Buffett sees more municipal bankruptcies likely

Reuters News
Posted: Jul 13, 2012 6:11 PM
Buffett sees more municipal bankruptcies likely

(Reuters) - Billionaire-investor Warren Buffet said on Friday bankruptcies by three California cities in three weeks are making traditionally objectionable Chapter 9 municipal bankruptcy filings more palatable to local governments in financial crisis.

"The stigma has probably been reduced when you get very sizeable cities like Stockton or San Bernardino to do it," Buffett said in a Bloomberg Television interview. "The very fact they do it makes it more likely.

San Bernardino, east of Los Angeles and home to 210,000 people, this week became the latest city in America's most populous and trend-setting state to opt for court protection from its creditors. The resort town Mammoth Lakes filed for bankruptcy last week.

Buffett, the chairman of Berkshire Hathaway Inc, said he does not believe the United States would see defaults on hundreds of billions of tax-free debt issued by its states and local governments.

Some government leaders will likely use municipal bankruptcy or the threat of a Chapter 9 filing as a tool to win concessions from creditors and organized government workers if the onus of bankruptcy eases, he said.

"Once people find that the city works the next day, it makes it easier for the city council next time they have a problem with pensions -- or whatever it is -- just to say, ‘Well, we'll declare bankruptcy,'" Buffett said.

(Reporting by Michael Connor in Miami)