"University of Pennsylvania law professor David Skeel, writing in the Weekly Standard, suggests that Congress pass a law allowing states to go bankrupt. Skeel, a bankruptcy expert, notes that a Depression-era statute allows local governments to go into bankruptcy...A state bankruptcy law would not let creditors thrust a state into bankruptcy -- that would violate state sovereignty. But it would allow a state government going into bankruptcy to force a 'cramdown,' imposing a haircut on bondholders, and to rewrite its union contracts. The threat of bankruptcy would put a powerful weapon in the hands of governors and legislatures: They can tell their unions that they have to accept cuts now or face a much more dire fate in bankruptcy court."
[Michael Barone, NRO Online]
(Kenneth A from Volokh has comments and links, back on the original Skeel article)
(Nod to Kevin Lewis)
1 comment:
As states are sovereign, I thought they already had the right to dump creditors, whoever they are. If the california government passed a law ordering the state departments to stop making payments to pensioners, what law could a judge point to that stops them? Only the state and federal constitutions can supersede a law.
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