As we have been reporting the saga of corruption in the city of Bell, LA WEEKLY is reporting that fitch just cut the Bell's status to junk. This was a direct consequence in overpaying city employees, like Robert Rizzo, millions of dollars in compensation for pushing paper. This kinda thing happened in the former Soviet Union and it took several decades for that economy to implode. What happens next when to the $35 million bond payment due in November?
It's our guess that the city will default. Sure, there will be talk of restructuring debt, selling asset (which the city should do), but there is very little chance that enough austerity measures and tax hikes can save this city. If a default indeed happen, bond investors will take a significant haircut, and perhaps this is the first domino to fall in the California debt implosion. More folks will lose their jobs. These are all good things. It will certainly be painful, but debt default is the first step to bringing a healthy economy back and cleaning house of all the non producing assets (like government workers).
Our advice to Bell? Take the pain. Default. Cut everything out, including schools, libraries, the police and fire department. Sell off all city property. With no city assets, city taxes should be next to zero and the leaches like Robert Rizzo will have to go find a real job (that is if they are not lead off in hand cuffs). Entrepreneurs will start to move back into the city and build real, producing assets and life will move on.
I can't say we feel too sorry for the citizens. The government you get is the one you deserve.