The collapse of America continues, and Meredith Whitney may be proven right that the municipal bankruptcies are about to make a full frontal appearance. Harrisburg has just requested a last minute rescue financing from the state Pennsylvania, as the alternative would be insolvency. From BusinessWeek.
Harrisburg Mayor Linda Thompson asked Pennsylvania to determine the city to be in municipal financial distress so it would qualify for help and oversight under the state’s Act 47 program.
The city “stands on the precipice of full-blown financial crisis as a looming cash shortfall threatens its ability to pay vendors and meet payroll,” a statement from the mayor’s office said.
While it is unlikely that PA will allow its capital to go bankrupt, we are concerned about the capital reserves of the broader state in general. In the meantime, look for muni bonds to surge as the market expects Bernanke to announce a full blown rescue program for states and municipalities.