Stockton Bankruptcy Puts Muni Market on Edge

The Wall Street Journal reports:

Stockton's bankruptcy case is making some municipal-bond market participants queasy—and for good reason: If the California city gets its way, it will become one of the first local governments to use the federal bankruptcy process to impose potentially big cuts on its bondholders.

"There's no history of any significant give-up" for local government bondholders in bankruptcy, according to bankruptcy attorney Jim Spiotto, who has studied the history of such cases. Given Stockton's already aggressive attitude toward bondholders, "we'll have to see, is this a tipping point, or is it an aberration?"

Market participants are nervous because the city of 300,000, an agricultural center about 80 miles east of San Francisco, skipped payments on bonds earlier this year and plans to continue that pattern while it reorganizes its debts in bankruptcy.

Do you want to be a long term creditor of these people? If you've been reading this website since 2005 : you are prepared, it's not like we didn't warn you of this.