by John Galt
April 19, 2012 19:15 ET
In 2008, I wrote a piece titled “Municide” (Click on link to read in full) where I outlined the coming collapse of many counties, cities, and other municipal entities due to the implosion of the municipal bond market thanks to the collapse of the real estate market. Data today indicates that the housing market is far from recovering, especially considering that institutions like Bank of America saw a stunning 72% decline from last years mortgage origination according to their recently released quarterly financial report.
This afternoon a story from the website Pensions & Investments from the U.S. territory of the Marianas Islands reveals a new twist in the collapse of local government finance which will send ripples into the mainland:
(click on the link above to read the story in full)
The story is a stunner as the pension plan had just over $268 million in assets and $911 million in liabilities, a mere pittance when compared to some of the municipalities in California and other U.S. states. Instead of filing for a liquidation under Chapter 7 of the bankruptcy law, the fund filed for reorganization which implies an attempt will be made to pay out benefits although at a much reduced rate.
The other ticking time bomb that municipalities are denying and those who attacked Meredith Whitney claims is non-existent is best highlighted by this excerpt from the story by Darla Mercado:
The Northern Mariana Islands Retirement Fund has been bedeviled by the commonwealth’s inability to make its share of contributions to the pension plan, according to court documents and an April 17 letter to participants.
The feud between the retirement fund and the commonwealth over the government’s responsibility to chip in for employer contributions to the pension plan goes back to 2006.
This very problem is now occurring in the Florida court system as the Republicans imposed a mandatory employee contribution to the state retirement program to prevent the same threat of a mounting deficit and the unions balked and decided to sue the state to overturn the law. This problem is shared by literally hundreds of communities if not thousands thanks to union intransigence and political corruption in other locales which eventually when combined with the collapse in tax revenues will lead not only to pension but municipal bond defaults in droves.
Just imagine how much worse this could turn out if the Obamacare mandates are upheld by the Supreme Court and municipalities have to add the burden of even greater health care expenses to their already deficit riddled budgets. As Americans who are participants in these old pension funds reach retirement age put further pressure on the system, it is only a matter of time before this house of cards collapse completely.