Ford to City: Drop Dead—New York City Bankrupt!

What if New York City does indeed go bankrupt in 1975? [Background]

IOTL Ford did in fact sign loan agreements, and New York's business community also rallied bankers to save NYC from defaulting.

Let's say Ford's speech, and the infamous headline prompted by it, doesn't happen and sometime in the winter of 1975 New York City defaults on all outstanding loans.

What happens next?
 
Perhaps in the wake of NYC's bankruptcy a "rust belt" congressional caucus forms in order to secure a plurality of pork barrel spending for themselves rather than letting the bulk of it go to the south and west.
 

Vault-Scope

Banned
Anyone know an example of a large modern city going bankrupt?

Crime levels could well be boosted by such an event.
 
I read the New York Magazine piece, and think it's a bit apocalyptic, although interesting in that it carries some of the flavor of the "Soylent Green"/"Escape from New York" era's profound pessimism about the city.

There are simple reasons why cities and states in the United States don't default on their municipal bonds, and why muni purchasers don't fear widespread defaults--these governments would either have to pay a punitively high rate on future bond issues in order to entice buyers, or simply wouldn't have buyers at all, regardless of the inducements. That would place a straitjacket on their public spending until the end of days.

Contrast this with the structure of the securitized mortgages that have gotten the United States into so much trouble. In this case, banks lending money to individual home-buyers sell the right to receive payments on the loans, that right taking the form of a security.

Because they're selling the right to repayment on a market for a one-time sum, the banks don't have the same incentive to make sure that the home-buyers they lent the money to will repay them.

Of course the buyer of this right to payment that is the security can take steps to see what the credit-worthiness of the homebuyers are, and credit rating agencies can pass judgments on the quality of these investments. Precisely why these steps failed are being investigated and debated now.

But what should be obvious is that there's a break in accountability in the very structure of that transaction that you don't see in municipal bonds.

And of course short of outright default, cities, towns and counties can declare bankruptcy. This is what Orange County, California did in 1994, and western civilization is still around, for the time being.
 
Top