The last time America’s states were in the throes of a crippling fiscal crisis, an idea was floated in Washington to help them swiftly bring it to an end: let them file for bankruptcy and escape from the trillions of dollars owed to bondholders and retired public employees.
It was immediately condemned by Wall Street investors, public employee unions and Republican and Democratic governors, who said it was unnecessary and would saddle them with rising interest rates by spooking the bond market. The discussion was dropped after a single hearing in the U.S. House of Representatives.
But on Wednesday, with the nation’s state capitals again facing massive budget shortfalls because of the stalled economy, the idea resurfaced when Senate Majority Leader Mitch McConnell voiced support for it during a radio interview.
“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell, a Republican from Kentucky, said during an interview on the Hugh Hewitt show. “It saves some cities. And there’s no good reason for it not to be available.”
Source: Bid to Let States Go Bankrupt Met Rapid Demise a Decade Ago – Bloomberg
