Hedge funds ride to Illinois' rescue?

Faced with more than $4 billion in unpaid bills, the Quinn administration is turning to Wall Street with a novel way to get the money, as traditional borrowing methods may be drying up.

According to the Wall Street Journal, as reported on the website of IllinoisIsBroke.com:

The Illinois approach works like this: Investors take over the delinquent bills owed by the state to its vendors. Those vendors are due a 1% penalty each month after the state falls behind by 60 days. The financial investors make the vendors whole and are entitled to 1% monthly penalties until the state pays the investors back.

Borrowing is what got Illinois into this mess, so what is the answer? Create a new way of borrowing. But this should make politicians happy, because they can claim that they're not really borrowing, just being creative with cash management. 

Filed under: Illinois politics

Tags: debt, Illinois, politics

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  • I guess the risk was summed up in these two paragraphs of the linked story:

    At least one prominent New York hedge fund passed on the opportunity, fearing that profiting from a cash-strapped state's taxpayers and small vendors would appear unseemly. Another of its worries: The state mightn't ultimately make good on its promises.

    That isn't what the state says. Among the program's main selling points: "Illinois cannot declare bankruptcy and constitutionally must pay its obligations," according to investor materials.

    Well, I guess that gets back to the bankruptcy point discussed a couple of weeks ago. I suppose that if the hedge funds are "investors" and not creditors, they know what they are getting into.

    Of course, if those investments start going bad, where does the state go next?

  • Leave it to the pirates in springfield to float something"new" with this latest scam. These guys couldn't run a pop stand period.They will raise taxes and chase more businesses out of state along with retirees.Read last week where Illinois is the worst state for retirees.They will never curtail spending because they are keeping all the wrong people happy.You are looking at the making of detroit all across Illinois.If you are employed and own a house ,they will be gunning for you,so get your wallets out and cough up.

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