Expert: Fed Rescue of Insolvent States Will Include Illinois

If the federal government bails out the nation’s debt-ridden states, Illinois will be among the first to grab a lifeline, according to one financial expert.

“If there’s even a hint of a bailout, you’re gonna have Illinois, New York, several other states right behind California,” said Christopher Whalen, bank analyst and managing director of Institutional Risk Analytics.

Whalen told the Business Insiders website that California, which is running a $25 billion deficit, is close to defaulting on its bills. Should that occur, the federal government would be compelled to come to California’s aid by crafting some type of financial restructuring plan or rescue effort.

Whalen notes that California has a number of governance problems that are adding to its crush of financial woes. They include: A huge deficit, an inability to quickly pass a state budget and massive public pension obligations.

If that litany of woes sounds familiar it’s because Illinois has similar difficulties: A budget deficit of $15 billion; a woefully under-funded state budget; and staggering public employee pension obligations of around $80 billion or more.

Some lawmakers are suggesting the federal government refrain from bailing out any state that goes broke.

However, the feds may not have a choice because any sovereign state default, especially a biggie like California or Illinois, would inevitably damage the U.S credit rating, cripple investor demand for its bonds and deeply hinder the economy.

State defaults are rare and Arkansas was the last to go bust during the Great Depression.

Nevertheless, Whalen is one of a small but growing chorus of financial experts who are openly concerned about the states’ debt loads and potential impact on the economy.

Respected financial analyst Meredith Whitney is also sounding the alarm about the dire fiscal condition of the nation’s 15 largest states. She says Illinois ranks as the second worse, right behind California.

By Robert Reed, director of investigations. Do you have concerns or information about the State’s deficit or finances? Contact the BGA at 312.427.8330.

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2 Comments

Filed under Commentary, Fiscal Issues

2 responses to “Expert: Fed Rescue of Insolvent States Will Include Illinois

  1. Pingback: What I’m Watching—Dec. 6, 2010 | The Shaw Blog

  2. Pingback: WindyCitizen.com

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