From The New York Times:

The depth of the recession and the use of taxpayer dollars to bail out companies have made it politically acceptable for overseers to tinker with employment agreements.

So federal and local governments are looking for ways to pare payouts, endangering the promises made before the financial storm to people like Wall Street traders, automobile workers and garbage collectors.

Local impact:

Across the country, Vallejo, Calif., just got permission in bankruptcy court to tear up its contracts with firefighters and other workers. In Stockton, the city manager is studying whether to follow Vallejo’s lead.

In Michigan, Gov. Jennifer M. Granholm just ordered the city of Pontiac put under emergency financial management, after it failed, among other things, to rein in the cost of police, fire and trash collection services.

In the California case the judge ruled that Federal bankruptcy law trumped state labor law.  The lesson to unions?  Negotiate now:

Vallejo’s bankruptcy is being closely watched because its problems mirror those in many communities that have promised benefits that now look unsustainable. In many places the benefits have been locked in with statutory and constitutional guarantees.

“That’s why Vallejo is so important,” said James E. Spiotto, a Chapter 9 specialist with the firm of Chapman & Cutler in Chicago. “Chapter 9 and bankruptcy is the land of broken promises.” He said unions were better off negotiating concessions now than landing in bankruptcy court and ending up with no contract at all.

In taking over the financial sector, the Obama Administration is freezing out the bankruptcy court:

The Treasury secretary, meanwhile, is working on a much broader initiative to give the federal government the power to modify the contracts of the financial institutions it takes over. The proposal raises several new issues, because it would eliminate the judicial oversight of bankruptcy proceedings and the opportunity for affected parties to challenge the changes.

The goal is to speed up reaction time to crises, said Lisa Hill Fenning, a retired bankruptcy judge who now practices at Dewey & LeBoeuf in Los Angeles. “Traditional ways of dealing with these problems are too complicated and would take too long,” Ms. Fenning said. “They’re trying to cut through red tape.”

Time is of the essence, when you’re nationalizing a country’s economy.  Obama doesn’t have all day, you know.