« Fat Fight: Huckabee Says Michelle Obama Right, Sarah Palin Wrong on Federal Role in Childhood Obesity | Main | Out: Californian Fiscal Sanity; In: Californian Vaginal Steam Baths »
December 22, 2010

What a State Bond Default Looked Like When It Last Happened, In 1933

Arkansas just kept piling up debt, and then defaulted.

Three pieces of bad news here:

In January 1934, the bondholders got a permanent injunction against the state, blocking the use of automobile and gasoline taxes for anything other than highway maintenance and debt service.

Now “at the mercy of the bondholders,” in the words of Senator Reaves, the state in 1934 agreed to a refunding that extended some maturities and required an increase in both those automobile and gasoline taxes.

That cured the 1933 default.

So I assume this means that bondholders could do this today. The bad part isn't that they essentially garnish the state wages; it's that the state then raises taxes otherwise to make up for the money flowing out to bondholders.

I do not know if employee unions have the same sort of legal position, where they can compel states to direct monies into their pensions and such.

In the mid-forties, the state threatened default again, and couldn't sell bonds except at very high rates of return (which would make them appealing enough to investors to overcome their risk aversion, but would be too expensive for the state to pay). So the RFC (FDR's Reconstruction Finance Corporation) came in and bought the bonds, all of them, at a rate favorable to the state. Essentially, then, the federal government subsidized the state for borrowing so much and mismanaging its finances and repeatedly defaulting and threatening to default on its obligations, sparing it from having to pay a high cost for its spendthriftery.

Just making everyone else in the country pay for it.

Here's the difference:

In 1933, nobody thought Washington should get involved in a state bond default. In 2010, that’s the first place we would look for help.

So back then, it was a surprise that the federal government should do this; now it's just expected.

So what incentive do states have to make tough cuts? None, it seems.


digg this
posted by Ace at 05:05 PM

| Access Comments




Recent Comments
Boots: "Given how thoroughly corrupt Barky's regime was, S ..."

alexthechick - Ragebunny. Hopping all around.: "[i]If you go to the MSN homepage (I know), there's ..."

JAS: "No church should go to the expense of building a b ..."

freaked: ""Soros is putting an incredible $18B into his "Ope ..."

grammie winger -The Cubs Suck Again: "How precious. Did Bill Clinton lend him his big f ..."

Lizzy[/i]: ">>Oh and about Barky's "Legacy"? His "Presi ..."

josephistan: "Kudos for linking Ethan Van Sciver's "comic book p ..."

Fly, Eagles fly......: "Eagles wide receiver Marcus Johnson was baptized l ..."

Lady in Black - Death to the Man Bun: "Continuing on with the latest installment of "Our ..."

JAS: "Kevin Spacey? So "House of Cards" is typecasting. ..."

TrivialPursuer: "160 So Power is saying there was a runaway cadre i ..."

@votermom @vm pimping great books usually free or sale : "Posted by: grammie winger -The Cubs Suck Again at ..."

Recent Entries
Search


MuNuvians
Polls! Polls! Polls!
Frequently Asked Questions
The (Almost) Complete Paul Anka Integrity Kick
Top Top Tens
Greatest Hitjobs

The Ace of Spades HQ Sex-for-Money Skankathon
A D&D Guide to the Democratic Candidates
Margaret Cho: Just Not Funny
More Margaret Cho Abuse
Margaret Cho: Still Not Funny
Iraqi Prisoner Claims He Was Raped... By Woman
Wonkette Announces "Morning Zoo" Format
John Kerry's "Plan" Causes Surrender of Moqtada al-Sadr's Militia
World Muslim Leaders Apologize for Nick Berg's Beheading
Michael Moore Goes on Lunchtime Manhattan Death-Spree
Milestone: Oliver Willis Posts 400th "Fake News Article" Referencing Britney Spears
Liberal Economists Rue a "New Decade of Greed"
Artificial Insouciance: Maureen Dowd's Word Processor Revolts Against Her Numbing Imbecility
Intelligence Officials Eye Blogs for Tips
They Done Found Us Out, Cletus: Intrepid Internet Detective Figures Out Our Master Plan
Shock: Josh Marshall Almost Mentions Sarin Discovery in Iraq
Leather-Clad Biker Freaks Terrorize Australian Town
When Clinton Was President, Torture Was Cool
What Wonkette Means When She Explains What Tina Brown Means
Wonkette's Stand-Up Act
Wankette HQ Gay-Rumors Du Jour
Here's What's Bugging Me: Goose and Slider
My Own Micah Wright Style Confession of Dishonesty
Outraged "Conservatives" React to the FMA
An On-Line Impression of Dennis Miller Having Sex with a Kodiak Bear
The Story the Rightwing Media Refuses to Report!
Our Lunch with David "Glengarry Glen Ross" Mamet
The House of Love: Paul Krugman
A Michael Moore Mystery (TM)
The Dowd-O-Matic!
Liberal Consistency and Other Myths
Kepler's Laws of Liberal Media Bias
John Kerry-- The Splunge! Candidate
"Divisive" Politics & "Attacks on Patriotism" (very long)
The Donkey ("The Raven" parody)
News/Chat
Archives
Powered by
Movable Type 2.64