The Great Stockton-Bankruptcy Affair

 It was exciting for a moment, even for a whole Easter weekend because the judge created suspense beyond the well-known events – Crucifixion, Sepulcher, Ascension. Stockton could go bankrupt! We would know on Monday.

Sure enough, by mid-Monday morning we knew that the judge had ruled that the municipal government of Stockton could do what it had desired to do and been obstructed from doing by its creditors and their insurers: declare bankruptcy and weasel out of paying whatever debts it could.
This was News, we thought. We opined at the end of last week that if Stockton were allowed to Do This, other cities would soon follow in its footsteps. We shivered slightly at the chilling notion that Stockton should lead anyone anywhere, but at least it was clear, straightforward governmental action against Wall Street. The other cities mentioned included San Bernardino, Bakersfield, Fresno, Modesto and Merced. These are seats of the California counties worst affected by the Great Pop of the housing bubble.
There might be rough justice in Wall Street taking a haircut on muni bonds issued by cities that, thanks to Wall Street, believed that the housing bubble would never pop. It does go to show that the whole credit system is crashing, which is useful for people to know. Mattress companies may soon by selling products with lock-able zipper pockets.
But didn’t we always know, really, that these cities in particular were bankrupt, not perhaps in a legal sense yet, but in something we might call prudence, in simple care, perhaps in that rudimentary moral intelligence that simply rejects as a lie the idea that housing bubbles go on forever and that therefore we must make financial commitments to build new edifices and promise munificent retirement packages to city employees based on smoothly ascending lines on graphs.
But, choking with indignation, sayeth the financial officers of the cities: What were we to do? Leave the money in the banks at nearly 0-percent interest?
Today, investors in the once safe and staid municipal bond market are shivering at the very name, “Stockton.” Federal bankruptcy judge Christopher Klein has ruled that the city has a right to file for bankruptcy while, for the moment at least, paying CalPERS for the full pension/benefit package for its employees while paying private investors less or nothing at all for construction of the public edifices. Klein’s argument was that the city needed to continue paying fully into pension fund because to not do so would be a threat to public safety.
This argument, typical of the Stockton political class, given that police and firemen are being laid off all over the nation, is specious. It assumes that without adequate municipal firepower, gangs of the underclass will wrest control of the city from gangs of the overclass that now have their sticky fingers in the public funds.
The question the media should have been asking but never will is simple: Who in their right mind would invest in bonds to build a marina, a stadium and buy a new city hall in Stockton? And who would insure such reckless wagering?
I guess nobody bothered to look up Monte McFall, who got out of federal prison a couple of years ago after serving his sentence for corruption, extortion and racketeering. And if they did do their “due diligence” before investing, advising investors or insuring investors to bet on Stockton, did they actually believe he was anything other than – to make it absolutely plain in the blunt poetry of Stockton politics – the McFall Guy? Did they think – again in words describing a thought almost too stupid to name – did they think that McFall’s fall somehow cleaned up anything? In Stockton?
Do, in fact, municipal bond investors, their advisors and insurers, actually know anything about municipal corruption at all, at least beyond New Jersey?
The graveyards of Stockton are alive with nocturnal chortling from all the people “no longer alive” who vote regularly in its elections. The warning is clear: Wall Street better be careful. It has survived the defaults and bankruptcies of millions of American “homeowners.” But they were the suckers, acting alone. The cities, particularly in the record-high foreclosure-rate cities of the California interior, might just bring this ignorant, bloated, narcissistic and incompetent version of capitalism to its knees.
Big Brother may well be now waiting in the wings in a police chief’s office in a city, like Stockton, tottering under an absurd load of debt arranged by people “just doing their jobs and taking care of their families.”