"Bankruptcy Only Choice Left" As Stockton Set To Become Largest US City Chapter 9

Tyler Durden's picture

As mediation with the city's creditors fails, the California city of Stockton looks set to become the US' largest ever city bankruptcy. The city with the second largest foreclosure-rate in the nation has seen its property taxes and other revenues decline while retiree benefits drained city coffers, according to the SF Chronicle. The city manager, Bob Deis, spoke to a special council meeting tonight, noting (via Bloomberg):


and in an earlier interview with Cavuto, the city manager said:

"Right now, we have hit the wall.


 I mean, we have done all the cutting we are going to do.


We are going to run out of cash. We need to make some hard decisions so that we can restructure our finances and go forward."

and went on in a Bloomberg story to add:

"The whole purpose of filing Chapter 9 is to avoid an uncontrolled chaotic situation, bankruptcy provides the equivalent of a pause button. It retains services and provides structure so you don't have a bunch of lawsuits."


Paging Ms. Whitney for a told-you-so-dance...

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loub215's picture

what's that blond analysts name? early butright?

TruthInSunshine's picture

Meredith Whitney wasn't wrong, just premature.

Michael Burry was premature, too, and his initial investors expressed much angst over what were mounting losses, before The Big Short made it rain manna.

LetThemEatRand's picture

Whitney was only premature because of the massive money printing. 

SilverTree's picture

Up Up Down Down Left Right Left Right A B Select Start


Widespread Muni defaults surely all priced into market.  

The Big Ching-aso's picture




"Somehow we must find a way to save our bloated city retiree pensions on the broken taxpayer's back."

Christophe2's picture

Rather than believing the mainstream spin on things (it's all the pensions), it might be worthwhile to consider some of the greater reasons for all these financial troubles:

- criminal behavior by large banks to gouge money out of municipalities (eg: Taibbi's many pieces, especially his latest)

- corrupt politicians who pay 3x too much for all manner of things (roads, etc.), offering juicy contracts to mafia-like 'service' companies

- pump'n dump schemes, like the recent housing bubble

- free trade and off-shoring, taking away so many jobs

The Big Ching-aso's picture




Greater reasons?   What greater phucking reason do U need than $90K pensions derived from $50K ending salaries?

Christophe2's picture

Do you believe everything you read in the paper?  And frankly, if there are outliers or rare cases of abuse, then surely they should be resolved, but I find it hard to believe that what you describe is predominant.


In general, it's not welfare to the poor that is killing us economically, but rather welfare to the hyper rich, like the banks that got bailed out for 20 TRILLION $, while looting and destroying the entire economy and profiting from the disaster to buy distressed assets on the cheap.


Your arguments fit exactly with what the elites want us to think: the problem is all about poor and middle class people getting too much, and above all, bond holders must be made whole - YEAH, RIGHT.

The Big Ching-aso's picture



No, it's really about spending more than we take in.  A lot more than we take in.   And that in a phucking nutshell is Stockton's problem.   Like right now.    Pensions are bloated because there's no money left to pay them.   Why is that?    Again, they future-spent more than they could ever in the now-take in, or take in the future for that matter.    When you can't someday cover what you will someday spend then you're truly phucked and the city unions knew it.   But hey, keep making complicated.

Btw, you do realize that these pensions can start damn early in life and the same people can live for a very long time, right?   How do you cover that shit?   Oh right I know, could it be the already broke taxpayer who has no phucking pension for life at full salary and then some? 



fourchan's picture

detroit will be bankrupt in a month.

ms whitney was a few years early on her call

AldousHuxley's picture

detroit never even had a housing bubble. depreciation for decades over there....

but there's a city worse than Detroit...yes worse....

Stockton gave out lifetime free healthcare for any government employee who worked there more than 1 month

government just spent all of the money on themselves and fancy buildings (aka. funneling money to their building contractor friend). they were going to build a new city hall too.


only 13% have college degree

median income $25,000

median cost of home $350,000

winner of 2009 Forbes most miserable city


they call stockton "All American  City"

Dr Benway's picture

The problem is that almost everyone is part of at least one of the ponzis.


If you aren't part of the real estate ponzi, maybe its the stock ponzi, or the pension ponzi, or the politician ponzi, or the executive remuneration ponzi, or the corporate subsidy ponzi, or the government handout ponzi, etc etc etc

bdc63's picture

good point dr. benway -- we all have our sacred cows I guess.  but I do think there is a difference between some of your "ponzi's" above.

real estate and the stock market are speculative.  there is not a "contract" that says if you buy this stock for X today, it will be worth 2X tomorrow.  if you didn't see the ponzi and got burned, then mark it up to BIG EXPENSIVE lessons learned.

but when it comes to pension funds and social security, there is a contract.  it says if you do this, we will give you this at a later date.  now, you can argue that those contracts should never have been written, but that doesn't change the fact that they were.  and it doesn't change the fact that most people in their 40's have paid hundreds of thousands of dollars into social security and will most likely never see a dime of it back.  and it doesn't change the fact that a lot of people over the years have accepted jobs based on "total compensation" because the pension was good even if the salary was just okay.

AldousHuxley's picture

your children regardless of your status on the ponzi ladder will be on the bottom rung....below illegal immigrant owned subprime real estate, below employment position where boomers with nearly free college degree or less now requires $150,000 masters degree, below the two tier union/government  pension system as they pay for retired politicians' mistakes, below Chinese factory workers  as there aren't any factories in US anymore, below almost all ponzies thanks to short sightedness of the current leadership.

MisterMousePotato's picture

Was not short sightedness. Was corruption, bribes, and fraud, pure and simple. Public employee gives money to politician 'negotiating' wages. Politician gives taxpayers' money (lots) back to them. The only ones innocent of any wrongdoing are the taxpayers, and my belief is that they, too (or at least many of them) are guilty of criminal stupidity in allowing this to happen. Been obvious for nigh on two decades now.

A Nanny Moose's picture

NOLA learned exactly how mean those levees can be. Fetid cesspool.

iDealMeat's picture

+1,  They are the Elephant in the room. One hard, hard core rain and they break.

When they go so does CA's AG.. 


robertocarlos's picture

If the pension is for life then there is an easy solution.

disabledvet's picture

"firing cops, firemen, prison guards and teachers" will solve the problem? how? "by blowing up the banks of course!"

Bicycle Repairman's picture

A major part of the spending consists of large capital projects and equipment.  Good for construction companies and the banks that issue the bonds to finance the projects.  See Birmingham, AL.  There are new, redundant and excessively large schools, police stations, fire stations and sports stadiums everywhere.

The bondholders don't have the votes.  Keep that in mind and you won't have to make stupid arguments to justify stupid investments.

skistroni's picture

What problem do you have with blonde holders being made whole?

The Big Ching-aso's picture



Yeah, brunette holders for that matter too.

THX 1178's picture

Eric Holders I can do without.

Mudduckk's picture

Did you back the bailout?  Did you cosign socialized losses?  The loss must come from somewhere.  If you are on the take from the gov as a welfare queen or a hard working school teacher, you are takin the hit.  You can't hide because you do not create value.

But the loss damn sure wont come from me.  I'm done losing.  I took my hit in '08 and '09 doing work for nearly half the price I accepted when I was a pup in the 90's. No health ins no pension. I produce something of value.  I earn my sales, and when I'm done with expensing as I see fit, what ever is left over...wink wink nod nod. I share with you.  That's how it goes.

So what haircuts have you taken?? 5%? 10? A pension pickup.  Traded in the caddy health plan for a buick?


Should I really believe I am a pawn of the elites? Or are you not the kettle calling the pot black?

Christophe2's picture

Uh, relax a bit, would'ja?  Divide and conquer is the way of our elites, and as I see it everyone who is making under 250K a year is clearly NOT an elite and is being screwed by the system.


To answer your question though, I'm a software developer who has only ever worked in the private sector.  I also produce and contribute real value, but I'm more sick of corruption, fraud and systemic child abuse by the elites than I am upset about lower and middle class peeps doing their best to get by.  And frankly, I don't think that teachers are overpaid in most places, for all that it's a damn shame they are forced to teach BS dictated to them by Rockefeller-type satanic think tanks.


In any case, my point is that if you look at the big picture (eg: 20 TRILLION $ bailout for TBTF banks + zero bankster prosecutions, or endemic corruption in all municipalities), you quickly realize where the real problem lies.  I'm not saying that public pensions and salaries shouldn't be reasonable and comparable to the private sector, but rather that focusing on that is dumb: it ignores the true cause of the economic disaster visiting us and basically is nothing more than another example of poor and middle class people losing out while uber-rich pukes continue their vile crime spree.

Mudduckk's picture

Ahh software dewelopwer werkin fer the man.  Now I understand your resentment toward off shoring. Software dewelopment can be done where? Any where? In the world.  And the man ain't payin you what you believe you deserve?

How much BS will twerps like you take before you hit the streets and act a fool.  Live in parks.  Piss on sidewalks and ruin mom and pop businesses.

Oh sure in the short run you create some value.  But in the long run, what will the tape print on you? Anarchy?  Value destruction?  Why? Because you wouldn't accept the wages of a deweloper?

The DEVELOPER who creates value is the one with courage of his or her own conviction selling themselves into the open market.  Asking nothing more, taking nothing less.

Better yet, start your own DEVELOPER firm.  Convince your customers to want you. Land enough biz to feed your workers and your admin.  Negotiate the going rate for your dewelopers.  

And if you're real good at the game, you'll have net which for the privledge of being a shrewd and prudent manager, you can split with the gov.  Lesser managers squander the net on stoopid mistakes and the governement expects nothing from them.  But from you my shrewd and value producing friend, much is expected.

Along the way, (a path by the way few follow and even fewer understand - the rest are like so many baby birds maws open wide for the next regurgitation), you will come to understand; there is no profit in faulting a man for makin his money.  And it is his money.


Mudduckk's picture

Junkin me only confirms your resentment.

EscapeKey's picture

I junked you because you come across like a 1-year old throwing his toys out of his pram.

GMadScientist's picture

Sure....everyone is lazy but you. Occam's what?

Don't forget to mention that starting your own firm requires either debt or ceding control to investors (maybe even ones that'll hollow out your little software biz and sell it for parts).

You're a Koch-sucking asspony and the only regurgitation I see is your lame mythology.

Mudduckk's picture

Lame mythology? I got net.  What you got?

BTW I truly am a Koch-sucking ass pony.  They make a great product.  Lot of innovative men and women work and make damn good coin off them. Hydraflex; Keeps your tile from cracking, makes your shower water proof, a fraction of the cost of the alternative. I buy it by the barrel, pour it all over my customers, they love me. 

I love Koch! So what of it?

I got net.  You got butkiss!

A Nanny Moose's picture

Don't forget to mention that starting your own firm requires either debt or ceding control to investors


..umm...or pooled capital...you know...savings? Anybody remember fucking savings?

bourbondave's picture

When "Koch" is invoked in a statement it has become the new codeword that the person speaking is an idiot.

Christophe2's picture

Here's what you are evidently completely unable to understand, Muddukk: I have a social conscience and I care for the greater good, not just about myself and my narrow interests.  But even as an egoistic person I'm smarter than you, since I realize that I'm better off if the system works well and is fair.


I'm a damn good programmer - so good that I haven't been affected by offshoring yet, and likely won't ever be (excellent programmers are far too rare).  See? I'm not arguing on my selfish behalf, nor are my arguments just rationalizations meant to defend my narrow interests.  The world can go to hell and so long as there are still computers around I'll easily have well-paying work.


You, on the other hand, sound like someone who is so dependent on the criminality in the system that you'll go so far as to embarrass yourself by trolling like you do...  That's sad.


In any case, there's no point to answering to the rest of your (failed) straw man arguments.  Rather than preaching hate and BS, you should go search for ways to turn your life around.  Good luck :)

j0nx's picture

I WHOLEHEARTEDLY agree with Chris. I aint taking DICK for austerity cuts on my end until banksters are jailed, their ill-gotten incomes clawed back and their insolvent banks scrapped and sold for pennies on the dollar. I openly inform everyone else in my travels that they should do the same and to take every measure possible to insure that outcome. Pisses me off when I hear motherfuckers telling me this and that are breaking the system while we give trillions to banks who get their bad mortgage bets paid off by the taxpayers at 100c on the dollar and on top of that we have to pay them the deficiency on original loan even though they already got made whole by the FED AND the insane ramp in commodities due to the printing to bail them out! Fuck that. Resist any austerity measures directed towards the common man by any means necessary until thieving banksters take their austerity hit. Anyone else saying differently is either a thieving bankster, a cocksucker politician bought off by them or a retarded asshole.

Gunga's picture

International investment banks get TARP, and other deals that run into the Trillions of dollars, not to mention unlimited Fed $'s at near 0 interest as they wish. I'd be a billionaire if I could borrow unlimited money at 0 and buy bonds at 2% .
But the media says the promises made to pensioners is the problem.
Not too mention the unthrottled industry that leeches off the defense dept.

disabledvet's picture

and having believed (correctly unlike this site) that that wasn't going to work either (the bank equities all collapsed last year) i've decided to change my mind and "call the bottom on the downgrade." Remember...yet again..."you heard it from disabledvet" first.

Ghordius's picture

disabledvet, I will remember. though I will also remember that you were naughty, lately, here 2561038. And that you still haven't explained your outburst. ;-)

patb's picture

i was in line witha guy rom Sacramento and he pointed out how Prop 13 moved taxes to young people, new comers and away from businesses.


when a business is sold, it transfers the land inside the stock shell so no new tax applies, but people can't do that, so the houses all reset

in value while apartment buildings and retail all stay at the 1979 prices.



AldousHuxley's picture

prop 13 transfers via inheritance, so not all young ones are screwed....just the ones who picked the wrong out of state parents.


do you know why California is so accomodating to foreigners illegal and legal? because they are the suckers to unload shitty shack to for million bucks, so old white geezer can retire in tax free FL, TX, or NV. ran out of american suckers, so had to import foreigners.


funny thing is new comers have to pay property taxes on bubble real estate prices AND special school tax. that's right. property tax is supposed to pay for schools right? well for a new comer it does, but because of prop 13, a SPECIAL TAX is added to make up for the loss.


oh and the "environmentalists" are all fakers....property owners who want to control their neighborhood.


bourbondave's picture

Can it be both or can it only be one or the other for people who think this way?  There are criminals everywhere right now with hands in other people's pockets and it doesn't matter if you are a banker or a middle class person, if you are taking from others then you are the problem.

aldante's picture

It's not abuse, that's the whole problem. We have a whole generation of (mainly) public employees who retired in their mid 50s with around 100k pensions at least in California. Some with with healthcare benefits until they reach age 65, some for life. They know they are not abusing the system because that is how the system was set up. when you add up all of their benefits it's much more then the average taxpayer.

Rentier's picture

Maybe you're a tad naive christophe2.  Here is just another fine example of "full retard" pensions and payouts cities and counties are paying.  So no it isn't isolated or rare. Don't even look at the lawsuit angle of it or the fact they are going to PAY HER NOT TO WORK!  Just look at the benefits and retirement age...


"The raise Gray gets will increase her pension to about $70,000 a year. Only in her 40s, if Gray collects that for the next 25 years, it adds up to $1.75 million."


and this part " a raise and to be on leave until she retires in three years."


Retire in three years and in her 40s?!  Collect over million dollars in retirement (15years x $70k) before you or I could even get SS at 65!?! Paying them to get what we don't even come close to get!  WTF...




Daytona Beach just cut a deal with a firefighter that would give her more than a half-million dollars, and she never has to show up for work again, WFTV learned Thursday.

City leaders also gave her a raise and a promotion. All this because the firefighter said she was unfairly demoted, because she's a woman. She's not even allowed to go to a fire station.

Daytona is going to have a deputy fire chief -second in command- who won't be allowed to stand on city property at the fire department. Her $99,000-a-year new job is basically to stay away from there for the next three years.

Lt. soon to be deputy chief, Kris Gray, could make millions of dollars and never have to work as a Daytona Beach firefighter again.

After a massive fire in Daytona Beach two years ago, Gray was accused of mismanaging the incident and was demoted as a result. She responded with complaints to the Equal Opportunity Employment Commission and Florida Human Relations Commission that the demotion was based on her sex.

In a nine-page deal worked out this week, Gray agreed to drop charges in return for a promotion, a raise and to be on leave until she retires in three years.

"I would like to know why she's not working. If I'm going to pay you to work for me, you're going to work," resident Reggie Johnson said.

WFTV went to City Hall to try to ask city leaders that question. No one would agree to an interview, citing the seven days Gray has to back out of the deal.

In phone calls with four commissioners, WFTV argued the agreement was public.

"I think you should have the right to and the ability to justify your vote," Johnson said.

But no elected officials would comment. The raise Gray gets will increase her pension to about $70,000 a year. Only in her 40s, if Gray collects that for the next 25 years, it adds up to $1.75 million.

The Daytona Beach Fire Department has 122 firefighters and only six are women.

The city opened no investigations into any firefighters as a result of Gray's claims of discrimination. During the entire process, Gray has been working her normal shift at the fire department.

Her resignation letter, however, is already written up and takes affect in 2014.

Gray will also walk away with a recommendation letter in case she wants to work somewhere else.

Gray's attorney had to agree not to represent another female firefighter, who had also complained to the Equal Employment Opportunity Commission about her treatment in Daytona Beach.

Documents reveal Lorraine Becker is another female firefighter who has complained about working conditions with the Daytona Beach Fire Department. But the city is trying to make sure she doesn't get the same deal Gray received.

AlaricBalth's picture


Lead underwriter: RBC Capital Mrkts

The bondholders are not in a very good position here.

"Limitations on Remedies
The rights of the Owners of 2009 Bonds are subject to the limitations on legal remedies against counties in the State, including applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the enforcement of creditors’ rights generally, now or hereafter in effect, and to the application of general principles of equity, including concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law.
Under Chapter 9 of the Bankruptcy Code (Title 11, United States Code), which governs the bankruptcy proceedings for public agencies such as the City, there are no involuntary petitions in bankruptcy. If the City were to file a petition under Chapter 9 of the Bankruptcy Code, the Owners of 2009 Bonds, the Trustee and the Authority could be prohibited from taking any steps to enforce their rights under the Lease Agreement, and from taking any steps to collect amounts due from the City under the Lease Agreement."

Pensions, and more importantly, future pension fund investment return assumptions, which never materialized, was the downfall of the City of Stockton.

From the indenture: • "The annual assumed investment return has decreased from 8.25% to 7.75%.
• The investment return in Fiscal Year 2006-07 was -2.5%.
Recent Developments–PERS - Decline in Investment Return. Recent developments in the financial markets have resulted in a decline in investment return for Fiscal Year 2007-08. As indicated above, in calculating the UAAL in an actuarial valuation, the PERS actuary assumes an investment return equal to 7.75%. The actual investment return for Fiscal Year 2007-08, net of expenses, was negative 5.1%. Employer contribution rates are affected by the investment return in a given Fiscal Year in the third Fiscal Year that follows. Therefore, the negative 5.1% return for Fiscal Year 2007-08 will first be reflected in employer contribution rates applicable for Fiscal Year 2010-11."

The underfunded pension plan needed to be capitalized at the end of FY2011. This created a large liability just as revenues were declining due to a withering tax base.

More Stocktons out there, lots more.

The Big Ching-aso's picture



Facts are a bitch on the fateful train of reality.

disabledvet's picture

too bad they weren't invested with us. Oh, well. "Automotons and their money soon part." C'est la vie!

GMadScientist's picture

Or it's both and the Muni bond Cavaliers of credit merely enabled a large amount of stupid.