A U.S. Bankruptcy Court decision wiping out half of Puerto Rico's general obligation bonds represents a potential Death Star precedent against Wall Street buying municipal bonds from states without a balanced budget. The reason that high-tax rate and potentially insolvent states like California, Illinois, Connecticut, New Jersey, and Maryland have continued to have access to massive new borrowing is Wall Street's ability to sell general obligation municipal bonds to high-income individuals who can benefit from receiving federally tax exempt interest.  Most muni investors also believe that the federal government will bail out any state financial crisis. Few Americans understand that the first two attempts at a central bank of the United States failed and were shut down in 1811 and 1840.  A series of inflationary panics from 1833 to 1839 led to the state bond defaults in the 1840s by Arkansas, Illinois, Indiana, Louisiana, Maryland, Michigan,...(Read Full Post)