Bankruptcy

Republicans back Bankruptcy Expansion

By Alan White

For states.  Republicans including Newt Gingrich and Texas Senator John Cornyn are advocating amendments to the Bankruptcy Code to permit states to file for relief from their debts.  Last week's New York Times front-page article gives added heft to this idea, as did Penn law prof David Skeel's article in the Weekly Standard.

Obviously, these Republicans' agenda is to shift credit crisis losses from state taxpayers to public sector union employees, consistent with their efforts to shift auto industry losses to workers in that industry.  Bankruptcy reform for homeowners is anathema, because it shifts losses from middle class people to banks and institutional investors.  It is unclear how bankruptcy for the states could be used to stiff union pension funds without also wreaking havoc with the bond market, and bond investors would normally be a favored Republican constituency.  For this reason, other conservatives are not so crazy about this idea.  Presumably, any legislative proposals for Chapter 9.5 would carefully craft priorities for favored constituencies.

Full post as published by Credit Slips on January 24, 2011 (boomark / email).