Republicans aggressively fight the fights they want to fight even when they can’t win and sometimes even when the argument makes incomplete or only partial sense in context. That allows them to hammer, hammer, hammer and change the course of debate over months and years so that by the time the winnable argument comes around they have already won it.

    Democrats fail to fight the fights they have already won. They don’t argue from a place of principal so each discussion is isolated and there is no vector from case to case. They are so terrified of sounding different from conservatives and the thought of scaring independents that they act from a place of timidity.

    1. CingRed

      When will everyone figure out that Republicans and Democrats are just different sides of the same worthless coin. No meaningful difference in effect as far as my 50+ years can see. Both are full of liars and self serving cheats and there is only a very rare few that don’t fall into that bucket.

    2. Matt Stoller

      Since the 1970s, Democratic elites have focused on breaking public sector unions and financializing the economy. Carter, not Reagan, started the defense build-up. Carter, not Reagan, lifted usury caps. Carter, not Reagan, first cut capital gains taxes. Clinton, not Bush, passed NAFTA. It isn’t the base of the Democratic party that did this, but then, voters in America have never had a lot of power because they are too disorganized. And there wasn’t a substantial grassroots movement to challenge this, either.

      Obama continues this trend. It isn’t that he’s not fighting, he fights like hell for what he wants. He whipped incredibly aggressively for TARP, he has passed emergency war funding (breaking a campaign promise) several times, and nearly broke the arms of feckless liberals in the process. I mean, when Bernie Sanders did the filiBernie, Obama flirted with Bernie’s potential 2012 GOP challenger. Obama just wants policies that cement the status of a aristocratic class, with crumbs for everyone else (Republican elites disagree in that they hate anyone but elites getting crumbs). And he will fight for them.

      There is simply no basis for arguing that Democratic elites are pursuing poor strategy anymore. They are achieving an enormous amount of leverage within the party. Consider the following. Despite Obama violating every core tenet of what might have been considered the Democratic Party platform, from supporting foreclosures to destroying civil liberties to torturing political dissidents to wrecking unions, Obama has no viable primary challenger. Moreover, no Senate Democratic incumbent lost a primary challenge in 2010, despite a horrible governing posture. Now THAT is a successful strategy, it minimized the losses of the Democratic elite and kept them firmly in control of the party. Thus, the political debate remains confined to what neoliberals want to talk about. It’s a good strategy, it’s just you are the one the strategy is being played on.

      A lot of people think that Obama is a bad poker player, but they miss the point. He’s not playing with his money, he’s playing with YOUR money. You are the weak hand at the table, he’s colluding with the other players.

      There are parts of the Democratic elite that don’t believe in neoliberalism, but they are a modest portion of that structure. So often what comes out of the party is garbled. Most Democrats support our reigning institutions, they believe in paying taxes, they believe in government power. Given a choice, they’ll grumble, but they are more willing to believe that this government is good than to support structural change. By contrast, the Republicans are unified in their desire for a more brutal and more plutocratic though otherwise unchanged institutional arrangement.

      This makes the GOP seem more committed, more professional and more change-oriented. This isn’t poor strategy or coordination from Democratic elites. The lack of willingness to fight on behalf of the public isn’t the same of an unwillingness to fight. It’s just their unwillingness to fight anyone but you.

      1. Doug Terpstra

        Thank you, Matt Stoller, for an exceptionally clear-eyed analysis, especially the historical perspective on Carter. It’s a self-dealing bipartisan game rigged against the people.

        The Democratic Party to its base is like Lucy to Charlie Brown, and Obama as Trojan-horse, is a stroke of genius by the plutocracy. He’s effectively muzzled and co-opted the black community and any potential Malcom X type leader, which would normally be a powerful progressive counterweight in this crisis. Glen Ford of the Black Agenda Report is determined to change that.

        But surely the game is nearly up for the Democratic Party. The tragic attack on Giffords’ is symptomatic of vast “disaffection” (seething rage), and I believe the Party will not likely survive this decade in its current form.

  5. RueTheDay

    Can we add a rider allowing BK judges to cram down mortgage principal?

    This is just another manifestation of the right wing belief that contracts are only sacred when it is a business or wealthy individual that is owed money. When it’s a worker on the other end of the contract, be it a private auto industry worker or a government pensioner, then the contract is an impediment to economic adjustment and must be voided.

  6. Michael Fiorillo

    A secure retirement having been taken from almost all workers in the private sector, it’s now time to go after civil service and public sector workers, the last bastion of unionization in the country. It’s of a piece with pensions in Ireland being used to make sure that bondholders receive every penny of interest on the fraudulent notes they bought, and that no one be held accountable for creating and selling them.

    The many can expect to subsist in the Golden Years on cat food from genetically-modified, hormone and antibiotic-fed sources, so that a few can gorge on foie gras from local, boutique farms.

    “They create a desert and call it peace.”

  7. RichFam

    Not sure about the constitutionality of state bankruptcy but no matter what Newt says in a state bankruptcy everything will be in play – swaps, debt, pensions, etc.. The question will be priority and there’s something else I know nothing about. Meaning, if a state files is the debt pari passu with the pension, any swaps etc.. My guess is everyone takes a haircut.

    Without bankruptcy the state probably just stops paying debt and making pension contributions and deals only with essential services. Bankruptcy may be a better option.

  8. Matt

    Now if Newt proposed legislation forbidding any government or non profit from buying derivatives, then Newt might have something to hang his hat on.
    As it is, we have government agencies and pension plans trying to play the role of AGI in trading with GS. The Bonneville Power Administration is trying to be the Enron “Death Star” victim of tomorrow by trading energy derivatives. I mean it is not rocket science that if you are selling a long term contract without a force majeure, you are really selling fire, earthquake and volcano insurance. Not to mention the idea of a government pension or BPA being better traders even when they are not captured by the investment bankers with swanky trips and future or current jobs for them and their relatives.

  9. R delguidice

    Dont be too focused on the technicalities of State BK. The Constitution onlys says States cannot be FORCED in to bankruptcy, not that they could not voluntarily file.

    The whole point will be to rachet up the heat under the issue (which will happen anyway as States are 150B short on the current accounts and will need Federal assistance for some time period to rightsize without social disorder externalities) and force the parties to the bargaining table holding the muni bond market and local services hostage.

    Think of itas de-facto bankruptcy, not the full blown thing.

    1. Matt

      The concept of additional Federal assistance to states is anethema to some. Some states have already reformed their pension systems twice. Why should they pay Federal taxes to support the grasshopper spenders?
      Increased unemployment, food stamps, Americorp, etc are uniform nationwide. But bailing out local deficits? Some states are not only headed for the cliff, they are in mid air.

  10. Pearl

    Perhaps the answer to economic stabilization is too simple and too obvious. It could happen quite organically–if we would only let it.

    Following the Ibanez decision, states should begin to implement Yves’ “no tickie-no laundry” policy for banks foreclosing on homeowners.

    That is all the states would have to do–everything else would happen naturally as a consequence. No one has to push Humpty Dumpty. Humpty Dumpty will fall all by himself once “no tickie-no laundry” is implemented. People will stop paying their mortgages when they realize that banks can’t prove that they have standing to foreclose.

    And that will free up a lot of money–some of which–can be taxed and used to pay off state deficits. The rest will be poured into the local economy fixing up those homes that homeowners are no longer paying mortgages on.

    TBTF banks OR the people will survive–not both. If policy makers want their actual (human) constituents to survive–this would be a great time and an easy way of ensuring such survival.

  11. sherparick

    Newt’s and Grover’s world views are mostly about acquiring power for their side. And they really believe, when they get among themselves, that they would win every election but for the “courrpt public employee unions,” and the “trial lawyers.” And it is certainly true that there already large money advantage would grow larger. So they see here an opportunity to strike a mortal blow at their enemy. And public employee unions are not popular with the MSM as seen by the 60 Minutes infomercial for Chris Christie. Besides, in tough times, the public needs witches to burn and goats to scape so to speak. If the Government employees in general, and public employee unions in particular, are not made the target, it might shift to them and their rich friends.

    Ken Silverstein documents a truly horrific state budget situation in Arizona in this month’s Harpers. Similar situations exist in Neveda, Texas, and Florida, none of which have strong unions. State services are going to be dismantled because the very rich and super rich who now direct policy, Grover Norquist’s John Galt heroes don’t believe they need such services since they can send their kids to private schools and hire their own private security for their gated communities. The Latin Americanization of America will continue (even as Latin America is starting to evolve in a different direction.)

  12. ep3

    uh, Yves, this is the proverbial holding the gun to the union’s heads. Just bringing this issue up helps build this symbol of the unions as the bad guys in the states’ budget messes. They can say “hey look the unions won’t give in to help the states, we are gonna go bankrupt if they don’t give up their pensions and health care”. Then the public will say “yup it’s their (unions) fault the state is broke. OH NO! The world will end if those unions don’t give up their health care. They better give in.”
    It’s TARP all over again.

  13. Dan the Man

    First, the obstacle to states filing for bankruptcy is a Constitutional issue, namely sovereign immunity (which is conferred both by the Constitution itself and reinforced by the 11th Amendment). The reason is that bankruptcy court is a Federal court, so it cannot have jurisdiction over a state.

    Actually, this isn’t true. Central Virginia Community College v. Katz (2006) said state sovereign immunity could be abrogated by Congress’s bankruptcy powers. Here’s Wikipedia’s description of it:

    Central Virginia Community College v. Katz, 546 U.S. 356 (2006), is a United States Supreme Court case holding that the Bankruptcy Clause of the Constitution abrogates state sovereign immunity.

  14. steelhead23

    When something absolutely, positively, must be done, you can count on the radical right to screw it up – or demagogue it. It is form over substance for these clowns. Guess what Newt, to avoid bankruptcy, many states will be forced to reduce services and increase taxes. That is not either/or, but both. And please note, a number of states are TABOR states in which the populace must approve all state tax increases. Your team created this mess – you fix it.

  15. Jim the Skeptic

    The reality is that state public pension problems will be worked out in elections at the state level. When you allow employees to draw pensions after 30 years, you accumulate a lot of pensioners in your population. Those pensioners also have adult children who vote. In addition there will be the Social Security recipients and federal pensioners who have some sympathy for other pensioners.

    It is very difficult to defeat an incumbent in an election for a federal office. That is not true for state office holders. In any action to renounce pension obligations, state office holders will find a very bright light focused on their activities.

    For 100 years after the Civil War, southerners refused to vote for a Republican. You might be able to find exceptions but there will be very few of them. I remember national newscasters referring to the phenomena of “yellow dog Democrats” in the early 1960’s. Also the south had been left in extreme poverty after the Civil War and as a result state governments had to be very conservative in their fiscal policies. The result was a conservative Democratic party in the south. The south is still fiscally conservative for the most part.

    I live in Kentucky which is a part of that traditionally conservative south. Democrats had most of political power here until after the 1960’s and are still conservative. The election year political event in our state is the Fancy Farm picnic at Saint Jerome’s Catholic Church. A candidate can ruin his campaign with a misstep there but few would dare skip it. I would not want to be a Republican defending renouncing contracts there. Nor would I want to be a Republican advocating turning the state’s fate over to a federal bankruptcy court!

    In addition, the state wages and state pension benefits are not nearly as generous as other states. The union card won’t work because there is no collective bargaining for state employees. And there is a law on the books making the state pension systems an “Inviolable contract”. That would have to be repealed first.

    I have no idea how other parts of the country would deal with the issue. The only thing we can be sure of is that the issue is bound to leave a lot of very very angry voters.

      1. Jim the Skeptic

        Pleae Google “yellow dog democrat define”.

        You of course are entitled to your incorrect opinion! :^)

        1. hermanas

          That was a quote I heard from someone long ago preceded by, I’ld rather vote Republican than…

          1. hermanas

            Perhaps from “Cotton Tom” who supported Hoover the republican over the democrat. Thanks for holding my feet to the fire. I see it was first used in Kentucky years earlier.

  16. Pat

    This proposal will go nowhere. Instead, there will be another tactic, the “California Approach”, which will achieve the same effect.
    During the budget crisis last year, California issued “IOUs” instead of real checks, which it later made good. In the future, states facing money problems will issue IOUs to the pension funds, claiming that they can’t come up with the money. The pension funds in turn will reduce payouts to pensioners, say, 10-25% across the board and explain the rest will be paid out when the states make good the IOUs. No, the states will not be able pay off the IOUs — instead, the debt to the pension funds will just accumulate. At some point (in about 5-10 years) the debt will become so large that it will become blindingly obvious that the states can’t pay it. Then the states will negotiate with the pensions to write off the debt for a fraction of what it is worth on paper. The funds will get a federal tax reduction, or maybe this will be passed along to the individual pensioners.
    This follows the current economic model of dealing with problems — extend and pretend, as long as possible, then fail.
    Sure, there may be lawsuits for breach of contract against the pension funds and/or states, but they will get nowhere, since the other party is simply unable to pay.

  17. CingRed

    “So I don’t see how a mere bill changes this issue and the odds of getting a Constitutional amendment passed are just about zero. What am I missing here?” All I can say is take a look at the past 50 years and tell me where the Constitution has ever gotten in the way of a determined bunch of politicians or big businesses. In Washington DC the Constituion seems have only one use and that is as toilet paper. That is what you are missing.

    The next trampling will be on the 2nd amendment under the guise of protecting us from lawless people, like the wacko in Arizona, by instituting new laws for the lawless to obey. It is always easy to ignore a constitutional issue you don’t agree with or to gut it because you don’t really believe in the amendment process unless it suits your particular beliefs.

  18. Kathleen Flanagan

    Newt and Norquist obviously haven’t considered the added consequences to our already devastated middleclass economy. Let’s let the U.S. Government go bankrupt, then we can clear the decks on DC pensions as well. We wouldn’t owe China, Japan, etc. We’d be free of the debt Congress is so focused on. Congress would have a new slate screw up.

  19. Psittakos

    Well, at some point soon there will be states that will no longer be able to extend and pretend. They can’t print money, and Bernanke has just said the Fed is not going to buy their bonds. The pension liabilities are huge.

    If real money just doesn’t exist to pay this stuff . . . you know?

    It looks as if a sovereign debt crisis like we see in the eurozone will hit the states with its concomitant imposition of austerity.

  20. Troy


    Newt Gingrich is currently only gaming the system. He knows that a bill alone is not enough to break up California and Illinois ushering in a Republican controlled government in perpetuity. So what he is doing is submitting the idea of a Bill that will allow these states to file bankruptcy under the auspicious of economic relief. This gets the debate going and the folks at Fox news something to cheerlead about to the get the base organized so that when they do introduce and Amendment and they will, it will easily pass the ¾ of states the republicans’ control. It is much easier to debate an amendment that will allow economic relief then an amendment that will actually establish a single party government. The Republicans are easily 3-4 moves ahead of the Democratic Party. If you want to see the play book first hand, just look at the last 10+ years of politics in San Diego. That is where the Republicans practice it locally before expanding nationally.

  21. Paul Repstock

    An addition to Attempter and DownSouths’ conversation above.

    If 1000 people had stood with the protester in front of the tank in Tianeman Square, there would be no Chinese Comunist Party today. I think it is possible that the next person who wants to be actually ‘Elected’ president of the United States will need to be willing to lie down in front of the tanks. Persons who are compliant with party politics will probably be ‘appointed’ in the interim. But, without moral conviction, there will be little credibility.

  22. Brian

    There are many things the States have obligated themselves to that they should repudiate; however, am I to believe that it makes great economic sense to give pensions at 100% of the person’s pay? Yves Smith gives good analysis in many, many things, but once again it’s swept under the rug that public unions abuse the tax revenue, they have a monopoly on services, and what in effect has been created in a political machine by the political parties (Dems and Repubs alike). The discussion on this topic in the society at large as become utterly absurd where it’s become an either/or topic. Can’t someone try to actually look at it with some reason and admit the abuses and how to fix them, but without totally demonizing public work at the same time? And the public unions don’t exactly conduct themselves in an honorable manner as Ms. Smith seems to imply. Some objectivity on this issue would be welcomed.

    1. Matt

      Some part of public pensions are in each of three categories, the underpaid pensions, pensions in the range of comparison with the public sector, and pensions that are outsized compared to the public sector.

      Take the case of part time public workers, often have no pension benefit at all even with 25 years at 30 hours a week. Or those who worked for government and then were laid off or transferred to a private company and lost all benefits. Or take the case of those public pension employees who will have no social security pension because their government pension was done in lieu of social security. What number of government pensions are at the range of 30 to 50 percent of a person’s pay, similar to the current Federal pension plan?

  23. PeonInChief

    The vast majority of government workers don’t get huge pensions. I think the average in California is $2K a month. Those who do get huge pensions are either in upper management or public safety. (Public safety workers hooked themselves to the “tough on crime” people in the 1980s and received better pensions from Republican governors.) States that want to do bankruptcy should be forced to sell off their assets–state parks, buildings etc.–to meet their financial obligations.

  24. Firean

    How much of the state pension funds were/are tied up in or lost to ill-adviced investment in toxic CDO’s or over questionable assets ? And ought there not be better attempts to recover that which was lost to “illegal” transactions before pulling over the all encompassing blacket of bankruptcy over the whole web of deceit and fraud. There seems, to me at least, to be something missing in the debate here with regards to the state pension funds !

  25. Pete

    Perhaps it would make sense to allow bankruptcies of states and cities on an unprecedented scale to fix things, perhaps not. Given various statutes about worker pay, it might just turn out that the cities and states get economic relief in the form of their bond debt being subordinated to pensions. Those hundreds of billions in bonds issued going into default, maybe just interest-free status, for a few years might do our wannabe slave owners some good considering their ownership of said debt.

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