Party on Garth!! Neiman Marcus Files Chapter 11

Equity markets continue to party today even as plenty of bad news continues to make headlines. Today Neiman Marcus filed for bankruptcy–most likely the company was headed to court anyway–the Covid 19 just sped things up a bit–of course current lenders stepped forward for $675 million in new financing–good money after bad–another Zombie. Of course this is just the tip of iceberg and further economic damage will roll out each day for the balance of year.

Whether economic conditions are getting better won’t be known for months because we don’t even know where we are economically. Quarterly results being released now for the quarter ending 3/31/2020 are mostly ‘old news’.

I did note today that California is now forecasting a $54 billion budget deficit–wow–looks like the Fed will need to speed up the printing press–no doubt in my mind that loans will be made to the states that are bleeding. Minnesota entered 2020 with $2.4 billion in their ‘rainy day fund’, but now it is gone–current forecast is a $2.4 billion deficit which is likely to worsen. The state is now considering potential layoffs–no ill will toward government folks, but either taxes are going up or costs are coming down.

Zombie companies—and Zombie jobs will be with us for quite a while. Payroll Protection loans (PPP) keeps folks on the payroll while they stare at their phones playing Candy Crush–no added value–just a different name for money from the government instead of calling the person ‘unemployed’. Business that are poorly run and who depend on massive leverage or who have outrageous amounts of debt continue to operate when by all rights they should probably go broke.

Again over 3 million folks filed for unemployment in the last week—tomorrows employment report will show the carnage–BUT I don’t expect a market reaction–we all know they will be terrible–maybe a little less terrible–maybe a little more terrible–just terrible.

I am mostly watching today, although I bought a 1/2 position in the Wintrust Financial 6.875% Fixed-Rate reset issue which began trading today. Really I like the terms of the issue, but generally can’t get excited in moving higher than 70% invested–want dry powder and plenty of it.

60 thoughts on “Party on Garth!! Neiman Marcus Files Chapter 11”

  1. i cant believe the portfolio. Was down almost a million dollars, and now down about a qtr worth of dividends/interest payments. What a turn around. I did sell sock drawer issues which got me in trouble with Merrill during the sell off. I just couldn’t imagine that BBB and higher rated issues would go bankrupt… and purchased various issues that have risen to what they were before.

    Now, do i try to get those sock drawer issues back… or …

  2. The reluctance of states to embrace a defined contributions solution to employee retirement is very telling. I was actuary for several state-wide employee pension plans in the 1990’s and there is little real fiscal restraint in state government. I can’t imagine what goes on in Chicago.

  3. Squawk Box this morning had a headline that said “33.48 MILLION AMERICANS UNEMPLOYED IN LAST 7 WEEKS”. The reason I used caps is a question for you all. Am I missing something here??? The market has been going up really now for the last 2 weeks and its up again today. Yes, I know the market is always looking forward but my question is how many of these people are actually going to get their jobs back??? Like AKJ said take a look at the industries that are going to have a very hard time returning to “normalcy”—Airlines, Hotels, Restaurants, Uber/Lyft, Retailers, Theaters, Sporting Events, Travel Agencies, New Construction, Casinos, Cruise Lines–No Way do I do a cruise!!!!!, New Car Purchases, Oil/Gas Demand, Conventions, Theme Parks, Gyms, I mean really the list just goes on and on. Thats why I say this market is Crazy in my opinion. Might even be a good time to lighten up on some things. My Vet and my Doctor only allows one person in at a time. So think about that. Instead of seeing 25 people a day they probably have cut that in half. One way or another everybody is affected negatively on this whole thing.

    1. Chuck,
      I’m not at all looking to be confrontational, so please consider that up front – so here’s where I scratch my head a little. Over the past 14 trading days, my math shows the DOW down 367 points (not counting today – since we haven’t closed yet), however with the tech heavy Nasdaq, different story. When you say “The market has been going up…”, what are you really describing because as you know, we don’t have a stock market, we have a market of stocks?

      I guess this is why I push back against some comments here on the site… Some (me included at times) paint their comments with broad brushes which I think at times, may confuse the commentary.

      So I would say the DOW is performing very rationally given the environment. The index is still down ~5,327 points from the February high. Just take a look at the remarkable drop in the VIX. Just take a look at the somewhat subtle swings in the DOW or S&P. Thankfully, the huge swings and intraday moves are calming – as they should be.

      You nailed it. The market is a forward-thinking mechanism. Not always rationally, but it’s looking forward to better days. Two weeks ago, few states had much of anything open. Today, very different story. Two weeks from now, I bet it’ll be remarkably different from today and so on and so on.

      Keep the faith brother… But I understand your overall concerns. Not a thing wrong with taking a few profits if it helps you SWAN.

      Like I said yesterday, we’ve gone from trading on pure fear to now trading on the FOMO. Tons of foreign $$ are coming into our markets because this is where the action is. This will continue to power the markets higher as foreigners search for yields/returns they just can’t get in the “emerging markets”.


      1. You are correct in the distinction between the nasdaq and the market in general and this is the point. This is all about liquidity as people feel the Fed has their back. Just five stocks now make up 21% of the market cap of the SP500. The term forward looking is often used to mean: we’ll ignore the current facts and assume a near perfect future outcome. Most companies have pulled guidance as they are clueless on how things will turn out, yet the valuations assigned to many (certainly not all) nasdaq companies are now higher than they were prior to the pandemic even as unemployment over the next year will at best remain twice as high as it was in February. S&P 500 earnings are expected to drop from the previous 175 or so down to 130 and maybe 150 in 2021. So, yes the S&P is more expensive going forward than it was in February.
        Bottom line is that stocks are priced based on what people are willing to pay for them and fundamentals are often irrelevant for a period of time but these tend to catch up with the prices at some point. When? No one knows so each person needs to invest according to their risk tolerance.

      2. That was a good summary A4I. “now trading on the FOMO.” So true! Now we’re back at 35,000 feet, time again for discipline and restraint. And I know nothing, but guessing we get whipsawed by rates over the next couple of years with them heading higher in a year or so.

        Darwin had this great line: “It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.”

    2. Chuck P,

      IMO there is a not so obvious, but simple answer.

      For the moment, equities do not reflect the state of the economy, current or future.

      The Federal Reserve bank and the Treasury has injected trillions of dollars into the economy. The FRB has lowered interest rates to near zero, injected capital into financial markets, and have purchased billions of dollars of bonds. (Similar to Quantitative Easing after 2008 crash, but on a much larger scale.) As a direct result the only place for “money looking for a return” to go is into equities. All developed nations have implemented similar monetary and fiscal policies, which means even more dollars are chasing US equities, “the best game in town”. Thus, the bear market rally.

      All said, the primary goal of these policies is to prevent a depression; the equities rally is a consequence. (some say intended, others say unintended)

      There are too many unknowns and variables to handicap covid, which means there may or may not be more rounds of government stimulus. My assumption is there will be, the question is how much and to what end. At the moment Washington is taking a wait and see stance, and staking their positions.

      Eventually markets will return to “normal” where valuations drive equity prices, and linkage between equities and the economy reengage. IMO that is at least a year away.

      On a moral note to ponder: Eventually the trillions of dollars printed have to be repaid. Current US debt is $25 trillion – $75,000 share for each citizen and $200,000 share for each tax payer. The US desperately needs a strong economy to generate tax receipts to begin to pay down the debt.

      Cheers! WIndy

    3. Chuck, Many of the headlines were worse in March. I kept buying. Of those buys, some are up 100%, many are up over 25%, 100% are up 10% or more.

      Suggest ignoring the headlines, ignore CNBC, ignore Squawk Box and focus on the individual issues. I should consider sending a thank you card to all of them.

      1. A big Thank You to Affinity, Windyducat, and Alpha8; Maybe it “Just seems” like it has been going up daily. Maybe Iam waiting patiently for that big selloff again that does not appear in the cards-LOL. Thank You again guys. There’s a few things I’m looking at but they just keep going Higher, Higher, and still Higher.

        1. Chuck,
          Let’s ask Tim Cook to tweet like Elon Musk from Tesla did, about the share price being too high. AAPL will then drop and then we can scoop up our shares on the cheap. Whaddya say, you in?

          1. I am reminded of Ned Beaty’s speech to Howard Beale In Network about tinkering with the laws of nature?😳

      2. Indeed Alpha, indeed. I haven’t watched CNBC in over a decade. Think long term, buy quality when it is on sale, and you will do well.

        And as to thank you cards, I would say lets not forget the people who participated in panic selling, and are still sitting on the sidelines in cash. That helped create some of the bargains that came about. And eventually that cash has to make it’s way back into the market – or be stuck earning hardly anything in the current interest rate environment

        1. Mav, The underlying cause and the impact on so many was terrible. And I know we all feel that way.

          But darkly, when the evening futures were down say another thousand, it was like going to bed anticipating Santa Claus the next morning, day after day. I mean, we waited and talked about this since December 2018. You’ll laugh, but I forced myself not to look at and be distracted by my own account balances for weeks – as it would have been nothing more than another version of a headline.

          The problem now is I’m stuck. Little to buy as everything would be averaged-up. So I’ve been a net seller focusing on the risk side of the equation, slowly letting go of the remaining NR or BBB issues when bids hit the offers. Hunkering down into others that could be held very long-term without even looking at them.

          1. Indeed Alpha. I agree, the underlying cause and impact on so many was terrible.

            But like you noted, one has to be willing to act when things are the darkest. I didn’t learn that early on in my investing career but sure did learn it over the years. The time to buy is when you feel uneasy doing so. When everyone else is selling and going to cash is when one can make hay. I remember doing the same thing back in 08-09 that you did now not paying attention to your account balances. I just bought good (and even some so-so) companies selling at ridiculous prices. Best thing I have learned over the years is not to get distracted by my account balance or the news. I just try to take emotion out of it and take advantage of opportunities when they present themselves

            Sadly I am in the same boat as you now – tougher for me to find opportunities today. As you know, i was still finding them a few weeks ago in common shares but not lately. Mainly looking to sell a few preferreds when they hit my price – and just really nibbling here and there, mainly watching and waiting


            1. Exactly. Like you’ve previously referenced, we also maintain a large separate cash account in a 2% bin (1.75% as of May 1). It’s much larger than the securities accounts and would probably last more than a decade if we needed it. That backstop of armor allows one to be fearless in the heat of battle you referenced. However, far from just a 2% yielder, that war chest also is an opportunity fund. It helped fund buys the last few days of the downdraft – to be sure we bought all the way to the very bottom. Those funds have since been repatriated. Its primary function is to be on-hand for large single purchases, like your description of when everyone is selling and going to cash. And for that it’s yielded a compound 18.2% over 8 years.

              But patience is paramount. It could be sitting there for years at a time now at 1.75% or less. Same as prepping for preferreds in December 2018 and March 2020. Not timing the market, but just like you said – waiting for exceptional opportunities. They will come again and we’ll be waiting. If we re-test the recent lows, terrific.

              1. alpha8–we have large chunks of cash in various accounts as well–only 50% of our stash is in equity and bond markets. Our largest account gets 4.5%–and has for as long as I can remember (obiously not fdic insured)–seldom take out money, but we do withdraw from it to buys our cars, which we always pay cash for (not new cars–usually a few years old).

                1. Tim, The story sounds much the same. We’ve also used it for residential property acquisitions during the rare and brief periods of time when they can be bought for less than the cost of construction.

                  We quite happily live well below our means so we really don’t want much (we like to be spoiled occasionally but $1 beers and $1.50 vodka and sodas at the Elks sounds good too) so in the quiet times it just sits there like your’s. But then I also reflect on what our friend said to her husband when he was cheaping out on upgraded airline seats (they could buy part of the plane): “If you don’t spend it, your kids will”. I laughed so hard. One of the greatest lines ever and I have repeated it often.

              2. Great job Alpha

                That separate cash account provides great flexibility and comfort. It allows you to take that long term view and as you said, be fearless when the time arrives like it did. Add in the fact that you could use it opportunistically like you did during the darkest days to scoop up bargains is icing on the cake.

                Kudos !!!

    4. Besides the comments others have made like A4I and Alpha which I agree with completely, I would also add that I bet that a lot of those industries you mention return to normalcy sooner than you think. One example today:


      People are sick of being locked down. People are aching to return to normalcy and go about their lives.

      The ones that don’t, the TV fearmongers and some Governors – well let’s just say people are seeing through their motives. And as more and more states open. more will have to follow suit

      1. Maverick, I agree following CNBC is always a day late and dollar short…But in fairness issues abound…Take the Shanghai Disney “sell out”…The park can only issue 30,000 tickets daily, and it normally had 80,000 visitors daily. Can they economy of scale this enterprise to a profitable manner down from 80k? How long will limited capacity be around? I would be a bit cautious there.

        1. Grid – yes, I understand the sell out is based on reduced capacity, but they sold out rapidly none the less. Which to me proves what I was saying that people want to get back to normalcy. People are afraid of being locked down.

          Can DIS make their parks work economically at 40% capacity – who knows but I certainly believe they can as the infrastructure is already in place and staffing is a variable cost. I do know many people who visit Disney would pay extra for a reduced capacity experience. Minimal wait times on rides, attractions would be any Disney fan’s dream. And I suspect they will increase capacity on a planned basis once everyone sees how things go

          that said – I am not invested in DIS. I just saw the headline and pointed it out as an example of how the demand is out there for a lot of things to open

      2. Posted today and I agree with the 30% profitability number as that was stated by another source… Disney just popped after earnings because of the ridiculous growth in the streaming service, which if I recall correctly, is working its way towards having 2x the number of subscribers that all of Netflix does. Then you have ESPN and the anticipation of sports coming back online, all of the franchising money they rake in, the movies, etc. My DIS commons are up 9% and climbing in the past few weeks.

        When can Disney reopen and how?

        On the conference call following the earnings release, analysts posed the question as to when, and at what capacity, Disney may open its parks back up. Disney has received permission to reopen Shanghai Disney soon, but the Chinese government is apparently only allowing the park to open at 30% capacity, with everyone wearing masks.

        That puts Disney’s management in a strange position. On the call, they said they wouldn’t open its parks unless they were able to get a positive operating margin. Yet it’s hard to imagine Disney World would be profitable at 30% capacity, especially if it had to be fully staffed and with added safety protocols. Likely, Disney will be using Shanghai as a test to inform its reopening of the bigger parks later on.

        1. I do too, Maverick… I want my $1.00 drafts and $1.50 vodka club sodas back when the local Elks reopens!

        2. A4I – Yeah, like I said I don’t know if DIS can make their parks work economically at 30% – 40% capacity – but having been to the parks numerous times at various times of the year, I believe they can. Crowd sizes vary throughout the year anyway. The infrastructure is in place and staffing has always been variable based on number of anticipated visitors

      3. Maverick61, I agree that people want to get back to normalcy. I’m one of them but living in NY makes that difficult. A town close to me has a 6% infection rate and it rising daily. Two of my acquaintances are dead and 3 other’s have the virus. As depressing as lockdown is for me it’s my best option. In other parts of the country the situation is much better and I understand people taking chances but here is an unknown: will the easing up of restrictions cause those areas to approach the extreme situation in NY and NJ? Also what about new concerns regarding the effect on children? That could slow down the return to normalcy and an improved stock market.

        1. Sorry for the loss of your acquaintances danzeb.

          NY has been hit so hard. Are you anywhere near Saugerties?

            1. My GF of 37 years is from Lindenhurst. Father was NYPD. We got married in Woodbury. VFW, KOC and everybody knew everybody. Great memories.

        2. Very sorry to hear that Danzeb. Yes, obviously there are pockets of the country that have to move slower. But 3-4 states make up about half the total cases and over half the unfortunate deaths. So it will obviously be different depending on where one is located.

          Remember – the lockdowns were never supposed to last forever. They were a way to stop local health systems from being overrun. Well the hospitals in most of the country are so empty they have been laying people off.

          People can manage this going forward – I am not saying its just carefree, no precautions. But people can take large steps to some return to normalcy pretty easily. And they want to – which was the point I was really making. Which is why I think some of those industries Chuck mentioned will recover sooner than he expects

    5. Given the central bank interventions around the world (infinite QE), stock market valuations are more dependent on supply/demand and other “technical” factors than on the economy. One of the banks estimated there is $4.8 Trillion sitting in money market funds and much more in bank deposits. There is so much money around that I could see a scenario where stock prices could rise even if there were a depression.
      If you look at something like bitcoins or TSLA stock it is somewhat similar. Their prices are not tied to any fundamentals at all- it is just based on supply and demand factors. Valuation of rare art or sports team franchises is also similar.

    6. I remember my mentor telling me. “Trade the market, not the economy.” More true today than ever before.

      Cheers! Windy.

      BTW: Great conversations and I truly appreciated the varied perspectives and opinions, always learning. And thanks to Tim for hosting this exchange of ideas among savvy investors.

  4. In the discussion of new issue bonds from speculative credits, any thoughts on the new Southwest Airlines two series with maturities in 2023 and 25? Both issues offered beginning May 4. The longer term issue has a 5.25% coupon and has steadily traded down and now is around 95 (5.5% return if held to maturity). Southwest’s burn rate will enable its reserves to last about two years. Amazingly, the new issues were still highly rated. Do they survive? How speculative is this? Looking at this as an alternative to similarly-priced UTE preferreds (most are trading well above par). The retail bankruptcies, new and future, raises concern about airline, hospitality, and public restaurant company bankruptcies, with the hospitality sector being the subject of much discussion here. Lastly, as always, thanks Tim. If there was a Nobel Prize for imparting investment knowledge you would have received it long ago.

    1. Southwest is generally considered the best run airline but Delta has the best balance sheet. However, anything other than a year out on a bond for any of these airlines carries substantial risk, I believe, because if a second wave happens, they are all going to burn through their liquidity in a year. Agree with Steve A that 10% is more likely to be enticing and I still wouldn’t bite on that for 3-5 years out.

      1. I am in the common for the long haul on LUV. They are the most efficient and they command the local southwestern routes that will be opening up the quickest because covid is lighter in the southwest.

        My conclusion is that a year from now the market cap of airlines will be higher in total and that LUV’s share of that cap will be higher. I suspect that there is a good chance that Southwest will effectively acquire another airline. No proof, just hunches

  5. Don’t forget Calpers, last recession they lost a lot of money and went to state to make up lost investments, instead of reducing payouts they told state they had to make up short fall. Its not only this state, others too somehow got it put into state constitution it can’t be cut. My gripe is state employees who add overtime to last couple years of work to get a higher pension. Couple cities filed bankruptcy and tried to get out of their pension liability Vallejo, and Stockton? Courts refused after getting sued by Calpers. Honestly, its not just the states, look at the trillions the Feds just added to their debt

  6. We are just missing it Tim. “Wall Street hates uncertainty”. So they must be none at all, the way stocks are trading.

  7. Regarding that California $54 Billion budget deficit: One might ask – how can that be? With a top marginal income tax rate of 12.3%, base sales tax of 7.25% which approaches 10% in many localities, stacked taxes and fees in utilities, communications, real estate transfers, motor vehicle registration, imbedded gasoline taxes (we’re still paying around $3 a gallon). It goes on and on. The problem? Pensions. Endless wildly bloated pensions.

    Please don’t send a nickel, as it won’t stop until they run out of other people’s money.

    1. Good points, alpha…

      A few factoids I’ve run across:

      California has the highest “minimum corporate tax” in the country.

      California still boasts the highest state income tax rate in the nation.

      California has the 9th highest corporate income tax rate in the country.

      The state of California had the worst “small business failure rate” in America in 2010. It was 69 percent higher than the national average. They also have 4 out of the 5 cities in the category of “Top 5 Worst Places For Small Businesses“.

      California has the 2nd highest gas tax in the country.

      Illegals control the state. Double-digit billions of dollars go to illegal immigrant aid-related expenses (such as housing, K-12 schooling, English supplementation courses, free college for the “undocumented”, healthcare, etc). This is after accounting for tax revenue they contribute.

      I wouldn’t send a plastic nickel.

    2. Yep, lots of states are not great stewards of their finances.

      I guess they should model our great businesses, who were outstanding Stewarts of their business, issuing massive debt and using all their cash to buy back stocks.

      I for, one, do not like my taxpayer money being spent for either of them.

      The logic of bailing out business was employment. I guess jobs for our police, fireman, teachers, and other state workers do not matter. Let’s add to those 30M+ currently unemployed.

      Sorry, it hards for me to distinguish and parse why one group’s job count and the other don’t.

      I know I will be in the minority (maybe a minority of 1) but I offer no apology for my views. I don’t expect to change your views and others who reply to this will not be changing my view.

      So let’s not debate it. Let’s simply say, there is an opposite view which I have attempted to articulate.

      1. Is it true that the feds have already sent three months of normal state revenue to the states? That’s what I heard this morning.

        Here in Texas the majority of the local taxation is property and sales tax. No holiday for that.

        You know they teach in MBA courses that when management changes or when large losses have to be acknowledged, that then it’s best to “take a big bath” and throw everything in to the tub. Sounds like some state treasurers are trying to take a big bath with our water?

        1. That will require another round of stimulus, so I would classify that as a desire and not reality. The estimate I have heard for all the states is about 500B. California as Tim noted above is about 55B, which of course, is our largest state.

        2. They also teach about in the bachelor business courses, that in a capitalist society, companies, when they need money, come to the public markets and issue stocks and bonds to raise that money or they downsize. Boeing is a great example, they didn’t take taxpayer money, they raised money in the public markets. So, why aren’t CFO’s who take taxpayer money trying to take a big bath with our water? The answer is both the state treasury’s and the business are.

          As preferred stock investors, that is exactly what we should want. Issue nice fat coupon preferred stock and pay me. That sure beats, my writing a check to you via a taxpayer bailout.

        3. With a huge kick from severance taxes from oil. That is going to bite the budget hard when that falls off a cliff.

      2. SteveA, You never have to apologize for your opinion, no matter how crazy. That was a joke, you should be laughing right now.

        No Steve really, let’s be clear here: it’s not about jobs, it’s about pensions. For example my friend who retired as a police officer in his early 50s with a near $200K pension plus full medical and dental for he and his wife for life. That’s morally and ethically wrong. How am I certain? He said so himself. As he also said, “they were buying our votes over and over, higher and higher” I have another friend in a similar situation who was a school administrator. Six figures for life plus all the bennies. Also retired early 50s. We cannot fault them – though the system should be held accountable.

        In fairness, the retirees should share the pain equally and not just continue to soak the lower earning working class or future generations for every last penny they can squeeze out to support six-figure public pensions and their medical plans.

        Or maybe social security should be converted to a similar pension plan so everyone gets $200K/yr in retirement plus full medical and dental. No? OK, then maybe public employees should just get SS like everyone else – and be required to fund their own 401K if they wish. This point spotlights the fundamantal fairness issue here.

        Don’t send a nickel.

        1. Sorry Alpha.

          If states have deficits they are required by law to fix them. They didn’t have any current deficits before the Covid situation.

          Since future unfunded pension liabilities are not impacting today’s deficit, fixing unfunded future pension liabilities means nothing to solving 2020 current deficits.

          States will have to reduce services which will reduce jobs. This is all about jobs just like it was for businesses.

          1. Sorry Steve, you are wrong.

            Some governors already mentioned their pension obligations when they have their hands out. It isn’t a pure jobs issue. And there are more solutions than looking for the Feds to borrow money they don’t have to give to the states. The states can either:

            1a. Cut costs (gasp, there is a novel concept)
            1b. Reduce bloated state workforces which also cuts costs
            2. Borrow money on their own
            3. Raise taxes

            Why should the federal government increase its own deficit to borrow money to bail out certain poorly run states? Why should the federal government eventually raise taxes on all citizens to bail out certain poorly run states?

    3. The canary in the coal mine for states is Illinois. They are much worse off than California. They have the lowest bond ratings of any state, one notch above junk. They are trying to float $1.2 Billion of muni bonds this week. The first round buyers wanted 4.0% ABOVE the AAA rate. Illinois balked at paying that much. They have over 100,000 municipal employees and retirees taking in more than $100k/year. If the Feds do NOT bail them out, I am not sure what Plan B is for them. They are either going to default on bond holders (most likely) or on pensioners (cold day in hades.) Understand that states cannot legally file for bankruptcy under current law.

      “Our analysis at shows that an Illinois family of four now owes more in unfunded pension liabilities ($76,000) than they earn in household income ($63,585). In a state of 13 million residents, every man, woman, and child owes $19,000 — on an estimated $251 billion pension liability. ”

      Illinois >$100 Club–109881-public-employees-with-more-than-100000-paychecks-cost-taxpayers-14b/

      1. Tex2, Haircuts are on the way. And if states like this cannot file BK then their poor management will be held accountable in other ways.

        $100K+/yr pensioners may be forced to also take haircuts unless they can convince they’re $50K/yr working neighbors to drop off more dough each day on their way home from work. It’s not the pensioners fault of course, it was the absurd expectations created with Twilight zone math.

        1. Alpha, although states cannot declare bankruptcy under current law, there is a clear precedent. Vallejo, Stockton, Detroit and San Bernardino all declared BK. For those four cities to a first approximation, pensioners kept 100% and bondholders absorbed all of the losses.

          Currently Puerto Rico has a new bankruptcy like process that congress created for them. Before the new ‘PROMESA” law, PR was NOT allowed to go BK. So many folks bought PR General Obligation muni bonds and know they are losing out. While it is not final, once again in round numbers pensioners are kept 100% and bondholders are taking all of the losses.

          Illinois tried to roll back some of their pensions, but the Illinois Supreme Court said heck no, you cannot alter pension promises that you made.

          To me Illinois is very clear just like PR was. The PR BK was not a surprise to serious muni bond investors. Nobody knew the exact timing, but the end game was clear. Same thing for Illinois IMO. There will be day when muni bond investors wake up and say “I am not lending you another dime.” It might be today or it might be in 10 years. That is the only way the outspending relative to tax collections gets dealt with.

          1. The Illinois Supreme Court said to amend the state Constitution, which is doable, they are just too chicken to do it. After that, they could fix the problem overnight
            Maybe this will finally force their hand.

    4. In fairness to CA and some of the other big states, they have been net payers into the Federal Treasury for a long time, while a number of other states receive much more Federal largess than they pay for. At a minimum California should receive back from Washington DC at least as much as they send in.

      1. I wasn’t going to go there but now that you did, I will add to this.

        The Senators needed to approve this bill and that are the most opposed come from states that year after year get more from the federal government than their citizens pay in federal taxes. One big state governor says “just give me my money back nothing more”.

        The math says, no state should be getting back more in federal aid than their citizens pay in. We have a federal government to pay for. That cost mathematically should be borne by all.

        But, we have many smaller states that do need to get more in federal aid or funding than their citizens pay in federal taxes. So even though the math doesn’t work, it is the right thing to do. After all, we are 1 country.

        For their senators to be taking year after year and then denying states help due to issues caused by Covid is just not helpful.

        It can only lead to a them versus us debate.

        1. Allocating taxes paid and benefits received is an irresolvable argument. How do you allocate defense costs (per person or per square foot)? How about agricultural subsidies? They subsidize cheap food for the urban dwellers. How about allocating tax forbearances? Etc

          1. Exactly George

            this whole argument that some states get more in federal benefits than they pay in and vice versa is BS. As any good accountant knows, one can allocate costs out in a variety of different ways, all of which could be defensible and have legitimate arguments for – and all yielding vastly different results.

            So everyone should not take those claims seriously given the variety of costs that would need to be allocated

          2. Thank you GR for the most cogent point posted here regarding allocation of federal tax revenue to states. You have moved the discussion forward.

        2. They get more in Federal aid because their representatives sit on the appropriations committee. So someone like Alaska’s Don Young and Hal Rogers from Kentucky can subsidize their home state governments by appropriating federal money by the ton.
          That is slowing turning, but the states that have poor tax collections have politicians that aim to get on the appropriations committee and have a lot of seniority.

    5. Agree completely Alpha. These states and their absurd public employee pension plans are wholly out of control. This is why they need to change the law to allow states to go bankrupt. No damn federal bailout for these poorly run states giving out ridiculous pension benefits to public employees essentially buying votes and currying favor with the unions

      I agree – don’t send them a nickel

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