Individual investors have been selling off state and local municipal bonds. Meredith Whitney, the financial expert who first spotted Citigroup's overexposure to mortgage-backed securities, is now predicting a sell-off in the municipal-bond market.
According to the New York Post report, it's entirely possible that some state government -- California and Illinois, facing 25 billion dollars and 15 billion dollars deficits, are likely suspects -- will be coming to Washington some time in the next two years in search of a bailout.
The Obama administration may be sympathetic. It's channeled stimulus money to states and TARP money to General Motors and Chrysler in large part to bail out its labor-union allies, the report said.
But the Republican House isn't likely to share that view, and it 's hard to see how tapped-out state governments can get 60 votes in a 53-47 Democratic Senate, according to the paper.
Law professor David Skeel, writing in The Weekly Standard, suggests that the U.S. Congress pass a law allowing states to go bankrupt.
Special Report: Global Financial Crisis
