Monday, May 4, 2020

Sauce for the gander

I worked for a company that went bankrupt.

Bankruptcy comes in two flavors or "Chapters".

One chapter is the complete cessation of operations. Total liquidation.

Another chapter is "reorganization". Various stakeholders take different haircuts based primarily based on precedence, seniority and whether obligations are "secured".

Inefficient enterprises are terminated. Contracts are nullified. Viable enterprises are shorn of dead-wood and hardened arteries.

Central to this process is that the haircuts, terminations, nullifications and surgeries are performed in a court-of-law.

The same kind of venue where many of Trump initiatives that have blocked.

Given Progressive's great love of going to court, one wonders why they aren't rushing to have their flagship states (Illinois, Connecticut, California et al) preemptively rushing into bankruptcy.

Revenues are cratering as sales tax receipts go in the septic tank and incomes dive.

Pension plan assets are barely hanging on but will likely crater when companies (equities) report quarterly earnings. David Stockman observed that the stock market could easily lose half of its value.

On the liability side, unemployment insurance is bleeding rivers of money.

In finance, that covers everything: Income and Net Assets.

Most state employees are "working" from home or are laid off and nobody notices that they are gone. Did we really ever need them?

The first state that declares bankruptcy will set the template for the ones that follow. What are they waiting for? Surely letting a judge decide whether you have a job and what happens to your pension is far superior to letting legislatures sort out problems and governors execute the laws they write.


  1. Good question, probably trying frantically to judge shop for a freindly judge!

    1. The original back-of-envelop calculations regarding Detroit's "reorganization" suggested that pensions would have to be reduced by 90%-to-95% for Detroit to remain viable. That included the pensions of those who were already retired.

      After Obama leaned on the judges, the pensions were reduced by an average of 20%.

      What that tells me is that Detroit was a dead-man-walking. It was not reorganized enough to ensure that the next hiccup in the economy would not result in it being back in bankruptcy.

      Trump is familiar with bankruptcy. I doubt that he would put his thumb on the scales the way Obama did.

  2. And in an environment where the judiciary is increasingly unfriendly to their cause. I bet any red blooded pinko is/was not interested in the mundane activities of a bankruptcy court room. Oops! Maybe they missed that angle. She was not suppose to lose...

  3. My understanding is that states cannot file for bankruptcy. They also have to have balanced budgets.

    1. I think you are right on both counts.

      McConnell expressed a willingness to pass legislation to provide a path for states to "reorganize".

      Cuomo chose to interpret that as a threat.

    2. States are sovereign entities. It's "can't" as in "don't have to." Sovereign debt is settled by default. If your army is big enough, you can contest the sovereign's decision.

  4. I would suspect the involvement of the public employee unions as well, to minimize the effect of such "reorganizations" on their membership.

    1. Public employee unions face a terrible dilemma. Unless they are collecting dues from retirees, the union really does not represent them.

      My crystal ball tells me that the solution must look like this:

      Thanks for commenting and hope all is well with you.

  5. The simplest fix is to quit sending federal taxes to washington. They continue to collect payroll taxes and all the income taxes, but, keep it and redistribute as they see fit. I'm sure the feds would do something in retaliation, but, can you imagine you're bankrupt and continue send money to washington?

    1. My impression is that state governments like the arrangement. The IRS gets the heat for collecting the revenue and the local governments get the credit for sprinkling it back on the populace.

  6. What are they waiting for? November, my boy, November. So many ballots to fill out, so little time....


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