Stockton Becomes Biggest US City To Declare Bankruptcy (It's Official)

Tyler Durden's picture




 

A mere nine months after we first discussed the inevitability of Stockton, CA.'s bankruptcy, a judge has ordered today that the city will now become the most populous in the US to be declared bankrupt.

  • *STOCKTON CREDITORS DIDN'T NEGOTIATE IN GOOD FAITH, JUDGE SAYS

Creditors are pushing to get the city out of bankruptcy but the judge states that "by any measure" the city was insolvent. So, in summary, yeah, it was broke years ago, it still is broke - despite the best efforts by the Central Planning Reserve to reflate the same housing bubble that was the primary reason for the city's insolvency in the first place. Only this time, it's official!

Via Reuters:

Stockton, California, was ruled eligible for bankruptcy protection under Chapter 9 of the U.S. bankruptcy code, a U.S. judged said on Monday, turning aside creditors' arguments that the city was not truly insolvent when it sought protection last year and had improperly failed to seek concessions.

 

In a case that has been widely watched by the $3.7 trillion municipal bond market, U.S. Bankruptcy Judge Christopher Klein said Stockton had established during last week's three-day trial that it had met requirements to be found eligible to proceed with its municipal bankruptcy case.

 

Officials in the city of nearly 300,000, the largest city so far to have filed for municipal bankruptcy, will now be allowed to start drafting a so-called plan of adjustment for the city's debts.

 

The case is expected to pit municipal bondholders against the California Public Employee Retirement System, which manages pensions for Stockton and many other California governments.

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Mon, 04/01/2013 - 15:28 | 3396876 Cursive
Cursive's picture

Bondholders vs. public pensioners!  Grab the popcorn!  Surely there's a Survivor-type reality show in here somewhere.

Mon, 04/01/2013 - 15:28 | 3396885 ACP
ACP's picture

Wouldn't that be bondholders vs. taxpayers then?

Mon, 04/01/2013 - 15:33 | 3396897 zorba THE GREEK
zorba THE GREEK's picture

It is more like pensioners vs taxpayers.

The bondholders hold squat. 

Mon, 04/01/2013 - 15:36 | 3396915 Ancona
Ancona's picture

Survivor? Try Lord of the Flies brother! This is going to go biblical.

Mon, 04/01/2013 - 16:10 | 3397087 francis_sawyer
francis_sawyer's picture

Sooner or later, you run out of other people's...

~~~

AWWW ~ FUCKIT... You'll just deny it in the end anyway...

Mon, 04/01/2013 - 18:05 | 3397474 Son of Loki
Son of Loki's picture

"By 2009 Stockton had accumulated nearly $1 billion in debt on civic improvements, money owed to pay pension contributions, and the most generous health care benefit in the state — coverage for life for all retirees plus a dependent, no matter how long they had worked for the city."

 

Is it any wonder?

 

http://finance.yahoo.com/news/judge-rules-stockton-calif-enter-191118955...

Mon, 04/01/2013 - 18:17 | 3397505 fourchan
fourchan's picture

detriot which will be next to go under will be bigger.

Mon, 04/01/2013 - 19:58 | 3397779 Henry Chinaski
Henry Chinaski's picture

It's all the republicans' fault.

Lessons From a Comeback
http://www.nytimes.com/2013/04/01/opinion/krugman-lessons-from-a-comeback.html?hpw

Mon, 04/01/2013 - 20:14 | 3397812 Raymond K Hessel
Raymond K Hessel's picture

How many Sons of Anarchy logo'ed t-shirts & shit do you have to sell to cover $1 billion in debt???

Mon, 04/01/2013 - 20:10 | 3397802 Silver Garbage Man
Silver Garbage Man's picture

Yeh Detroit will need 2 or 3 dozen of those shiny new homeland armoured vehicles.

Mon, 04/01/2013 - 20:11 | 3397805 steelhead23
steelhead23's picture

While such benefits are entirely irrational, the big question, to me at least, is who has the superior claim to Stockton's assets?  Bondholders or employee/pensioners?  This little blurb would be far more interesting had it been written by a bankruptcy attorney.  And those decisions would have enormous repercussions.  Let us say that bondholders are given massive haircuts while pensioner aren't.  What would happen?  I will tell you what would happen (if such a decision stood as the law of the land) - every holder of CA munis would head for the exits.  Prices would head for the floor and rates would raise the roof.  Economic development in CA would slow to a crawl.  But if the courts head in the opposite direction - screwing pensioners and employees - there just might be riots.

Someone up above suggested we all pop some popcorn and watch the fireworks.  I am reminded of the fine citizens of Washington DC and northern Virginia that thought it would be fun to watch the First Battle of Bull Run but hurriedly left the scene when musket balls went whizzing by.  While I do wish to watch, I sure as hell will stay out of Stockton until the all clear signal is given.

Tue, 04/02/2013 - 06:29 | 3398679 Handful of Dust
Handful of Dust's picture

Test case most likely. Perhaps many cities to follow as orderly restructuring may need to occur to renegotiate some contracts if they cannot be hammered out pre-bankruptcy.

Mon, 04/01/2013 - 15:36 | 3396921 NoDebt
NoDebt's picture

It's a drunken bar fight.  Pensioners, taxpayers, bond holders, employees..... all in one giant melee because the beer taps stopped flowing.  Out of that list, guess who's gonna lose (worst) in the end?

Mon, 04/01/2013 - 15:40 | 3396944 ParkAveFlasher
ParkAveFlasher's picture

I think your order is correct.  Pensioners, taxpayers, bond holders, employees.

 

Mon, 04/01/2013 - 15:46 | 3396962 Pool Shark
Pool Shark's picture

Don't know about municipalities, but at the state level, Bondholders are at the top of the food chain in California.

Mon, 04/01/2013 - 19:05 | 3397642 KickIce
KickIce's picture

The GM bondholders probably felt the same.

Potential votes > rule of law

Mon, 04/01/2013 - 16:03 | 3397045 aerojet
aerojet's picture

Hoping pensioners.  Not because I'm a heartless bastard, but because it would be a bad precedent for the US if not.  The people who played the system to get those outsized retirement benefits should have them clawed back.  Those with modest pensions should have their honored if at all possible.

Mon, 04/01/2013 - 16:30 | 3397174 James_Cole
James_Cole's picture

Hoping pensioners.  Not because I'm a heartless bastard, but because it would be a bad precedent for the US if not.  

Right, so make sure Wells Fargo gets their pound of flesh and the pensioners who at worst took advantage of the bankers avarice get cat food? 

The other precedent set here would be; fuck the pensioners, protect the morons lending the money. 

WFC was one of the chief engineers of this mess, let their bonds go to nothing. 

MBI & WFC deserve to get fucked over for this, if it happens that's great. 

Mon, 04/01/2013 - 18:08 | 3397444 Boxed Merlot
Boxed Merlot's picture

WFC was one of the chief engineers of this mess, let their bonds go to nothing...

 

If I remember correctly, WFC got title to the parking garage(s) their bonds subsidized and are able to use the values to hypothecate further excesses in addition to collecting fees from us.  I won't shed a tear for them.

In fact, now that I think about it, Stockton should impose a punitive tax on their operations if our sovereignty is adversely affected by a future negotiation that would somehow benefit these parsites.

 

jmho.

Mon, 04/01/2013 - 22:02 | 3398064 Chuck Walla
Chuck Walla's picture

Right, so make sure Wells Fargo gets their pound of flesh and the pensioners who at worst took advantage of the bankers avarice get cat food? 

Except for that rat bastard in charge of Alameda County who gets $433,000 per year pension, the excuse being she could have run a Fortune 500 company.

 

The whole idea of public service long ago died when they got a good look at the profits and perks. And how stupid the people paying for it are...

FORWARD SOVIET!

Mon, 04/01/2013 - 16:35 | 3397189 Meat Hammer
Meat Hammer's picture

www.ksfo.com 560am out of San Francisco does "Whistle-blower Wednesdays" from 5-9 a.m. each week.....people who work for or with state and local municipalities call in, sometimes using the Darth Vader voice disguiser, to report on the fraud, waste, and corruption in the California public sector.  Listen for a week or two and you will understand clearly why California is doomed.  

Here's an example - public employees in certain departments are getting paid walk-from-the-car-to-the-cubicle time.  Yep, you read that right.....they get paid for the time it takes to walk from the parking garage to the office.  I'm sure that will evolve into being paid for driving to work, then getting dressed for work, then sleeping in order to stay awake during work (allegedly), and so on.

 

Mon, 04/01/2013 - 16:54 | 3397251 James_Cole
James_Cole's picture

www.ksfo.com 560am out of San Francisco does "Whistle-blower Wednesdays" from 5-9 a.m. each week.....

If there were truth in advertising the show would be titled "irrelevant bullshit to outrage simpletons."

OMG public employees are ripping the system 20 or 30$ extra a day charging to walk from their cars to their cubicles?? Ring the alarm bell the apocalypse is here!

It's funny how stupid people are, , always getting mad about the most inconsequential nonsense while cheerily being marched off a cliff. 

Mon, 04/01/2013 - 17:03 | 3397283 Meat Hammer
Meat Hammer's picture

There are hundreds more stories that are much worse, but I don't want you to have to dumb yourself down to listen.  

 

Mon, 04/01/2013 - 17:33 | 3397376 James_Cole
James_Cole's picture

I'm not under any delusion I am above the fray, just easier to call out stupidity in others than in oneself. The media most people seem to seek generally appears to me based on the 'outrage' model, but interestingly never outrage of any consequence. 

Easy to get mad at people individually taking advantage of a stupid system, but very rarely is the system itself called into question. The real villains get to stand by mostly unscathed while the peons rip each other to shreds. 

This bankruptcy thing is a good example, everyone gets mad at the counties for wasting money blah blah blah but almost no one stops to say, wait, why the fuck were the counties ever able to secure these loans in the first place? How were the loans structured? What was the insurance? Why should idiotic lending be protected??

Those quesitons require thought, which is a lot more effort than outrage. 

Mon, 04/01/2013 - 19:15 | 3397677 Not My Real Name
Not My Real Name's picture

"... everyone gets mad at the counties for wasting money blah blah blah but almost no one stops to say, wait, why the fuck were the counties ever able to secure these loans in the first place?"

Really? Who gives a fuck why? The fact is, elected officials made piss-poor financial decisions and now the taxpayers will probably be on the hook for them. For christ's sake. God forbid we ever hold aybody accountable for anything any more.

 

Mon, 04/01/2013 - 19:44 | 3397746 James_Cole
James_Cole's picture

Really? Who gives a fuck why? The fact is, elected officials made piss-poor financial decisions and now the taxpayers will probably be on the hook for them. 

If they can't get access to the money they can't waste it. If more bondholders go belly-up they might think twice about throwing money at their corrupt political friends. 

Mon, 04/01/2013 - 21:52 | 3398045 Not My Real Name
Not My Real Name's picture

As long as the power to tax exists, there will always be waste.

Mon, 04/01/2013 - 17:49 | 3397429 LawsofPhysics
LawsofPhysics's picture

True, but I think the real interesting bit will be exactly how the rest of the country feels about bailing out those "shiny happy people" in Cali.  I thought moonbeam said everything was "fixed"?    The Texans I know sure as hell don't give a rat's ass about those arrogant fucks.

Mon, 04/01/2013 - 18:08 | 3397483 Son of Loki
Son of Loki's picture

Life of Riley:

 

$200,000 Lifeguards to Receive Millions in Retirement

 

http://townhall.com/columnists/davidspady/2011/05/08/$200,000_lifeguards_to_receive_millions_in_retirement/page/full/

 

...and they get to watch all those semi-naked Pam Anderson girls too !

Mon, 04/01/2013 - 18:18 | 3397511 yogibear
yogibear's picture

What a life! Babe watch.

Mon, 04/01/2013 - 15:52 | 3397003 smlbizman
smlbizman's picture

ok, what bank in stockton are we going to "tax" deposits to fix this one?

Mon, 04/01/2013 - 16:15 | 3397114 Sabibaby
Sabibaby's picture

Legalize marajuana and guns, tax the hell out of them and there you go!

Mon, 04/01/2013 - 17:47 | 3397426 donsluck
donsluck's picture

Huh? Guns ARE legal (and taxed). As for marijuana, it grows like a weed and any half-conscious idiot can grow mind blowing dope, no problem. So how do you tax that? Making possession legal and production controlled? No problems solved.

Mon, 04/01/2013 - 20:42 | 3397876 Freddie
Freddie's picture

Hilarious and true.  It is a damn weed.  Probably harder to kill than grow if it is like crabgrass.   These idiots growing premium organic pot claim legalization is killing prices.  Let people grow it at home so the govt scum cannot tax it.  I don't like pot but I like cartels and govt cartels less. 

Mon, 04/01/2013 - 16:04 | 3397055 A Nanny Moose
A Nanny Moose's picture

But the pensions are the bondholders.

Mon, 04/01/2013 - 17:36 | 3397383 ronaldawg
ronaldawg's picture

 COOL - Time to cancel all the ridiculous pensions to Social Security levels - no more free healthcare for retired City workers.  Crush the unions.  Then to the next city and finally to the state.

Where is MDB at?

Mon, 04/01/2013 - 18:08 | 3397479 Hobbleknee
Hobbleknee's picture

Hmmmm... pensioners pay taxes too.  Income tax is not the only tax.

Tue, 04/02/2013 - 02:47 | 3398510 dunce
dunce's picture

Ordinarily i am on the taxpayers side of these deals but as long as the liability is not shifted to the other states, i am in favor of sticking it to all those dot com millionaires and billionaires that financed all the campaigns for liberal democrats. Now they can pay for all those public pensioners. As obama is fond of pointing out, they can afford it. It does not matter that the pensioners never produced much in the first place. I would like to see liens on their giant companies so they can not relocate and leave the mess behind.

Mon, 04/01/2013 - 15:38 | 3396927 Bastiat
Bastiat's picture

Them too but you have limits on taxes:  Prop 13 in CA caps real estate tax and competitive reality caps sales tax.

So that's the revenue side, he's talking about the expense side--and the big part of that is pensions and bonds.  So who takes the hit and how much?

Mon, 04/01/2013 - 15:54 | 3397012 Cursive
Cursive's picture

@Bastiat

This.

Mon, 04/01/2013 - 15:30 | 3396892 zorba THE GREEK
zorba THE GREEK's picture

Stockton is just the largest city to file.

Most major U.S. cities are already bankrupt

and just robbing Peter to pay Paul.

Got to keep the Ponzi going.

Mon, 04/01/2013 - 15:47 | 3396976 Bangin7GramRocks
Bangin7GramRocks's picture

If you were fucking dumb enough to buy bonds in California bubble cities, you get what you deserve; to eat a big bag of dicks. GOOD DAY SIR!

Mon, 04/01/2013 - 16:07 | 3397072 Urban Redneck
Urban Redneck's picture

Orange County was some bizarre aberration... It could never happen again.. Rinse, Repeat is a is some tinfoil hatter mantra...

Mon, 04/01/2013 - 16:53 | 3397249 smlbizman
smlbizman's picture

stop thinking people are buying this shit thinking it is good.....the buyers are earning fees and commish et.al....for some stupid fucker that trust them...the broker at the end could give twoshits if its good or not....last sucker holding the bag of shit wins...and thats the ubiqduitous you

Mon, 04/01/2013 - 17:42 | 3397407 eatthebanksters
eatthebanksters's picture

Motown is gonna be singin the same song soon!

Mon, 04/01/2013 - 16:20 | 3397131 MachoMan
MachoMan's picture

Yes, but eating a big bag of dicks on your speculation isn't socially acceptable...  so, we ensure taxpayers and the youth (given the time it will take to get out of this quagmire) eat a bag of dicks after grinding them up and feeding them intravenously.

Mon, 04/01/2013 - 16:28 | 3397162 Bangin7GramRocks
Bangin7GramRocks's picture

Eventually bondholders will lose. I'm amazed how many people on here blame the well-paid gubmint workers. This information was public. Why would anyone buy the bonds if they had such an out-sized pay structure and benefits package? So if you did because of the high yield, bend over and take it. A few stitches and bed rest will heal the anal contusions.

Mon, 04/01/2013 - 16:46 | 3397226 Meat Hammer
Meat Hammer's picture

I blame the gubmint workers because these are the same cocksuckers who vote to raise my taxes, vote to create new and completely useless regulatory agencies that are a front for increased public-union power, and vote for people like Jerry Brown who drive businesses and jobs out of the state, all the while making sure they get to retire at 55 and go fishing while I get to work until I'm 65 to pay for it.  

Fuck em...I hope I see them at McDonald's picking up trash in the parking lot.  I'll spit on them if I can get a good shot and the wind direction is right.

Mon, 04/01/2013 - 17:37 | 3397391 ronaldawg
ronaldawg's picture

You forgot to mention that a LOT of the gubmint workers are in "make work" jobs and most gubmint workers don't really provide the full day of work.  FUCK. THEM.ALL (gumment workers).

There I feel better now.

Mon, 04/01/2013 - 17:44 | 3397415 eatthebanksters
eatthebanksters's picture

Meat Hammer you're my new hero!

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