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Fair that Detroit bankrupcy will cut retiree pensions?

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Patranus said:
Huh?

Its not about operating for another couple months. It about making those who lent you money whole.
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No, it's not. Entities declare bankruptcy specifically to be relieved of their debt to creditors, in order to get their house in order so that they can emerge from bankruptcy in a SOLVENT state.

Detroit is declaring bankruptcy specifically because there is no way the city can pay off their debts. That's what bankruptcy protection is all about. After bankruptcy, the city of Detroit still needs to provide services to it's citizens. Once again, the primary focus of bankruptcy is to put the bankrupt entity in a solvent situation.

Are bankrupt companies forced to sell off all their assets to pay the creditors, leaving them nothing? Only in the situation where they are stripping the company of all value and dissolving or closing the doors. Detroit doesn't have that luxury.

In addition, the DIA artwork is largely on loan, or has been donated. Much of it has been donated under contract, stipulating that if the art is to no longer be viewed, it must be returned to the donor. Finally, expensive artwork can't simply be sold on E-Bay or Craigslist. The immediate value is extremely low.

And lastly, bonds are an investment vehicle, purchased by investors who understand the risk. Anyone purchasing bonds from the city of Detroit, or holding their bonds, has to have known for years just how risky it was. How you can say, morally, that investors who knew there was risk should get paid off before the invididuals who spent their lives working for the city in order to retire? That's twisted. There is no legal precedent in a municipal bankruptcy on who should receive what money. In light of that, the city's first responsibility is to it's workers. Not the banking investors.

http://www.forbes.com/sites/danielf...et-up-war-between-pensioners-and-bondholders/

SO many people want to talk about Detroit, and SO many people have absolutely no clue. In summary, your statement is stupid. Detroit HAS to continue going.
 
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the DRIZZLE said:
They government employees union could have set up a self funded pension system that would have been insulated from this type of thing. However, the unions instead negotiated more generous pensions that would be payed out of future City revenues. They took a calculated risk on the City's future ability to pay just like the creditors did.
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30-40 years ago the city was sound and decent pensions provided.
 
actuarial said:
Should it be that way?
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No, and there is no legal precedent in Municipal bankruptices to suggest it must be that way. That scares a lot of investors, because if the people are paid before the bond holders there is likely to be an effect across the board on all cities who issue bonds. But the real question should be: is it morally right to pay off investors who knew there was risk, or people who spent their life working for you and who earned a retirement?
 
One more question people should be asking themselves. Why was New York bailed out by the federal government to fully TWICE the amount of inflation-adjusted dollars (1975) that Detroit requires and Detroit left to rot?
 
Pulsar said:
No, it's not. Entities declare bankruptcy specifically to be relieved of their debt to creditors, in order to get their house in order so that they can emerge from bankruptcy in a SOLVENT state.

Detroit is declaring bankruptcy specifically because there is no way the city can pay off their debts. That's what bankruptcy protection is all about. After bankruptcy, the city of Detroit still needs to provide services to it's citizens. Once again, the primary focus of bankruptcy is to put the bankrupt entity in a solvent situation.

Are bankrupt companies forced to sell off all their assets to pay the creditors, leaving them nothing? Only in the situation where they are stripping the company of all value and dissolving or closing the doors. Detroit doesn't have that luxury.

In addition, the DIA artwork is largely on loan, or has been donated. Much of it has been donated under contract, stipulating that if the art is to no longer be viewed, it must be returned to the donor. Finally, expensive artwork can't simply be sold on E-Bay or Craigslist. The immediate value is extremely low.

And lastly, bonds are an investment vehicle, purchased by investors who understand the risk. Anyone purchasing bonds from the city of Detroit, or holding their bonds, has to have known for years just how risky it was. How you can say, morally, that investors who knew there was risk should get paid off before the invididuals who spent their lives working for the city in order to retire? That's twisted. There is no legal precedent in a municipal bankruptcy on who should receive what money. In light of that, the city's first responsibility is to it's workers. Not the banking investors.

http://www.forbes.com/sites/danielf...et-up-war-between-pensioners-and-bondholders/

SO many people want to talk about Detroit, and SO many people have absolutely no clue. In summary, your statement is stupid. Detroit HAS to continue going.
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And how does selling off assets to pay off debts prevent the city from "continue going"?

(Hint: It doesn't)

And yes, Detroit will be forced to sell off assets weather it likes it or not.
 
Pulsar said:
Originally Posted by Patranus
Huh?

Its not about operating for another couple months. It about making those who lent you money whole.
Click to expand...
No, it's not. Entities declare bankruptcy specifically to be relieved of their debt to creditors, in order to get their house in order so that they can emerge from bankruptcy in a SOLVENT state.
-snip-
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To be fair, he does have a point.

While you are correct about Detroit's filing, bankruptcy can be an offensive or defensive move.

If creditors move to force the lender into bankruptcy, which is done all the time, it is to recover their money, or make "make them whole" as he phrases it.

But as you rightfully say, in Detroit's case it's a defensive move on its part to seek relief from creditors.

Fern
 
Pulsar said:
One more question people should be asking themselves. Why was New York bailed out by the federal government to fully TWICE the amount of inflation-adjusted dollars (1975) that Detroit requires and Detroit left to rot?
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Refresh my memory pls. I thought NY was successfully able to fully repay the fed govt, no?

While I've not analyzed Detroit's numbers, I expect its prospects for repayment is nil. Hence, no bailout.

Fern
 
Pulsar said:
-snip-
There is no legal precedent in a municipal bankruptcy on who should receive what money. In light of that, the city's first responsibility is to it's workers. Not the banking investors.
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I would argue with that, however I think it's unnecessary since I believe it's not up to the city. I suspect that decision will be made by a trustee. (At least that's how all bankruptcies work that I've seen, but those weren't municipal bankruptcies.)

It's going to be interesting watching this legal matter unfold.

Pulsar said:
SO many people want to talk about Detroit, and SO many people have absolutely no clue. In summary, your statement is stupid. Detroit HAS to continue going.
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In addition to the legal matters I mention above, I think it will be interesting watching how a trustee handles this. (Assuming it will be handled by a trustee.)

I think you're correct that Detroit must continue going. I.e., this will not be a liquidation type bankruptcy, but a reorganization.

I look forward to seeing how this handled. E.g., what services are continued, and which ones are discontinued. Which, if any, are consolidated. If assets are to be sold, which ones etc.

Fern
 
Fern said:
I look forward to seeing how this handled. E.g., what services are continued, and which ones are discontinued. Which, if any, are consolidated. If assets are to be sold, which ones etc.

Fern
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I think the whole country is looking forward to it. This case will set legal precedent on municipal bankruptcy for the next 50 years unless Stockton and San Bernadino finish their bankruptcies first.

You may be right about New York's ability to repay. I didn't investigate that when I looking for similarly-sized bailouts.

It's interesting that two other cities have filed for bankruptcy in the middle of 2012 - San Bernadino and Stockton (California). Stockton was just approved for bankruptcy in April. The Detroit bankruptcy, being larger and with far more shareholders, will probably draw out over the next 5-7 years if Stockton's progress is an indicator.

Indeed, when you look at what it will take Detroit to get solvent, consider this. There are nearly 40,000 houses that have to be torn down in Detroit as of this moment. More will certainly go abandoned in the near future. At $10,000 per house, you're talking about $400,000,000 to tear them down. The cost-load the city is under is incredible. And at a rate of 4 houses torn down every day, it will take 27 years to get them cleaned up.
 
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From the pb&gc website FAQ

"PBGC usually does not insure plans offered by:

professional service employers (such as doctors and lawyers) with fewer than 26 employees,
church groups, or
federal, state, or local governments."

I was wondering about why a judge might reduce or eliminate the pension, so I looked that up.

I do know that normally if the plan sponsor goes bankrupt, the contributions stop and the plan of course freezes. However, if the plans current obligations are fully funded this is not an issue - you still have a pension, or a payout of the funds that are earmarked for your pension. If it isn't funded, and the plan is insured (most are), pb&gc pays the difference. Plans DO have to pay for that insurance, and they have to properly fund the plan, meet pb&gc requirements etc. Its pretty clear Detroit would never have even come close to pb&gc requirements.
 
Patranus said:
Unsecured Detroit bonds are backed by “full faith and credit” of Detroit.
Detroit has a means to pay back (some) of that debt in good "faith".
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That is complete and utter bullshit concerning the way unsecured debt works. The bondholders took a risk and lent money without any assets backing up said debt and now you expect the debtor to voluntarily back the debt with assets now that the debtor is broke?

I can't see a single reason for them to even attempt to make the bondholders whole (or even partially whole) at this point. So I will ask again, why should Detroit collateralize unsecured debt at this point?
 
Darwin333 said:
That is complete and utter bullshit concerning the way unsecured debt works. The bondholders took a risk and lent money without any assets backing up said debt and now you expect the debtor to voluntarily back the debt with assets now that the debtor is broke?

I can't see a single reason for them to even attempt to make the bondholders whole (or even partially whole) at this point. So I will ask again, why should Detroit collateralize unsecured debt at this point?
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While I agree with your sentiment the reality is if Detroit wants access to future credit markets at borrowing rates that are not discouragingly high they are going to have to do something, anything to restore faith with lenders and investors. Otherwise any recovery will be prolonged and difficult. However than again loss of all faith by investors and lenders would force the city work within its means and limits its ability to borrow stupidly to fund activities it knows are not sustainable in the long term.
 
JEDI said:
but current retirees?!
i didnt even think it was possible?!

and i think obviously unfair!
they put in their time and work.[/QUOTE]

Says who? You? Who the fack are you? The truth is, you have no idea what those city employees have done or not done. The truth is, the city is bankrupt and the city employees did it.
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7 Action News: What about city vendors, businesses that do work for the city?
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Gold: All vendors are on hold for payment. That also includes anyone who is owed a tax refund. That’s on hold. The city does not have to pay most unsecured debts, such as any vendors supplying anything from pencils to gasoline—this means, anyone who does business with the city and is owed money, will not get paid.
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Good luck when you don't pay your vendors, you get put on C.O.D. or cash in advance.
​
 
January 2, 1962 was the last day that a Republican held the mayor’s office, and the city has been under uninterrupted Democrat and union rule ever since. What was once such a powerful hub of industry and prosperity has caved under the weight of big government and big union policies. Sooner or later liberals run out of other peoples money.
 
Fern said:
I think you're correct that Detroit must continue going. I.e., this will not be a liquidation type bankruptcy, but a reorganization.

I look forward to seeing how this handled. E.g., what services are continued, and which ones are discontinued. Which, if any, are consolidated. If assets are to be sold, which ones etc.

Fern
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Interestingly enough the bankruptcy proceedings cannot force any changes in spending or raising taxes. It appears the biggest options are liability re-negotiation (pension and bonds) and asset management and we likely won't see any progress on the pension front till the Michigan constitutional amendment that prohibits reductions in promised pension payouts is ruled on
 
IGBT said:
January 2, 1962 was the last day that a Republican held the mayor’s office, and the city has been under uninterrupted Democrat and union rule ever since. What was once such a powerful hub of industry and prosperity has caved under the weight of big government and big union policies. Sooner or later liberals run out of other peoples money.
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I'm a republican, but I'm not going to blame the Democrats for a problem that largely wasn't of their creation. Any city who lost more than half their tax base like Detroit did when the big 3 moved production elsewhere would be in serious trouble. Trying to place blame is pointless. There is more than enough to go around.
 
Pulsar said:
I'm a republican, but I'm not going to blame the Democrats for a problem that largely wasn't of their creation. Any city who lost more than half their tax base like Detroit did when the big 3 moved production elsewhere would be in serious trouble. Trying to place blame is pointless. There is more than enough to go around.
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They lost most of their tax base not as much of result because of the big 3 shifting jobs out of Detroit but because when revenue fell due to lost jobs from the big 3 those who ran Detroit compounded their problems by trying to shake down anyone and everyone who was left. This added to the flight of taxpayers from that city by people who were not government workers or on welfare. Additionally there are other issues in which the ruling political party in that city ignored. For example many quality of life issues which caused even more people to leave because they did not want to actually address these issues in a open and frank manner due to misplaced racial defensiveness and timidness by BoS in that city. Issues such as rampant crime, failing schools, rampant city corruption and fraud (I believe the last mayor of Detroit, Kwame Kilpatrick was indicted and convicted for fraud) in Detroit, etc all pushed to erode the tax base more so then the Big 3 shifting jobs elsewhere. In many ways it was the ruling political party that ran Detroit for decades who ignored all the realities of their situation and continued to march on with false promises that anyone with even elementary understanding of math or common sense realized was not going to work out in the end. What happened in Detroit was nothing mysterious, new or unexpected considering how local city government was behaving prior to the bankruptcy of this city.
 
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Pulsar said:
I'm a republican, but I'm not going to blame the Democrats for a problem that largely wasn't of their creation. Any city who lost more than half their tax base like Detroit did when the big 3 moved production elsewhere would be in serious trouble. Trying to place blame is pointless. There is more than enough to go around.
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Timing is everything. The city was loosing residents at an alarming rate decades before any downsizing by the big three. Do not fall for the left's narrative which they use to explain away their failures.

The notion that auto manufacturing was to a large extent contained within the confines of the city proper is also false. Many, many facilities were outside the city limits and in outlying areas of Michigan as well as in Ohio and Indiana. The people who worked for automakers and their suppliers largely did not live in the hell-hole that was Detroit. They commuted in and commuted out. Why would they need to live in the city? They were making a wage that easily allowed them to live in the safety of more affluent suburbs.

The left has fabricated a plausible lie to cover their shortcomings. Do not fall for it.
 
boomerang said:
Timing is everything. The city was loosing residents at an alarming rate decades before any downsizing by the big three. Do not fall for the left's narrative which they use to explain away their failures.

The notion that auto manufacturing was to a large extent contained within the confines of the city proper is also false. Many, many facilities were outside the city limits and in outlying areas of Michigan as well as in Ohio and Indiana. The people who worked for automakers and their suppliers largely did not live in the hell-hole that was Detroit. They commuted in and commuted out. Why would they need to live in the city? They were making a wage that easily allowed them to live in the safety of more affluent suburbs.

The left has fabricated a plausible lie to cover their shortcomings. Do not fall for it.
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Population started to contract from the highs seen due to WW2 and the postwar economic boom in the 50s. The industry (and consequently the city's fortunes) really started to aggressively erode in the early 70s due to a number of factors largely unrelated to the political landscape.

Detroit (and surrounding areas) made one product and all the associated industries/businesses that clustered around it were all tied directly or indirectly to it. It is perhaps the largest example ever of a one industry boom town. The parts of Michigan that still prosper are focused on other varied industries and education, providing a more diverse economy.
 
Exterous said:
Interestingly enough the bankruptcy proceedings cannot force any changes in spending or raising taxes. It appears the biggest options are liability re-negotiation (pension and bonds) and asset management and we likely won't see any progress on the pension front till the Michigan constitutional amendment that prohibits reductions in promised pension payouts is ruled on
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Yeah.

After looking briefly, it appears Chapter 9, bankruptcy for municipalities, has been around a long time. There is plenty of precedent; about 640 cases of municipal bankruptcies. But it also seems the rules are a bit vague and court powers severely limited.

It also seems there is conundrum here: The govt employees can get their pension benefits funded, but they will have to be funded by (bond) lenders.

If the city seeks to aggressively write-off bond debt to help city employees it is unlikely any (new) bondholders will step forward.

If the city seeks to attract new bondholders it will likely have to write down/off pension liabilities.

If correct, that's a 'catch-22' situation. And if so, Detroit's probably going to seek a federal bailout of some sort.

http://www.us
courts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/Chapter9.aspx

http://en.wikipedia.org/wiki/Chapter_9,_Title_11,_United_States_Code

Fern
 
I can't belive FEDs wont bail these cities out. Trillions to Wall Street banks and nothing to main street? Doesn't sit right with me. Not to mention these troubled cities whats owed is about half to banks anyway. So they'd be bailing out their banking buddies somewhat.
 
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