Thursday, May 20, 2010

The “Orderly” Insolvency of States

German Chancellor Angela Merkel recently stated that the European Union needs a process for the "orderly" insolvency of its members. Does the US also need a process for the “orderly” insolvency (bankruptcy) of its states...?

3 comments:

Dan said...

I think the US needs such a process for the states (or the states need their own process) as well as for the soverign US itself. There probably is such a process in the common law, but it could be clarified and extended to deal with special circumstances such as disposal of military assets.

We need to see if US assets exceed liabilities, if so we should execute bankruptcy proceedings as soon as possible.

McKibbinUSA said...

Dan, like you, I am pondering the implications of recent events in Europe -- sovereign defaults (bankruptcies) is something new, at least during my lifetime...

Tom Lindmark said...

The states are sovereigns in their own right. The reason Chapter 9 which governs bankruptcy for municipalities does not apply to states is that it would violate the Constitution, specifically give federal bankruptcy courts a say in the affairs of states.

It might be desirable for some sort of orderly procedure to deal with a state bankruptcy but this is one of those occasions when be careful what you wish for applies.

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