Posted on 07/20/2013 6:03:37 AM PDT by Kaslin
In an inevitable, anticlimactic decision today, Detroit files for bankruptcy.
Detroit became the largest US city to ever file for bankruptcy on Thursday, seeking protection from its creditors as it restructures more than $18bn in debt.
Richard Snyder, Michigan’s Republican governor, said in a letter included in the filing.
“Detroit simply cannot raise enough revenue to meet its current obligations and that is a situation that is only projected to get worse absent a bankruptcy filing.
Kevyn Orr, who Mr Snyder appointed in March to serve as Detroit’s emergency manager, has stirred controversy by putting the claims of holders of general obligation bonds – which are backed by taxes – on the same footing as those of pension funds and retirees.
Holders of the general obligation bonds argue that they should be paid before other unsecured claimants. Pension funds maintain that their rights are constitutionally protected and should have priority.
“To treat holders of general obligation bonds backed by the full faith and credit of a sovereign entity as unsecured and impaired has implications for the municipal market,” said Peter Hayes, head of municipal bonds at BlackRock, which owns $25m of Detroit’s debt.
Mr Orr said the city’s total debt was at least $18bn and could be as much as $20bn – $11bn of which is unsecured. The remaining $9bn that is secured will probably be paid back at 100 cents on the dollar.
Welcome to Chapter 9, Detroit
FT Alphaville says Welcome to Chapter 9, Detroit
Beyond the list of derelict buildings and brownfield sites owned by the city — you’ll want to read the approval letter by Michigan Governor Rick Snyder, in Exhibit A.
Here is a link to Detroit's Bankruptcy Filing
Amusing Flashback of the Day
The amusing flashback of the day with a hat tip to ZeroHedge goes to a CBS news headline from October 13, 2012 Obama: I "refused to let Detroit go bankrupt".
Gut Kick
“We are one nation. We are one people. We will rise and we will fall together. Anyone who doesn’t believe it should come here to Detroit. It’s like the commercial says: This is a city that’s been to heck and back. And while there are still a lot of challenges here, I see a city that’s coming back.”—President Obama, Sept. 5, 2011
Government Motors II
I cannot imagine anyone being stupid enough to purchase a Detroit municipal bond at any time in the last 10 years.
Detroit muni bonds are not just junk bonds, they are sewer bonds. Just flush them down the toilet.
Tell that to the holders of GM bonds (mostly retirees )
Me
Obama stole my money
Chicago bondholders take note. No matter what it says on that piece of paper you are last in line for the scraps.
Unionized retirees vs. investors? Obama in the White House? No doubt who is going to win.
omg! is that an actual 3rd world slum pictured right outside Detroit?
I thought I read yesterday (Friday) that a Judge ORDERED them to withdraw the bankruptcy petition because it “dishonors the president” and because she thinks Obama will bail them out anyway
And the other democrat controlled city (Chicago) is on the check off list.
City by city and them state by state.
I didn’t read it, but Fox News reported it yesterday
Bond holders will be screwed...that’s the trend.
What these political hacks don’t seem to realize is that people who buy bonds expect to be paid back. They also don’t seem to realize that these investors are not stupid.
Investors that are burned once are unlikely to be burned twice. Investors are also the type of people that will learn from other’s mistakes. If you burn a group of investors other investors will learn of it and will not invest in your bonds in the future.
Here is a little known secret municipalities as a rule borrow a lot of money using the munny bond market. Water treatment and waste water treatment plants can’t be built without selling bonds.
If Detroit bond holders are burned every city in the country will have to pay much higher interest rates to induce investors to buy their bonds because investors will now consider these bonds as far more risky than they had previously. This means every municipal project will be much more expensive than it would otherwise have been. All to protect Detroit employee pensions. Fed bailout or not the rest of the country will pay for Detroit’s mismanagement.
“Bond holders will be screwed...that’s the trend.”
Definitely the bondholders will be left high and dry although some of the big Wall Street banks may find a way to negotiate quiet deals to cover their losses. The little guy will definitely be exploited and lose it all.
The key issue is how to deal with the pension funds. Detroit simply doesn’t have the tax base to cover its pension obligations. It will either have to default on the pensions, have the future pension obligations reduced, or find a way to move the burden to the state or federal government.
Shifting the pension liability directly to the state or federal taxpayers will be extremely unpopular so the politicians will have to look for a way to accomplish it without appearing to bail out Detroit. I see this happening with the Pension Benefit Guaranty Corporation. This is a government insurance fund for private industry pensions. It is funded by fees levied on private companies, not from the general revenue.
Even though the fund insures private pensions, it is the perfect vehicle to bail out Detroit. First, the chief community organizer and media will cast the preservation of the Detroit pensions as a racial issue. Anyone who opposes it wants black government workers who earned their pensions to starve. Once they have framed the issue they spring a plan to save the pensions without a taxpayer bailout. Move the pension obligation to the Pension Benefit Guaranty Corporation. Increase the levy on wealthy private companies to cover the obligation. After all the capitalists are rich and it is only “fair” to the poor government retirees in Detroit. We are only asking them to pay a little bit more to make sure these people don’t starve. Why would anyone oppose this simple solution unless they were racist?
Once the precedent is set, watch the floodgates open as bankrupt cities demand equal treatment and the progressives push the cost of bailing out public pensions on business. it is a perfect execution of the Cloward-Piven strategy to bring down the US economic system. No doubt McCain and Graham will be part of the gang of whatever supporting this destruction of the private sector.
Lets see if union and non-union pensioers are treated equally.
There will be a trustee and a plan that will determine creditor classes. Orr will probably be replaced.
Gee- I seem to remember that Obama treated SECURED BOND HOLDERS in the Gm travesty of a ‘bankruptcy’ with total disdain & they got stiffed.
So did the vendors on accounts payable.
Only the unions won with the ‘bankruptcy’ Obama engineered for GM.
There wasn’t one single part of the GM ‘bankruptcy’ that followed any accounting rules I ever learned.
Obama is getting back what he handed out to others, IMO.
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