Banrkruptcy: Who Can Tell Who’s Next?

Meredith Whitmey was wrong last year and, based on the available information put out by ‘independent’ accountants and actuaries, nobody can tell.  Take the case of San Bernadino, California.

Their bonds were investment grade ‘BBB+ this Tuesday, the same day that the City Council voted to go bankrupt (which was all S&P needed to hear).

Their CAFRs got awards for excellence:

Yet accounting fraud was alleged:

According to media reports, the city attorney general James Penman said San Bernardino’s city officials had been submitting false accounting documents for 13 of the last 16 years in an effort to hide the real financial situation of the city.

With so many ‘independent’ experts whoring their expertise who has any incentive to admit an unpalatable truth? Your city or county might be committing fraud and on the verge of declaring bankruptcy but who’s to tell?

15 responses to this post.

  1. Posted by Tough Love on July 13, 2012 at 12:29 am

    In the context of their Bankruptcy filing, the awarding of that recent That Certificate of Achievement …. is a real HOOT !


  2. Posted by Eric on July 13, 2012 at 12:35 am

    This reminds me of what you brought to our attention namely the alternative investments in the NJ pension fund which may be grandma’s vase in the attic that appreciates 20% per year as per our so called “experts”. Of course, at the rummage sale, it may go for 1% of its assessed value. It is also alarming how you mentioned that the percentage of alternative investments increased from 28% to 38% when the funds need to be extremely liquid with so many people leaving the system.
    Is there any hint of an MF Global investment lurking in the inventory as another fine example of an alternative investment? What about another Lehman Brothers that the fund threw money at when everyone knew it was sinking faster than the Titanic?


  3. Posted by Eric on July 13, 2012 at 9:12 am

    Thanks John. Wow! Barclays, Goldman and JP Morgan. Lions and tigers and bears oh my! I would rather stick with grandma’s vase than this lineup.
    It is interesting that the fund also has shares in the gold ETF (Exchange Traded Fund) “Spider” which when you read its prospectus indicates that it may not even own any of the so called gold and any gold it may own may have 3rd party claims attached. Perhaps another Lehman moment in the making.


  4. Posted by Anonymous on July 13, 2012 at 1:42 pm

    What the average taxpayer fails to realize is the extent to which a bankruptcy will effect them personally. In other words they are like lemmings being led to the cliff edge. They always jump.


    • Posted by Tough Love on July 13, 2012 at 2:23 pm

      The effect will be very POSITIVE if it materially reduces Retiree healthcare subsidies and results in getting rid of the (at LEAST 50%) excessive pension accruals granted to CURRENT Public Sector workers.

      There is ZERO justification for paying overcompensating public Sector workers …. as is ROUTINE today.


  5. Posted by MJ on July 13, 2012 at 8:35 pm

    From what I’ve been reading about the cities and towns going bankrupt is that they all had one thing in commom: 70-80% of thier budgets were for employee salaries, benefits and pensions. As anyone with half a brain knows, it a private business large or small were run that way, they would have been out of business in the first few years. I agree, there is zero justification for these outrageous salaries and benefits and significant cuts need to be implemented as soon as possible. Maybe in the 50s and 60s this worked but there is a “new Normal” and the delusional people in charge spout off their rhetoirc. I would have more respect if they just came out and called it like it it. Much nastier to keep striging the public along than to allow them to adjust for a retirement. Then round up all of the corrupt politicians, and get rid of them, strip them of their pensions and vote for people who have some moral and ethical integrity and the ba**s to stand up to these cancerous unions.


  6. Posted by muni-man on July 14, 2012 at 10:16 am

    Keep leveraging up, NJ pension funds! When the market takes a prolonged dive, then the real fun begins. Publics are gonna get slammed a damn site harder than the average private sector TP when these plans collapse, and many are gonna do just that w/o massive benefit reductions.


  7. Posted by CountyWatcher2 on July 14, 2012 at 8:25 pm

    Somehow, public unions seem to think that bankruptcy will mean nothing. I dispute that. NO court order to raise taxes to pay pensions will be efnorceable. What elected official, Sweeney, Oliver, Lesniak, or Gill will vote to triple or quadruple taxes to cover the shortfall? It just won’t happen. If Unions had any sense, they would be sitting down with CC and Sweeney to salvage the situation.


    • Posted by Tough Love on July 14, 2012 at 9:32 pm

      My take on the Civil Servant “thought process” is that, AS A GROUP, they know there is a real big financial problem that can only be solved with major pension/benefit givebacks (from current workers), but INDIVIDUALLY, they’re thinking that it’s the guy to the left or the guy to the right will get stuck, but somehow THEY will sneak through to the finish line unscathed.


      • Posted by Anonymous on July 15, 2012 at 4:25 pm

        Actually, what they used to think was that they were promised a pension as a condition of employment, that they would have to wait 10 years to even get vested, that the pensions were protected by the full faith and credit of a state that had taxing power and could not go bankrupt. Many still believe that today since the state and the unions are still making those same promises. Would anyone take a job with a 7-10% deduction of their salaries knowing that the pension was going to fail? Maybe they should mention that in current job interviews.


        • Posted by Tough Love on July 15, 2012 at 4:56 pm

          Well maybe these Plans wouldn’t be in a financial failure position if the Unions and our elected officials didn’t collude to trade campaign contributions and election support for favorable votes granting these EXTREMELY GENEROUS and therefore EXTREMELY COSTLY pensions.

          Greed HAS consequences.


    • Posted by muni-man on July 15, 2012 at 11:04 am

      You’re right, pension guarantees will be unenforceable. The Great Gooberment Reset is just beginning and publics are gonna get whipsawed bigtime.


  8. […] John Bury catches that San Bernadino had gotten awards for its financial statements not that long ago (which is such a bizarre […]


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