By Alan Pyke posted from ThinkProgress Economy on Jul 18, 2013 at 7:02 pm
Photo Credit: AP On Thursday afternoon, Detroit filed for bankruptcy protections that will make it easier for the Michigan city to walk away from over $18 billion in unpayable debts. The long-awaited move is the largest municipal bankruptcy in U.S. history, trumping filings from Stockton, CA, and Jefferson County, AL, in recent years.
Unlike Stockton and Jefferson County, however, Detroit’s bankruptcy court decisions will be up to one unelected official. Kevyn Orr serves as the city’s emergency manager, under a 2011 law some commentators have labeled “financial martial law.” Once Gov. Rick Snyder (R) signed the law and appointed Orr, Detroit’s city contracts and public properties were subject to Orr’s sole discretion. Orr began selling off large chunks of public property, even attempting to sell off the city’s art collection until the state Attorney General blocked him.
Under Orr, Detroit slashed public services. As of June the city had just one-third of its ambulances in service, and just 40 percent of its streetlights working. When the cuts and property sales weren’t enough to balance the books, Orr revealed a proposal that municipal finance experts said was designed to facilitate the bankruptcy filing. Now that the filing has happened, Orr will have an even freer hand to renege on pension promises to city retirees.
It remains to be seen how the financial companies to whom Detroit owes billions will fair. But while much of borrowing the city engaged in under corrupt, jailed former Mayor Kwame Kilpatrick was ill-advised, the city also got swindled by Wall Street. Detroit paid nearly half a billion dollars in fees to firms for engineering financial products that were bound to hurt the city, because the world’s biggest banks were manipulating a key interest rate underlying those products. Similar bank manipulation in Alabama eventually forced JP Morgan Chase to cancel billions of dollars of debts the city of Birmingham never should have owed.
Because bankruptcy proceedings are effectively a zero-sum game, the financial firms and pension funds owed vast sums by Detroit are at odds. One Bloomberg analyst is wary of the math behind Orr’s estimates of pension obligations. There are 30,000 citizens in the pension system, and their lawyer has argued that those current and retired workers should be favored over financial companies. “Planning for retirement and working for employers was not an investment into the market,” Michael VanOverbeke told the New York Times in June, whereas municipal bonds carry “a certain amount of risk.
posted 5th Largest City in US is Effectively Bankrupt Mike Shedlock | Apr 18, 2013 in deep trouble when its mayor invites Wall Street but not the press and not private citizens to a closed meeting to discuss the future, including a sell-off of city assets.
Philadelphia Mayor Michael Nutter, whose municipality has the lowest credit rating of the five most-populous U.S. cities, did just that.
Well dont just blame the economy as much of an issue it is. This city has been run by Democrats since the 60s. Corrupt mayors, corruption everywhere.
the whole country is BK cashcowmoo. democrats,republicans alike have done it....
Judge Rules Detroit’s Bankruptcy Illegal, Leaving Process In Limbo
By Alan Pyke on Jul 19, 2013 at 3:15 pm
Detroit emergency manager Kevyn Orr and Gov. Rick Snyder (R-MI) (Credit: AP) Detroit’s bankruptcy filing is unconstitutional and must be rescinded, Judge Rosemarie Aquilina ruled on Friday. Thursday’s filing was supposed to set into motion proceedings that would allow the city’s unelected emergency manager Kevyn Orr to break pension contracts with 30,000 city workers and retirees, but Aquilina ruled Friday afternoon it violates the Michigan Constitution.
Part of her reasoning comes from claims by the pension fund’s lawyers that attorneys for the state had tricked them into delaying a hearing that would have blocked the filing, and then filed for bankruptcy during the delay in another court. “I have some very serious concerns because there was this rush to bankruptcy court that didn’t have to occur and shouldn’t have occurred,” the judge said. According to the Detroit Free Press, Gov. Rick Snyder (R) may refuse to comply with Aquilina’s order, and the immediate consequences of the ruling are murky.
The city is unable to pay nearly $20 billion in outstanding debts, most of which is owed to investors who hold the city’s bonds and to city workers. Bankruptcy proceedings will determine which groups of creditors get paid and which do not, pitting retirees against hedge funds and other financial players. The Free Press published a list Friday morning of the city’s 20 largest unsecured creditors – those to whom Detroit owes money but who hold no assets or collateral from the city – which showed that U.S. Bank is owed approximately $1.9 billion through various bonds. The city’s general retirement fund is owed over $2 billion, and the retirement fund specific to police and firefighters is owed $1.4 billion. Bond market analysts have questioned the validity of emergency manager Orr’s estimates of pension debt, and warned that the city’s pre-bankruptcy proposals for resolving its debts seemed designed to curtail retiree’s legal rights.
Motown filed today now Motown becomes notown
Banking On Bankruptcy: Emails Suggest Negotiations With Detroit Retirees Were Designed To Fail
By Alan Pyke on Jul 23, 2013 at 2:00 pm
Even before one of their own was appointed emergency manager of the city, lawyers who were consulting with Michigan officials over the winter believed Detroit should move into bankruptcy proceedings that would free the city to walk away from its commitments to retirees. Emails between Kevyn Orr — now Detroit’s emergency manager but at the time an attorney for the law firm Jones Day — and his colleagues show the lawyers believed moving directly to bankruptcy would be better for the city than going through a serious negotiating process.
In one email, an assistant to Gov. Rick Snyder (R) promises to set a meeting between Orr and someone “who is not FOIAble,” suggesting an intent to evade transparency laws. In another, Jones Day lawyers suggest to Orr that elevating Detroit’s bankruptcy in national media coverage would “give you cover and options on the back end to make up for lost time there.” Orr rejected that suggestion as unhelpful. Jones Day continues to represent Detroit in the proceedings, which could take a year or longer.
The messages made public thusfar show Jones Day attorneys defining bankruptcy as inevitable in their own words.
“It seems that the ideal scenario would be that Snyder and Bing both agree that the best option is simply to go through an orderly Chapter 9 [bankruptcy],” one Jones Day attorney writes to Orr in the emails. “Appointing an Emergency Manager, whose ability to actually do anything is questionable given the looming political and legal fights, would only serve to kick the can down the wrong path and unreasonably delay any meaningful resolution of Detroit’s problems.” Defining bankruptcy as the only route to a “meaningful resolution of Detroit’s problems” casts further doubt on the intent of the negotiations that followed Orr’s appointment in March, but a spokesman for Orr called those doubts “absurd.”
The emails were released in response to a Freedom of Information Act request by Robert Davis, a local labor activist with a troubled history. Davis faces federal corruption charges over school board funds that were spent on an advertising campaign. When the charges were filed in 2012, Davis called them politically motivated and said he is innocent.
One January exchange shows Orr reluctant to take on the emergency manager job, and concerned that the law empowering Gov. Rick Snyder (R) to appoint such officials “is a clear end-around the prior initiative that was rejected by the voters in November.” One January 31, Orr wrote that the entire emergency manager system “appears to merely adopts [sic] the conditions necessary for a chapter 9 filing.”
Orr’s assessment of the emergency manager process reinforces retiree advocates’ arguments that Orr’s actions once appointed were not good-faith negotiations with city employees, but an effort to check necessary boxes prior to filing for bankruptcy. In June, when Orr issued a proposal to retirees and bondholders in lieu of declaring bankruptcy, analysts wrote that the proposal appeared designed to be unpalatable, paving the way for the bankruptcy filing. Orr and Snyder have made clear that the bankruptcy resolution will include some cuts to retiree benefits, which are about $1,600 per month for most of the city’s 21,000 pensioners. “They made me some promises, and I made them some promises,” 76-year-old retired police sergeant William Shine told the New York Times. “I kept my promises. They’re not going to keep theirs.”
Some legal hurdles may prevent the city from reneging on pension promises in bankruptcy, but the outlook is uncertain.
I thought Obama wasnt going to let Detroit go bankrupt, he attacked Romney for it. He said Romney would let it go if Romney won, and now look. What a joke.
quote:Originally posted by CashCowMoo: I thought Obama wasnt going to let Detroit go bankrupt, he attacked Romney for it. He said Romney would let it go if Romney won, and now look. What a joke.
I'm sure Bush is responsible for the whole thing....