ANOTHER FINANCIAL CRISIS? – AT 10:55 A.M. ET:  There is another, looming financial crisis, this time in the states.  State governments are literally failing, especially in the profligate, liberal states.  Warnings are being sounded.  From The New York Times:

The State of Illinois is still paying off billions in bills that it got from schools and social service providers last year. Arizona recently stopped paying for certain organ transplants for people in its Medicaid program. States are releasing prisoners early, more to cut expenses than to reward good behavior. And in Newark, the city laid off 13 percent of its police officers last week.

While next year could be even worse, there are bigger, longer-term risks, financial analysts say. Their fear is that even when the economy recovers, the shortfalls will not disappear, because many state and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years.

“It seems to me that crying wolf is probably a good thing to do at this point,” said Felix Rohatyn, the financier who helped save New York City from bankruptcy in the 1970s.

If Rohatyn is worried, we should all be worried.  He's one of the smartest financiers around, and a reasonable guy.  He doesn't cry wolf easily.

It is the long-term problems of a handful of states, including California, Illinois, New Jersey and New York, that financial analysts worry about most, fearing that their problems might precipitate a crisis that could hurt other states by driving up their borrowing costs.

COMMENT:  Those "progressive" chickens are coming home to roost.  Rohatyn says he doesn't see where all this ends.  States may well come to Washington for a bailout, almost a mission impossible in the current climate.

New York is already the largest out-migration state in the nation.  More people leave New York each year than any other state.  California is facing outmigration of some of its most talented people.  Citizens vote with moving vans.  Who wants to live in a failing state?  Indiana, here we come.

December 5, 2010