City Bankruptcies Reflect Broader Societal Indifference To Debt Obligations

by | Aug 31, 2012

City Bankruptcies Reflect Broader Societal Indifference To Debt Obligations

The recent filings for bankruptcy protection by cities like Stockton, San Bernardino and Mammoth Lakes is a reflection of a the growing indifference society has to debt…or more specifically, its obligation to repay debt. Certainly all three of the aforementioned cities are in severe financial difficulty. In the City of Stockton’s case, much of that comes from its municipal bond obligations where it borrowed money from investors to pay for a wide array of goodies such as sports arena, parking structures and pension funding. Just as a homeowner might borrow money to build a swimming pool or make other improvements the City of Stockton borrowed money to build stuff and have stuff. The City of Stockton spent this money anticipating that its revenues where at least stable or more likely would increase. Like most experts out there, the City of Stockton did not anticipate a massive drop in property values in its region. So, from a purely financial perspective the Stockton bankruptcy makes sense. While the leaders of the City of Stockton may have had no real alternative, their decision is consistent with a broader view of Californians and Americans in general. In the compelling book The California Crackup authors Joe Matthews and Mark Paul, a pair of journalists and non-partisan think tank scholars, describe in detailed studies that Californians want services but do not want to pay for them. More shockingly, they describe studies that an increasing number of Californians view debt repayment as mandatory only when it makes fiscal sense. Growing numbers of Californians, they describe, readily stop paying their debts when it becomes simply inconvenient or uncomfortable. And California has plenty of debt to go around. Matthews and Paul found in a 2011 study the average Californian has debts of $78,000 against an income of $43,000. And more than anything, California wants leaders who will keep the party going.

Take Arnold Schwarzenegger’s disastrous experience as governor. Schwarzenegger took office following the recall election of Gray Davis. In essence California voters recalled Gray Davis, and installed of Arnold Schwarzenegger, in an effort to get a new person to try to solve California’s fiscal problems. And Schwarzenegger tried. He tried acting like a Republican and he tried acting like a Democrat. He tried befriending the legislature and insulting them. And when none of that worked he went to the people with a series of initiatives to curtail California’s fiscal problems including spending cuts, pension reform and other measures. After all, the voters removed Gray Davis and installed Schwarzenegger so it looked like it would have to be the voters who would give Schwarzenegger the tools to do the job. So what happened? The voters said no to everything. And when he left office in 2011, his approval rating had dropped from a prior high of 70% to 25% with nothing really fixed.

Schwarzenegger experience is similar to that of most creditors. People will readily walk away from a mortgage when their property values drop simply because “it does not make financial sense”. Repayment of all types of debt is deferred, delayed, or forgotten when other needs take real or psychological priority. Californians can be grateful for one thing. It is not Ireland. In Ireland there is no anti-deficiency laws, so if the homeowner walks away from his or her home and the bank repossesses, they still owe the value of the mortgage. And even bigger, that debt does not go away when the Irishman dies. It gets passed along to his heirs.

 

Papers used by a Sacramento Wage Claim Lawyer

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