Judge drops pension bomb

U.S. Bankruptcy Judge Christopher Klein (far left) is a passionate advocate for powerful interests like hedge funds and so-called “financial services” outfits.

When you’re a little kid in school they teach you all kinds of well-intentioned nonsense that we learn later in life just isn’t true. One of those things is the principal that everyone is equal in the eyes of the law.

Any cop that’s ever pulled over the governor’s kid doing 80 in a thickly settled area or a citizen that’s wound up in court after a predatory financial institution foreclosed on their home due to a slightly late payment can tell you “we’re a nation of laws, not men,” is nothing more that idealistic and very wishful thinking.

Take public employees that have paid into the system and expect to receive a pension when they retire for example. Officially speaking they’re supposed to be on equal footing as multinational corporations like J.P. Morgan, Bank of America and Comcast. That’s because a legally binding contract is supposed to be just that. If it weren’t, he with the most lawyers wins.

And that’s pretty much how it’s shaking out when it comes to the fight between bondholders (read; “Investors looking for maximum return on their investment) and working people that are counting on what they’re owed to have something like a decent life after a career of public service.

An activist bankruptcy judge in California has ruled that “bondholders are on equal footing with pensioners in California,” as municipalities and states try and cut deals involving bankruptcy.

Most people hear “bankrupt” city and think Detroit. But California is a pioneer in municipal bankruptcy. Vallejo, Stockton, San Bernadino and Mammoth Lakes have all declared bankruptcy in recent years. Based on the religious mantra of “no new taxes,” this trend is likely to spread beyond places like these cities and other municipalities like Jefferson County, Alabama.

And now the champagne on Wall St. is popping like crazy now that U.S. Bankruptcy Judge Christopher Klein ruled recently that in municipal bankruptcies, public employees are no more protected than bondholders.

This is complicated stuff so let’s cut to the chase shall we? The ruling makes it possible for a city or county to screw public employees out of their retirement income simply by filing for bankruptcy.

The California Public Employees’ Retirement System is one of the parties in a critical case in Stockton, California. Calpers attorneys argued that public pensioners in California be paid in full before anything went to bondholders and creditors.

But U.S. Bankruptcy Judge Christopher Klein said that outfits like JP Morgan and Goldman Sachs should not lose out because cities and states might want to actually pay retirees the pensions they’re owed and counting on.

Klein backed Franklin Templeton Investments, a mutual fund company that had about $36 million of Stockton’s debt in ruling against the pension fund and its members.

In a state like New Jersey the ruling from California should make anyone expecting something in the way of retirement income after they retire extremely nervous. Governor Christie’s juiced in to Wall St. six ways to Sunday and nothing would make him happier than giving his pals your money.