Newt Gingrich says, bill to allow State’s bankruptcy protection imminent

Legislation that would allow US States to file for Bankruptcy protection will likely be introduced in he US Congress within the next month, Newt Gingrich, the former speaker of the House of Representatives and a powerful Republican party figure, said Friday.

Although Gingrich, considered responsible for the “Republican Revolution” of the 1990′s, is no longer in office, he has deep ties to Congress and is frequently named as a potential Presidential contender in Y 2012.

For months he has championed letting States file for Bankruptcy in order to handle their long-term budget problems despite resistance from States and investors in the US$2.8T municipal bond market.

“We’re faced with the danger that the States are going to try to show up and say to Washington: You have to give us money,” Gingrich said. “And I think we have to have an alternative that allows us to say no.”

While he declined to comment on who might introduce legislation, Gingrich said there was support in both the House and the Senate. He said lawmakers have been looking into the idea for 3 or 4 months now.

Because States are sovereign, they cannot declare Bankruptcy as cities can, and most have provisions in their Constitutions that make defaulting on debt next to impossible.

And California, a State which Gingrich said would likely turn to Congress for financial help along with New York and Illinois, said Friday it has no interest in using bankruptcy to solve its fiscal problems.

California, the 8 largest economy in the World, would not benefit from the legislation, its Treasurer Bill Lockyer said. “States didn’t ask for it. We don’t want it. We don’t need it,” Lockyer said. “Bankruptcy would devastate states’ ability to recover from the recession and make the infrastructure investments that create good jobs.”

Struggling to close a US$25B budget gap, California already holds Moody’s Investors Service’s lowest State credit rating, a distinction it shares with Illinois.

“Just the availability of a Bankruptcy option, and the potential bond default could severely damage State credit ratings, and destroy the trust of bondholders,” said New York State Comptroller Thomas P. DiNapoli.

Last week, the Munil Bond market suffered a sharp sell-off on fears of defaults by cities and other issuers.—Paul A. Ebeling, Jnr. www.livetradingnews.com

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Posted by Shayne Heffernan on Jan 22nd, 2011and filed underEquities, Latest News, Markets, News & Events, USA.You can follow any responses to this entry through theRSS 2.0You can leave a response by filling following comment form or trackback to this entry from your site