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“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.

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.