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Stockton Declares Bankruptcy Despite a Booming Economy


RUSH: Well, it's official now, folks. Stockton, California -- or I should more correctly say "Stoke'tun." That's how they say it, if you live there. I lived in Sacramento. As you know, it's my adopted hometown. I'm getting a PBS station. I forget the call letters, but it covers the Sacramento-Stockton market -- and, you know, every half hour they've gotta officially identify the station. And they've got the typical PBS voice. They give the call letters, K-da-da-da, whatever it is, Sacramento, "Stock'ton." Okay. Regardless, Stockton (which is just south of Sacramento, and just 80 miles east of San Francisco) has gone bankrupt.

It's the first city, first American city to go bankrupt probably since the Great Depression. But we're not in a depression. We're not even in a recession. We are said to be practically in a booming economy, at least according to the new normal of this regime. But the story has now moved on from Stockton going bankrupt. The question now is: Who is going to get paid? Who's going to be first in line in the bankruptcy, Stockton's creditors or the city workers -- the union city workers or the bondholders? Stockton, by the way, is city of 300,000 people. Last June, they filed Chapter 9 bankruptcy protection.

The bondholders, people that have muni bonds for Stockton, took them to court. The bondholders argued first that the city hadn't done everything possible to pay their debts like sell real estate assets. They then argued that the bondholders were being unfairly hit with most of the pain of the bankruptcy. Although bonds account for only 7% of the city's total budget, the City of Stockton is demanding that the bondholders absorb 44% of the concessions. In other words, the bondholders are being told to forget 44% of what they're owed. Government unions, on the other hand, were not asked for any concessions in their pension plans. And make no mistake: This is a bankruptcy due to the unfunded future liability of pensions that they can't possibly pay.


RUSH: Back to Stockton for just a second.  This is a city in bankruptcy because it cannot pay its promised pensions to union employees.  They just don't have the money.  So the bondholders have been told that they aren't gonna be paid back very much so that the union workers of the city can get a sufficient amount of money in the bankruptcy.  Why is that?  Well, it's real simple, folks.  The bondholders don't need the money.  They are rich Wall Street maggots.  They're investors.  They can stand to lose a little money. They ought to lose a little money, find out what it feels like. They're the parasites anyway, they're the ones that run around and make all this money on Wall Street and they live all these lavish lives and they need to find out what it's like here. 

It's the same thing that happened with the bondholders at General Motors.  The bondholders come before stockholders in the natural pecking order, in terms of investor importance, you know, where investors rank on the scale.  Bondholders are higher than stockholders.  The bondholders came under personal insult and criticism from President Obama during the GM bankruptcy.  They didn't need that money, they were greedy, they wanted their money back.  In the case of Stockton, this may well be the first American city to force bondholders to take less than the principle that they're owed on government bonds. 

Now, you may be an investor in Stockton municipal bonds.  You may not know it, depending on what kind of IRA or 401(k), what kind of investment plan you have. Somebody invests your money, you don't know where it all goes. You could be a municipal bondholder in Stockton.  And you're not a Wall Street person, but you're not gonna get anywhere near back, as they divvy things up in bankruptcy, what you put in, even though you ought to be first compensated.  Bondholders ought to get it first.  The reason they're in trouble is they can't pay these pensions. 

Stockton is probably not gonna be the only California city to have to file.  Yesterday, the US bankruptcy court in Sacramento, Judge Christopher Klein, sided with the city and allowed them to continue restructuring under Chapter 9, and his ruling could very well mean that Stockton will be the first American city to force bondholders to take less than the principal that they are owed on these bonds.  The same thing when Obama took over General Motors, he told their bondholders to take a hike.  Their legitimate investment was deemed worthless. They were pariahs and greedy for wanting their investment back in a bankruptcy proceeding, and the company was given to the United Auto Workers.  So much the same thing is happening in Stockton. 


RUSH: Okay, Ray in Livermore, California. Ray, I'm glad you called. You're up first today on the EIB Network, and it's great to have you here. Hi.

CALLER: Rush, it's great to have you. You and your brother are national treasures, and I love what both of you are doing. I'm in the city of Livermore, about 20 minutes from the city of Stockton, which is owned and operated by Democrats and has been driven into the ground. There's out of control gang violence, crime, and murder, and now you have these city officials --

RUSH: Why are you calling here in such mean-spirited, extreme partisanship?

CALLER: Rush, like you, I just state it as I see it -- and if you want to call me mean, well, I guess that's where I'll let it stand.

RUSH: I was just asking.

CALLER: Sure. And you understand I approach this the same way you do, Rush. I try to. I've been studying here at the Limbaugh Institute almost since the beginning, and I'm still awaiting my degree. You're talking about city officials in the City of Stockton who are nothing more than incompetent temporary politicians who have lavished themselves with large salaries and pension benefit packages. They've built monuments to themselves through public works projects. The city has done a huge revamp of the civic center and built --

RUSH: Wait just a sec. You're right. These are just stewards of a system. They come and go. They're not part of some super-elite aristocracy. They are passing personalities through the electoral scene. They're stewards of something much larger than themselves, and they turn it into themselves being bigger than the system. Now, you said that they have built monuments to themselves. What? Give me an example of a monument to somebody in Stockton.

CALLER: They just rebuilt, even though the city's broke and everybody knows and knew it was going broke, they expanded (unintelligible) downtown city area. They built auditoriums. I can't remember if it was an arena like a basketball arena or something of that nature.

RUSH: Yeah, but wait. How is that a monument to themselves? Did they name it after themselves or build it in the shape of themselves? How is it a monument to them?

CALLER: I don't know that they named it after themselves, but every one of these city officials will point back to it, you watch -- and they'll say, "Look what we did! Look how great we were!"

RUSH: Oh, yeah. I can tell you stories. My family would disown me, but I could tell stories. I'm sadly out of time. We get the drift. We really do. One thing about extremists: They really get to the point. I mean, just like that.


RUSH: Here's an example, just one example of a circumstance that illustrates why Stockton, California, is bankrupt. The average firefighter -- and we love firemen here. Don't misunderstand. But the average firefighter in Stockton costs the city $157,000 a year in pay and benefits, and this firefighter can retire at age 50 with a pension equal to 90% of his highest year's salary and free lifetime health benefits. You can't afford that, folks.


RUSH: Okay, take a look at Stockton.  You have a city going bankrupt.  I know what's gonna happen.  The wrong thing.  The wrong thing's gonna happen.  Everything that's happening in this country, the wrong thing, the wrong route, the wrong solution is gonna be taken.  We're gonna keep plunging forever and down to this abyss that is gonna be harder and harder to recover from. 



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