Should U.S. states be able to declare bankruptcy?

Lawmakers can't agree on whether giving struggling states access to bankruptcy courts will help, or make matters worse 

Federal Reserve Chairman Ben Bernanke may face Congressional hearings this month on the possibility of state-declared bankruptcy.
(Image credit: Getty)

With state governments facing massive, recession-stoked budget shortfalls, lawmakers in Washington are debating whether states, like cities, should be given a legal right to file for bankruptcy protection. Opponents of the plan say it would allow states to cut benefits for retirees living on on state pensions, and hurt investors who own state government bonds. But proponents say giving states "fair, orderly, predictable, and lawful" new options to overcome their financial problems might be the only way to avoid costly federal bailouts. Is this an idea whose time has come, or will it only deepen the nation's financial pain?

This will keep unions from bleeding states dry: "Faced with today's budget realities," says CNJ Online in an editorial, states need flexibility and ways to "lower costs in the short term as well as down the road." Bankruptcy protection could be "just such a tool," because it would allow states to "restructure" their debt. It would also give them "much more leverage" with unions representing government employees, so they could start cutting back on pensions they simply cannot afford to pay.

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