Suing a state is somewhat tricky, since the general rule is that a state cannot be sued without its permission. So I don't know if bondholders are entitled to sue a state or not. The SEC, which doesn't hold any bonds (as far as I know), couldn't sue.
High Seas wrote:
P.S. follow-up legal question, can the bondholders seize state assets in case of default? Parks, bridges, toll roads, fire stations?
No, I'm pretty sure that a state's creditors cannot attach public assets to satisfy debts.
The SEC was only mentioned because it has the power to define what is a "security". It did that after California issued IOUs - deemed to be securities, these IOUs could no longer be traded (they were being quoted on eBay at 60 to 70 cents on the dollar, and the banks wouldn't accept them at all) so the teachers et al who had received them in lieu of salary just had to wait until the IOUs due date. California couldn't issue more IOUs after that decision, but the SEC didn't prosecute the state concerning that particular issue - as a private borrower would have been prosecuted.
Moving to the federal government, in the big bank bailout the Treasury provided funds, to be repaid with interest, and also obtained warrants. For purposes of valuation these warrants - in addition to their odd "evaporation" feature - were subsequently adjusted by backdating. This is illegal in the private sector: http://baselinescenario.com/2009/05/22/option-pricing-for-beginners/
So, to rephrase Gollum's question here: is the government effectively above the law in financial matters? In Perry the court granted that what the Roosevelt administration did was unconstitutional but pretty much said there was nothing it could do about it. In the later cases there has been no legal consequences either at the federal or the state level. So, therefore, and in order to avoid insolvency / illiquidity in the public sector the only available recourse is to re-define how the government is elected. There are 2 initiatives on the ballot in California now - propositions 20 and 27 - proposing to do just that. I don't know how the people will vote but on grounds of fiscal sanity I hope it will be yes on 20, no on 27. This professor disagrees:
For 30 years, I have been a professor of law at UCLA. I teach courses in political theory, government representation and election law. I know of no theory of government holding that segregating Hunters Point from Nob Hill would improve representation, improve life in California or solve unemployment, environmental or other vital problems.
The "other vital problems" the good professor mentions include California's impending bankruptcy. It's no "theory of government", it's arithmetic.