Rush Limbaugh on Stockton bankruptcy

April 5, 2013

Rush LimbaughBy John Seiler

Unlike most East Coast commentators, Rush Limbaugh knows something about California. Sacramento, where he launched his radio show in the 1980s, is his adopted home town. What he said on his show about the Stockton bankruptcy is interesting:

“But we’re not in a depression. We’re not even in a recession. We are said to be practically in a booming economy, at least according to the new normal of this [Obama] regime. But the story has now moved on from Stockton going bankrupt. The question now is: Who is going to get paid? Who’s going to be first in line in the bankruptcy, Stockton’s creditors or the city workers — the union city workers or the bondholders? Stockton, by the way, is city of 300,000 people. Last June, they filed Chapter 9 bankruptcy protection.

“The bondholders, people that have muni bonds for Stockton, took them to court. The bondholders argued first that the city hadn’t done everything possible to pay their debts like sell real estate assets. They then argued that the bondholders were being unfairly hit with most of the pain of the bankruptcy. Although bonds account for only 7% of the city’s total budget, the City of Stockton is demanding that the bondholders absorb 44% of the concessions. In other words, the bondholders are being told to forget 44% of what they’re owed. Government unions, on the other hand, were not asked for any concessions in their pension plans. And make no mistake: This is a bankruptcy due to the unfunded future liability of pensions that they can’t possibly pay….

“This is a city in bankruptcy because it cannot pay its promised pensions to union employees.  They just don’t have the money.  So the bondholders have been told that they aren’t gonna be paid back very much so that the union workers of the city can get a sufficient amount of money in the bankruptcy.  Why is that?  Well, it’s real simple, folks.  The bondholders don’t need the money.  They are rich Wall Street maggots.  They’re investors.  They can stand to lose a little money. They ought to lose a little money, find out what it feels like. They’re the parasites anyway, they’re the ones that run around and make all this money on Wall Street and they live all these lavish lives and they need to find out what it’s like here. 

“It’s the same thing that happened with the bondholders at General Motors.  The bondholders come before stockholders in the natural pecking order, in terms of investor importance, you know, where investors rank on the scale.  Bondholders are higher than stockholders.  The bondholders came under personal insult and criticism from President Obama during the GM bankruptcy.  They didn’t need that money, they were greedy, they wanted their money back.  In the case of Stockton, this may well be the first American city to force bondholders to take less than the principle that they’re owed on government bonds. 

“Now, you may be an investor in Stockton municipal bonds.  You may not know it, depending on what kind of IRA or 401(k), what kind of investment plan you have. Somebody invests your money, you don’t know where it all goes. You could be a municipal bondholder in Stockton.  And you’re not a Wall Street person, but you’re not gonna get anywhere near back, as they divvy things up in bankruptcy, what you put in, even though you ought to be first compensated.  Bondholders ought to get it first.  The reason they’re in trouble is they can’t pay these pensions. 

“Stockton is probably not gonna be the only California city to have to file.  Yesterday, the US bankruptcy court in Sacramento, Judge Christopher Klein, sided with the city and allowed them to continue restructuring under Chapter 9, and his ruling could very well mean that Stockton will be the first American city to force bondholders to take less than the principal that they are owed on these bonds.  The same thing when Obama took over General Motors, he told their bondholders to take a hike.  Their legitimate investment was deemed worthless. They were pariahs and greedy for wanting their investment back in a bankruptcy proceeding, and the company was given to the United Auto Workers.  So much the same thing is happening in Stockton….

“Here’s an example, just one example of a circumstance that illustrates why Stockton, California, is bankrupt. The average firefighter — and we love firemen here. Don’t misunderstand. But the average firefighter in Stockton costs the city $157,000 a year in pay and benefits, and this firefighter can retire at age 50 with a pension equal to 90% of his highest year’s salary and free lifetime health benefits. You can’t afford that, folks.”



Write a comment
  1. Douglas
    Douglas 5 April, 2013, 02:33

    Simple answers first: The “average firefighter” CANNOT

    “retire at age 50 with a pension equal to 90% of his highest year’s salary”

    Unless he began his career at age twenty, which most firefighters do not. Fewer than one percent of public employees actually retire at 50 with a full (90%) retirement.

    If we really “love firemen here”, let’s not take the most extreme example and present it as the norm.

    Reply this comment
  2. Douglas
    Douglas 5 April, 2013, 04:28

    John Seiler:
    ” Rush Limbaugh knows something about California.”
    So, is he lying, or ignorant, when he says: “This is a city in bankruptcy because it cannot pay its promised pensions to union employees.”?

    Stockton does NOT pay pensions. It pays annual contributions to CalPERS, which invests that money and distributes the “promised pensions” to union (AND non-union employees, Rush).
    Limbaugh: ” And make no mistake: This is a bankruptcy due to the unfunded future liability of pensions that they can’t possibly pay….”

    This bankruptcy is due to a COMBINATION of factors. One of which is that, like many cities and counties, employee costs, including pension contributions, are 70 – 80% of the budget, and revenues were drastically reduced after 2008.

    Let’s don’t pin the entire blame on one segment of the budget.

    Reply this comment
  3. loufca
    loufca 5 April, 2013, 05:56

    You’re correct Douglas regarding pinning blame only on one segment. But facts are facts, unfunded liabilities aren’t the only reason for the bankruptcy, but they will be for future bankruptcies. Do you really think that being able to retire at 50 or 60 at 90% of your highest salary (and we haven’t even talked about salary spiking) and free life time health benefits is sustainable? It isn’t, period, end of story. There is a large number of people turning 60, a lower birth rate and lower average income. The numbers simply don’t work. Stockton is the first domino to fall.

    Reply this comment
  4. Douglas
    Douglas 5 April, 2013, 06:58







    MOST retire over age 60. And the average pension is less than 50% of final salary.

    In spite of the impression you may be receiving from articles such as these.

    Reply this comment
  5. Tax Target
    Tax Target 5 April, 2013, 07:21

    Gee I so love these distracting arguments. Other Limbaugh’s argument no one seems to acknowledge the real question. Should the bondholders take all of the hit? Or, should the employees take some of the hit for excessive benefit plans – and yes, lifetime health benefits ARE ENTIRELY EXCESSIVE.

    Good luck getting anyone to invest in Calif Muni bonds in the future. I’ve certainly instructed my broker not to present California bonds to me, ever, never.

    Reply this comment
  6. AB32 Fighter
    AB32 Fighter 5 April, 2013, 08:51

    Douglas: The average may be less than 50% but that’s only if you include all the people that only worked there for a few years.

    Reply this comment
  7. Sean Morham
    Sean Morham 5 April, 2013, 08:52

    I see where the answer doesn t answer the question. ” (Should workers)be able to retire at 50 of 60 at 90% of the highest salary?” It is the typical bs…change subject, avoid the question…sounds like Jay Carney. The answere: “you owe it to me, if your 401k takes a haircut to protect my pension, I could care less; You owe me my pension.” Worked out well for ferme generale in the late 18th century…

    Reply this comment
  8. Douglas
    Douglas 5 April, 2013, 09:31

    “The average may be less than 50% but that’s only if you include all the people that only worked there for a few years.”

    True. The average length of service for all retirees is…..19.7 years. Average monthly pension for all those retiring in 2012 is $3,025.

    By the same token:
    “Employees can retire at age 50 with a pension equal to 90% of his highest year’s salary.” is true….if you are talking about fewer than 1% of retirees.

    Reply this comment
  9. Hondo
    Hondo 5 April, 2013, 09:35

    The problem with kicking the bond holders in the nuts is that ALLLLLL cities, counties and states depend on short and long term bonds to take up the slack in tax collection cycles. The bond companies will simply drop kick the whole state of Kalifornia(and all its cities and counties too) in the nuts by jacking up bond prices. What the rest of Kalifornia will pay will be a fraction of the losses in Stockton and San Berdoo for the bond companies. You can bet Stockton will NEVER get another bond floated to get through slow revenue times.

    Reply this comment
  10. SkippingDog
    SkippingDog 5 April, 2013, 10:00

    Rush, Hondo and many others who have been commenting on this seem to either ignore or not understand the basic fact that it is the bond insurance companies that are most vigorously fighting both the Stockton bankruptcy and its CalPERS obligations. That’s because the average bondholder or individual with Stockton bonds in their 401k won’t be taking a loss no matter what the final outcome might be. It is the bond insurance companies that will be responsible for making good on any bond losses, which is something they are desperately trying to avoid.

    The only way you’d take a loss in this matter would be by owning stock in Capital Management or one of the other BOND INSURANCE companies covering the risk. That’s the bet insurance companies make when they write the business. Sometimes they lose.

    Reply this comment
  11. Bob Smith
    Bob Smith 5 April, 2013, 10:02

    “Stockton does NOT pay pensions. It pays annual contributions to CalPERS”

    An economically meaningless distinction.

    Reply this comment
  12. Sean Morham
    Sean Morham 5 April, 2013, 10:26

    The height of ignorance or duplicity(I pick the second) to state that a insurance loss attached to a bond in a investment fund has no effect on the portfolio. Gee, AIG’s insurance loses/insolvency situation in 2008 did not efect the stock market….didn t know that…

    Reply this comment
  13. Brown delta trout
    Brown delta trout 5 April, 2013, 10:30

    No, taxpayers pay pension annual contributions. Tax payers pay for underfunded, underperforming CalPERS investments. Tax payers don’t have the option of dumping the investment since it’s not performing to expectation. It’s a lose-lose situation for taxpayers.

    Reply this comment
  14. CalWatchdog
    CalWatchdog Author 5 April, 2013, 12:22

    SkippingDog: Actually, if the bond companies lose in the Stockton bankruptcy case, the bond ratings for all California municipalities (even financially sound ones) will drop, meaning the costs for all municipal financing in California will rise. Then either that will mean less money available for salaries, pensions, etc.; or it will mean cities will forego borrowing, which might be a good thing. No more funding unneeded arenas, as Stockton did.

    — John Seiler

    Reply this comment
  15. Douglas
    Douglas 5 April, 2013, 16:45

    Stockton does not pay pensions. There is an economic distinction. Money from the general fund is invested in CalPERS. Pension payments are made from the principal and ROI. 

    CalPERS has plenary authority to demand the annual contributions from the city. 

    To see the difference, look at Prichard, Alabama, 2010. Pensions were paid out of the retirement system, which was underfunded because the city did not contribute as required. Eventually the fund ran dry, at which point the city was required by law to pay pensions directly from the cities operating fund. 

    THAT would be the city “paying pensions”.  (Except the city didn’t have enough money, and pension payments stopped.)

    Reply this comment
  16. SkippingDog
    SkippingDog 5 April, 2013, 23:13

    That’s the first time I’ve ever read anything from the editors of CWD to suggest that there ARE “financially sound” municipalities in California, John. Are you sure you meant to write that?

    Reply this comment
  17. CalWatchdog
    CalWatchdog Author 6 April, 2013, 08:35

    Skippy – there are some financially sound municipalities in the state. But it doesn’t mean their pension debt is. Costa Mesa is in the black, but does battle with its fire fighters. There are others.


    Reply this comment
  18. Ulysses Uhaul
    Ulysses Uhaul 6 April, 2013, 11:00

    Drink the Kool Aid. No pensions will get cut. You know your masters make all the rules. Work union, work government you will prosper!

    Reply this comment
  19. SkippingDog
    SkippingDog 7 April, 2013, 11:55

    So, Katy, is the new CWD standard for “financially sound municipalities” that they be able to service only some of their financial obligations, as long as those not being serviced are limited to debts for their accrued pension obligations? That’s an interesting business argument, to say the least.

    Reply this comment
  20. Sean Morham
    Sean Morham 8 April, 2013, 13:19

    Heard some suburban firefighters talking over the weekend. Discussing their three 12 hour day weeks with a fourth day, every fourth week. This is ridiculous. Nici gig, having more days off each week than is worked. The govt has been taken over by speical interests, such as subsidized real estate development to pass the risk to the taxpayers, as well as the intellectual turnips like the coffee shop gang. It so screwed up you have to laugh to stay sane,

    Reply this comment

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General MotorsJohn SeilerRush LimbaughStockton

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