Should States be Allowed to Declare Bankruptcy?

What Does the Future Hold?

For all the heat and smoke generated by the debate over state bankruptcy, it’s hard to tell if there’s any fire.

Three days after Gingrich announced that the state bankruptcy bill would be introduced, the leader of Gingrich’s own party in the House, Virginia Republican Eric Cantor, declared the idea dead on arrival.

“I don’t think that that is necessary, because state governments have at their disposal the requisite tools to address their fiscal ills,” Cantor told Reuters.

Some have dismissed the entire debate as an effort by Gingrich to win headlines as he mulls a campaign for president in 2012.

[Resource: Credit Cards with Good Intentions]

“This is a cynical proposal intended to incite a panicked response to a phony crisis,” California Treasurer Bill Lockyer, a Democrat told the San Francisco Chronicle, comparing the proposal to scares about aliens and killer bees. “No state wants to or would declare bankruptcy. It would severely injure the economy, local businesses, investors and taxpayers.”

“All presidential candidates like to be associated with polices that gain the nation’s attention,” says Neiman. “And I think [Gingrich] is scapegoating public employees to exploit public anger” over the recession. Though the proposal appears stalled at the moment, conservative activists say they plan to continue pushing for it.

“With the dire financial situation of many states today,” Haley says, “Gingrich is merely proposing that states should have the same flexibility to restructure their finances.”