Saturday, January 22, 2011

Republican bankrupt State aid plan

Before getting into this, just know that in bankruptcy, owners of capital lent to the debtor are usually protected by security agreements, at least to some extent. Owners of labor, however, have no security over the debts due them for their efforts, and generally get nothing.

This story is another in the classic struggle between capital and labor. And when that economic struggle turns political, it's battle to the death between Republicans (capital) and Democrats (labor). Not that either party has ever died, but it certainly feels like a death to most of us on Main Street who suffer the wars above and around us.

Now that Wall Street and Big Business has been thoroughly bailed out by the US Treasury and Federal Reserve, which started with the TARP and other massive helicopter droppings of money under the Bush Administration and landed in the lap of luxury of the Obama Administration, the Republicans want to pull the plug on "bailing out" Main Street.

Bailing out capital is one thing that must be allowed come what may, but bailing out labor? Nah.

State bankruptcy bill imminent, Gingrich says
For months he has championed letting states file for bankruptcy in order to handle their long-term budget problems despite resistance from states and investors in the $2.8 trillion municipal bond market.

"We're faced with the danger that the states are going to try to show up and say to Washington: You have to give us money," Gingrich said. "And I think we have to have an alternative that allows us to say no."

Because states are sovereign, they cannot declare bankruptcy as cities can, and most have provisions in their constitutions that make defaulting on debt next to impossible.

And California -- a state which Gingrich said would likely turn to Congress for financial help along with New York and Illinois -- said on Friday it has no interest in using bankruptcy to solve its fiscal problems.

"Just the availability of a bankruptcy option and the potential bond default could severely damage state credit ratings and destroy the trust of bondholders," said New York State Comptroller Thomas P. DiNapoli.

"The very fact of the bill existing... allows governors to sit down with unions and say: 'Look you, negotiate with us or I'm taking the state into bankruptcy,'" Gingrich said.
Gingrich's pals in the Bush administration (and his presumed enemies in Obama's) could have done the same thing with Big Banks and other big business like GM and AIG, forcing them into bankruptcy rather than buying in and "loaning" more money, at zero-ish interest rates. But that just cuts too close to their home.

Guambat supposes it is not very near their home to force pension funds into bankruptcy, by contrast. Guambat's pension, like most of us on Main Street, is Social Security. He reckons once Newt and his boys get done with the pensions, they're off to bust up Social Security too, like they've just done with Medicare. It's just another unfair income redistribution mechanism to them.

U.S. State Bankruptcy Weighed by Republicans Blocking Aid
U.S. House Republicans, emboldened by the majority they won in November elections, want to send a message to U.S. states grappling with soaring pension liabilities: Don’t come to us for a handout.

Fewer than half of state retirement systems had assets to pay for 80 percent of promised benefits in their 2009 fiscal years, according to data compiled by Bloomberg. They now face the end to federal stimulus payments granted two years ago to help them cope with the deepest recession in 80 years.

“We are not interested in a bailout,” Representative Paul Ryan, a Wisconsin Republican and chairman of the House Budget Committee, said at a Jan. 6 forum in Washington.

“Should taxpayers in Indiana, who have paid their bills on time, who have done their job fiscally, be bailing out Californians, who haven’t,” he said. “No, that’s a moral hazard we are not interested in creating.”
[Guambat would extend that rhetoric to ask, should taxpayers in Indiana, who have paid their debts on time, who have done their job fiscally, be bailing out Wall Street and the Big Banks, who haven't? No, that's a moral hazard that they created very purposefully and Guambat is not interested in perpetuating.]
Utah Representative Jason Chaffetz said “My bill really sends a warning shot across the bows of the states to get their fiscal houses in order,” he said. “It’s intended to wake up the states, wake up the public, to let them know they can’t just run to the federal government to bail them out.”

Talk of allowing states to declare bankruptcy may affect investors’ faith in the general-obligation debt they issue, said Gary Pollack, head of bond trading at Deutsche Bank AG’s private wealth management unit in New York.

“One of the reasons we point to them and say that they’re great is that they can’t declare bankruptcy,” Pollack said of general-obligation debt, which is backed by the taxing power of states. “It’s just another piece of negative news that muni market doesn’t need right now.”

Republican calls in November for less federal spending resonated with voters angry over the billions of taxpayer dollars spent on financial institutions blamed for causing the financial crisis. Republicans will apply the same argument as they move to prevent states from leaning on the federal government.
Guambat hopes that Main Street sees through the subterfuge. Bailing out the banks and bailing out the guy next door are not in pari passu, pal.

Here's were all the fuss has taken root, in the following non-contextual excerpts from parts of a speech by Newt Gingrich last November (worth reading in whole):
I also 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 (applause).

I think reclaiming liberty is a very, very important concept.

What I want to focus on tonight is the concept of replacement. I think we have to move from a rejection model of conservatism to a replacement model of conservatism and these two words are enormously important.

Think of the Declaration of Independence as an act of rejection. However, that didn’t make us independent. But it was the replacement of British military power with American military power which made the difference.

A few years later, the wisest and most sophisticated Americans had come to the conclusion that the Articles of Confederation were too weak for the country to survive. And they met for 55 days in Philadelphia and they wrote the Constitution of the United States which was an act of replacement.

The American people repudiated the left in 1972. The left didn’t notice it because the power of the left isn’t in popular elections. The power of the left is in tenured academics. The power of the left is the news media. The power of the left is the bureaucracy. The power of the left is union leadership. The power of the left is inside the judgeships. The power of the left is in fact in the Hollywood literati.

The fact is rejection is an inadequate, long-term strategy if you are serious about saving America, because rejection doesn’t fix a center left coalition.

And that requires us to adopt, I believe, a fundamentally new strategy: a strategy of replacement. We have to look at every level of American society, and every level of American government, and we have to decide that we are going to replace the left.
When I describe replacement, I think there are five goals for replacement. I will describe them very briefly and then take a minute on each one. The first goal has to be to reassert and reestablish the American Exceptionalism.

This is the most important argument of the next twenty years. And it’s very simple. American exceptionalism is a specific reference to a fact, yhat the founding document of the United States of America, a political document, The Declaration of Independence, says, “We hold these truths”, not this ideology, not these principles, not this theory, “We hold these truths to be self-evident, that all men are created equal” and “that they are endowed by their Creator with certain unalienable rights among which are life, liberty, and the pursuit of happiness.”

it poses for the National Education Association, the simple clear question, “How do you explain Creator?” “How do you explain unalienable rights?” Founding Fathers are clear about this. The Founding Fathers believed, this is why it’s American exceptionalism, it’s the only country in history that says, “Power comes from God, to each one of you, personally. You are personally sovereign”

There’s no provision in the Declaration of Independence for an entitlement to happiness. There’s no provision for a Department of Happiness (laughter). There’s not provision for happiness stamps, so that the under-happy can be compensated (laughter). There’s no provision for the right to sue if you’re unhappy (laughter). And there’s no provision for a politician to walk in and say, “I am taking from the overly happy to redistribute to the underly happy (applause and laughter), and that’s why Obama-ism is a fundamental, radical break from all of American history and represents some weird combination of academic theory and European secular-socialism. But then that leads us to core values. Because American exceptionalism means the work ethic, which is why I believe we should replace all unemployment compensation with a training program.

all you have to do is reform seven areas: litigation, regulation, taxation, education, health, energy, and infrastructure. You reform those seven, piece of cake, we got it done, that’s a fact. (laughter and applause).

The second goal has to be to commit ourselves to benchmarking China and India, and undertaking the reforms necessary to be the most productive, most creative, and most prosperous country in the world, because that is the base to have a national security system that enables us to be the safest, and freest country.

The third goal has to be to recognize that government has been the fourth bubble after information technology in 1999, housing in 2007, and Wall Street in 2008. The government has to become dramatically smaller, dramatically less expensive, much more decentralized out of Washington, and that every major interest group, starting with the government employee unions, will fight bitterly against that kind of change.

The fourth is we have to have the courage to tell the truth about radical Islamists, and we have to have the courage to act on that truth.

And the fifth example is that we have to be prepared to say, with the deepest of meaning, that we truly believe that every American is endowed by their Creator with certain unalienable rights, among which are life, liberty, and the pursuit of happiness. And that we are determined to go into the poorest communities, of every part of America, whether it is in the valley, the inner city, poor rural areas, you name it. And we are going to change the culture, we are going to change the bureaucracy, we are going to change the tax code.

We can offer their children and grandchildren a vastly better future than the bureaucratic welfare state of dependency, coercion, and ineffectiveness (applause).

Anyway…so let me start with a key organizing principle of the next ten years. Job killing policies kill jobs. It’s only five words. I think it sort of captures it.

So a party, which has policies which kill jobs, creates income redistribution.

If we can arouse the community of faith, the community of belief, a community of patriotism, then the job Callista and I will have to do is very easy. And if we can’t, then our job’s hopeless.

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