View Full Version : Detroit may file for bankruptcy on Friday

18 Jul 13,, 23:25
Decision Day Nears for Detroit Bankruptcy - Yahoo! Finance (http://finance.yahoo.com/news/decision-day-nears-detroit-bankruptcy-000000909.html?l=1)

http://www.zerohedge.com/news/2013-07-18/when-60-years-lies-clash-reality-michigan-governor-snyder-authorizes-detroits-bankru (http://www.zerohedge.com/news/2013-07-18/when-60-years-lies-clash-reality-michigan-governor-snyder-authorizes-detroits-bankru)

The governor gave permission...


Inability to Meet Obligations to Its Creditors. The City has more than $18 billion in accrued obligations. A vital point in Mr. Orr's letter is that Detroit tax rates are at their current legal limits, and that even if the City was legally able to raise taxes, its residents cannot afford to pay additional taxes.

The City's population has declined 63% from its peak, including a 28% decline since 2000. That exodus has brought Detroit to the point that it cannot satisfy promises it made in the past. A decreasing tax base has made meeting obligations to creditors impossible.

Most at risk under the expected bankruptcy case is the city's $11 billion in unsecured debt. That includes almost $6 billion in health and other benefits for retirees; more than $3 billion for retiree pensions; and about $530 million in general-obligation bonds.

Municipal-worker retirees are set to get less than 10% of what they are owed under the plan.

If Detroit seeks Chapter 9 protection, Mr. Orr said he hopes to steer the city out of bankruptcy court in a record six to eight months, during which it would restructure about $20 billion in liabilities with creditors. His plan also calls for $1.25 billion in new spending, including efforts to reduce crime and eliminate blight.

Some in the municipal finance world object to Detroit's treatment of some of its outstanding general-obligation bonds as unsecured, offering pennies on the dollar for repayment. They say the move could result in higher borrowing costs for municipalities across Michigan and, potentially, the U.S.

But Mr. Orr said a Chapter 9 filing may go more smoothly for Detroit than other municipalities "because there is no other way out of here if we don't reach consensus."

A bankruptcy filing, according to Mr. Orr's team, could protect the city from related lawsuits filed by creditors and assemble all of the city's unsecured stakeholders in one class, likely the only way to deal with the thousands of pensioners.

When you can't pay, you can't pay... There was some in the article about trying to stymie the filing into extracting concessions {from what source of capital I wonder} but my guess is this will only decrease the recovery of everyone in the long run closer to nil.

19 Jul 13,, 08:50
Billions in Debt, Detroit Tumbles Into Insolvency
July 18, 2013

DETROIT — Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, filed for bankruptcy on Thursday, the largest American city ever to take such a course. The decision, confirmed by officials after it trickled out in late afternoon news reports, also amounts to the largest municipal bankruptcy filing in American history in terms of debt. “This is a difficult step, but the only viable option to address a problem that has been six decades in the making,” said Gov. Rick Snyder, who authorized the move after a recommendation from the emergency financial manager he had appointed to resolve Detroit’s dire financial situation. Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.
Source: NY Times (http://www.nytimes.com/2013/07/19/us/detroit-files-for-bankruptcy.html?pagewanted=all&_r=0)

After decades of corruption and mismanagement, the day everyone knew was coming has arrived.

Detroit is now officially and legally insolvent.

20 Jul 13,, 06:01


20 Jul 13,, 06:22


Mish's Global Economic Trend Analysis: Avalanche of City Debt Downgrades and Eventual Bankruptcies Coming Up; Numerous Cities Bankrupt Over Pension Promises (http://globaleconomicanalysis.blogspot.com/2013/07/moodys-downgrades-chicago-debt-citing.html)

Its just the icing on the cake.

What people forget is that Scranton went to 7.25 an hour for all gov't employees for a while yet they still raised taxes on the rest then boosted the rates double digits to make up diff to give money to employees. The reality is it only pushed the timeframe a year or two out at most until the borrowed money they took and the outflow of people make anything in the future impossible without abrogation of pension promises.

The Problem with Scranton’s 2013 Budget | GARY LEWIS for Mayor (http://garylewisformayor.com/2013/03/11/the-problem-with-scrantons-2013-budget/)
This is a small city but gives some food for thought, ergo borrowed funds are revenue because they could be spent even though you need to repay them at some point and the interest portion grows ever larger.

20 Jul 13,, 16:17
At its height, Detroit was the fourth largest city in America. Now it is a ghost town of 700,000 souls and 80,000 abandoned buildings. The largest employer is the city itself, which now has 2 pensioners for every working employee. Detroit spends $100 million more than it takes in every year. Murder rates are at a 40 year high and the average time for police to respond to an emergency call is 58 minutes. Half of Detroit's ambulances are out of service. Half the city streetlights don't light up at all. Discarded furniture and boarded up homes are everywhere. In neighborhoods with crumbling structures and overgrown empty lots, rats and rabbits vastly outnumber the local residents. In deteriorating neighborhoods, there is a daily one-in-seven chance of being the victim of violent crime. The city has 100,000 creditors who may receive as little as ten cents on the dollar. Automakers have incrementally fled and the financial/housing bubble of 2008 magnified the impending disaster.

With a government spending sequester in place, Washington has little appetite for a bailout. The bankruptcy filing is the only option remaining. But it's probably far too late to save Detroit. I wonder if the relocated automakers can make a hearse big enough to accommodate their old friend, the Motor City.

20 Jul 13,, 22:47
most of those "creditors" are pensioners and former employees who help bleed it dry.
pensions and health insurance promises help do it in.

I would be more optimistic if they broke up parts of detroit that wanted to leave and form their own areas and have it become a smaller more efficient city with 401k enshrined in such a way that its' change would require a state referendum basically.

22 Jul 13,, 18:53
July 19, 2013 6:15 PM
The Downfall of Detroit

It took only six decades of “progressive” policies to bring a great city to its knees.

ByMark Steyn

By the time Detroit declared bankruptcy, Americans were so inured to the throbbing dirge of Motown’s Greatest Hits — 40 percent of its streetlamps don’t work; 210 of its 317 public parks have been permanently closed; it takes an hour for police to respond to a 9-1-1 call; only a third of its ambulances are driveable; one-third of the city has been abandoned; the local realtor offers houses on sale for a buck and still finds no takers; etc., etc. — Americans were so inured that the formal confirmation of a great city’s downfall was greeted with little more than a fatalistic shrug.

But it shouldn’t be. To achieve this level of devastation, you usually have to be invaded by a foreign power. In the War of 1812, when Detroit was taken by a remarkably small number of British troops without a shot being fired, Michigan’s Governor Hull was said to have been panicked into surrender after drinking heavily. Two centuries later, after an almighty 50-year bender, the city surrendered to itself. The tunnel from Windsor, Ontario, to Detroit, Michigan, is now a border between the First World and the Third World — or, if you prefer, the developed world and the post-developed world. To any American time-transported from the mid 20th century, the city’s implosion would be literally incredible: Were he to compare photographs of today’s Hiroshima with today’s Detroit, he would assume Japan won the Second World War after nuking Michigan. Detroit was the industrial powerhouse of America, the “arsenal of democracy,” and in 1960 the city with the highest per capita income in the land. Half a century on, Detroit’s population has fallen by two-thirds, and in terms of “per capita income,” many of the shrunken pool of capita have no income at all beyond EBT cards. The recent HBO series Hung recorded the adventures of a financially struggling Detroit school basketball coach forced to moonlight as a gigolo. It would be heartening to think the rest of the bloated public-sector work force, whose unsustainable pensions and benefits have brought Detroit to its present sorry state (and account for $9 billion of its $11 billion in unsecured loans), could be persuaded to follow its protagonist and branch out into the private sector, but this would probably be more gigolos than the market could bear, even allowing for an uptick in tourism from Windsor.

So, late on Friday, some genius jurist struck down the bankruptcy filing. Judge Rosemarie Aquilina declared Detroit’s bankruptcy “unconstitutional” because, according to the Detroit Free Press, “the Michigan Constitution prohibits actions that will lessen the pension benefits of public employees.” Which means that, in Michigan, reality is unconstitutional.

So a bankrupt ruin unable to declare bankruptcy is now back to selling off its few remaining valuables, as I learned from a Detroit News story headlined “Howdy Doody May Test Limits of Protecting Detroit Assets.” For those of you under 40 — okay, under 80 — Howdy Doody is the beloved American children’s puppet, in western garb with a beaming smile and 48 freckles, one for every state, which gives you some idea of when his heyday was. The Howdy Doody Show ended its run on September 24, 1960, which would have made sense for Detroit, too. The city’s Institute of Arts paid $300,000 for the original Howdy Doody puppet — or about the cost of 300,000 three-bedroom homes. Don’t get too excited — you can’t go to Detroit and see him on display; he’s in storage. He’s in some warehouse lying down doing nothing all day long, like so many other $300,000 city employees. Instead of selling him off, maybe they should get him moonlighting as a gigolo and sell it to HBO as Hungy Doody (“When you’re looking for the real wood”). What else is left to sell? The City of Windsor has already offered to buy the Detroit half of the Detroit/Windsor tunnel, perhaps to wall it up.

With bankruptcy temporarily struck down, we’re told that “innovation hubs” and “enterprise zones” are the answer. Seriously? In my book After America, I observe that the physical decay of Detroit — the vacant and derelict lots for block after block after block — is as nothing compared to the decay of the city’s human capital. Forty-seven percent of adults are functionally illiterate, which is about the same rate as the Central African Republic, which at least has the excuse that it was ruled throughout the Seventies by a cannibal emperor. Why would any genuine innovator open a business in a Detroit “innovation hub”? Whom would you employ? The illiterates include a recent president of the school board, Otis Mathis, which doesn’t bode well for the potential work force a decade hence.

Given their respective starting points, one has to conclude that Detroit’s Democratic party makes a far more comprehensive wrecking crew than Emperor Bokassa ever did. No bombs, no invasions, no civil war, just “liberal” “progressive” politics day in, day out. Americans sigh and say, “Oh, well, Detroit’s an ‘outlier.’” It’s an outlier only in the sense that it happened here first. The same malign alliance between a corrupt political class, rapacious public-sector unions, and an ever more swollen army of welfare dependents has been adopted in the formally Golden State of California, and in large part by the Obama administration, whose priorities — “health” “care” “reform,” “immigration” “reform” — are determined by the same elite/union/dependency axis. As one droll tweeter put it, “If Obama had a city, it would look like Detroit.”

After the Battle of Saratoga, Adam Smith famously told a friend despondent that the revolting colonials were going to be the ruin of Britain, “There is a great deal of ruin in a nation” — and in a great city, too. If your inheritance includes the fruits of visionaries like Henry Ford, Walter Chrysler, and the Dodge brothers, you can coast for a long time, and then decline incrementally, and then less incrementally, and then catastrophically, until what’s left is, as the city’s bankruptcy petition puts it, “structurally unsound and in danger of collapse.” There is a great deal of ruin in advanced societies, but even in Detroit it took only six decades.

“Structurally unsound and in danger of collapse”: Hold that thought. Like Detroit, America has unfunded liabilities, to the tune of $220 trillion, according to the economist Laurence Kotlikoff. Like Detroit, it’s cosseting the government class and expanding the dependency class, to the point where its bipartisan “immigration reform” actively recruits 50–60 million low-skilled chain migrants. Like Detroit, America’s governing institutions are increasingly the corrupt enforcers of a one-party state — the IRS and Eric Holder’s amusingly misnamed Department of Justice being only the most obvious examples. Like Detroit, America is bifurcating into the class of “community organizers” and the unfortunate denizens of the communities so organized.

The one good thing that could come out of bankruptcy is if those public-sector pensions are cut and government workers forced to learn what happens when, as National Review’s Kevin Williamson puts it, a parasite outgrows its host. But, pending an appeal, that’s “unconstitutional,” no matter how dead the host is. Beyond that, Detroit needs urgently both to make it non-insane for talented people to live in the city, and to cease subjecting its present population to a public “education” system that’s little more than unionized child abuse. Otherwise, Windsor, Ontario, might as well annex it for a War of 1812 theme park — except if General Brock and the Royal Newfoundland Fencibles had done to Detroit what the Democratic party did they’d be on trial for war crimes at The Hague

The Downfall of Detroit | National Review Online (http://www.nationalreview.com/article/353959/downfall-detroit-mark-steyn)

What a heart warming story. I can't wait for this to happen in California.

22 Jul 13,, 19:41
lol, from "America will become Greece!!11" to "America will become Detroit!!11"

and from one variable, political preference, alone! what a genius of economic thinking.

22 Jul 13,, 20:04
lol, from "America will become Greece!!11" to "America will become Detroit!!11"

and from one variable, political preference, alone! what a genius of economic thinking.

You say it can't happen, or it won't happen. I'm pretty sure that's what people in Detroit said in the 1950s and 1960s. Give it time. Be patient. The next ice age turned into global warming in less than 30 years. Global warming turned into global climate change in 10 years....

I learned to Never Say Never Again.

22 Jul 13,, 20:32
I learned to Never Say Never Again.

If you only listened to 007, you'd saved 30 years :)

22 Jul 13,, 20:46
gotta say it in the Sean Connery gruff Scotsman accent.

22 Jul 13,, 20:58
We'll have to settle for the Southern California Chinese redneck accent...

22 Jul 13,, 21:05
gotta say it in the Sean Connery gruff Scotsman accent.

Hi, thish ish Shean Connery. Mind if I shit nexsht to you?