That's what Obama said back in October, 2012. Back in his weekly radio address, Mr Obama said that he-
Obama wrote:refused to throw in the towel and do nothing. We refused to let Detroit go bankrupt. We bet on American workers and American ingenuity, and three years later, that bet is paying off in a big way.
$20 billion in the hole they are. Those Detroit retired auto workers could be facing a 90% haircut to their pensions. Pension funds are suing to block the bankruptcy- http://www.bloomberg.com/news/2013-07-1 ... iling.html
But really, the pensions are guaranteed by Pension Benefits Guaranty Corporation (PBGC), a government agency which insures pensions up to something like $54K a year or so.
Not to mention how much money the US government lost when they bought GM shares at a higher price than the shares were eventually sold at (about a $25 billion loss, around about).
So we've already forked out at least $25 billion, what's another $20 billion to get Detroit out of debt? After they are bailed out and pay all their bills I'm sure the city will be much wiser with how it wastes spends it's money.
Mr Orr, who is the current controller of Detroit, a few months back suggested that the city would have to declare bankruptcy and admitted that once doing would be a step forward in the right direction to recovery. He's right about that, actually, so long as the city doesn't just getting itself right back into debt. But yeah, the bankruptcy is painful for a short time, but it gets them back on a clean slate.
After all, we can bail out Detroit for $20 billion and not raise out actual national debt one cent (which stands at just $25 million under the official threshold). Somehow, we spend money but haven't been increasing any debt for 57 days and counting with another month and a half until it's estimated that we actually reach our debt limit. Detroit should hire the Feds accountants.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut. Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
In even more hilarity, Moodys officially raise the US' outlook, the S&P is at an all time high, the Ben Bernanke says the economy is recovering (so long as he keeps pumping, his caveat, not mine); with recoveries like these who need recessions?
Yes, 60 years of lies, meet reality. Reality, meet 60 years of lies.
Oh, and just breaking, Governor Rick Snyder has just authorized the bankruptcy.
Snyder's full letter to Kevyn Orr, the emergency manager of Detroit-
Sometimes when you get to power you inherit situations that are unsavable. People before kept on making the situation worse and worse, is it obama s fault? Also what kind of idiot believes pre elections promises done by a politician? I m always amazed by the stupidity of people. I would like someone to name one politician, from anywhere in the world, from any era that kept all his promises. And they really try i m sure; but you can t always get what you want now.. The good thing is that there will always be stupid people falling for promises comming from politicians, cause if you aren t persuasive they won t give you the job, even if you are the most competent.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
You remember what happened to the bond holders of GM when that bailout happened?
betiko wrote:Sometimes when you get to power you inherit situations that are unsavable. People before kept on making the situation worse and worse, is it obama s fault? Also what kind of idiot believes pre elections promises done by a politician? I m always amazed by the stupidity of people. I would like someone to name one politician, from anywhere in the world, from any era that kept all his promises.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
You are right to compare this to the euro crisis. Though the biggest problem is this becoming infectious. Detroit is not the only american city to have gone bankrupt. Many other cities have already filed bankruptcy. Detroit is just the biggest city so far and it probably won't be the last. The entire US and even the entire western world has huge pension debts.
If they bail out one municipal, what do you think the reaction of other municipals will be? The whole reason why eurozone countries were so cautious bailing out other countries and making strong demands was because they didn't want to encourage other countries to just come knocking for a bail-out too. This same problem will probably arise throughout the municipals.
betiko wrote:Sometimes when you get to power you inherit situations that are unsavable. People before kept on making the situation worse and worse, is it obama s fault? Also what kind of idiot believes pre elections promises done by a politician? I m always amazed by the stupidity of people. I would like someone to name one politician, from anywhere in the world, from any era that kept all his promises. And they really try i m sure; but you can t always get what you want now.. The good thing is that there will always be stupid people falling for promises comming from politicians, cause if you aren t persuasive they won t give you the job, even if you are the most competent.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
You are right to compare this to the euro crisis. Though the biggest problem is this becoming infectious. Detroit is not the only american city to have gone bankrupt. Many other cities have already filed bankruptcy. Detroit is just the biggest city so far and it probably won't be the last. The entire US and even the entire western world has huge pension debts.
If they bail out one municipal, what do you think the reaction of other municipals will be? The whole reason why eurozone countries were so cautious bailing out other countries and making strong demands was because they didn't want to encourage other countries to just come knocking for a bail-out too. This same problem will probably arise throughout the municipals.
Luckily, in the US, we have a very nice and long used system to work through a bankruptcy. Even for cities as larges as Detroit. A very specific process with legal rights for all parties involved. Where as in the EU, there was never any real precedent or process that existed to deal with the problems they face. The EMU itself was built so that such bailouts were virtually impossible and now the Europeans are struggling to work out a fair and equitable process, legally.
The problem in the US is when government steps in to bypass that legal process, such as the auto bailouts where the stock holders and the company bond holders only received pennies on the dollar for their investments, vendors were put out of business and the Union was given favorable status over the rest of the parties involved.
It was a travesty of justice, a complete abandonment of due process and legal precedent in the name of getting votes and scoring political victories.
The same will likely happen in this bankruptcy. Let the courts work it out with the parties involved, things will be healed (maybe). Let government step in a bail out (which in effect is rewarding poor behavior) and none of the problems get solved, they just bury the problems to be unearthed at a future date.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
You are right to compare this to the euro crisis. Though the biggest problem is this becoming infectious. Detroit is not the only american city to have gone bankrupt. Many other cities have already filed bankruptcy. Detroit is just the biggest city so far and it probably won't be the last. The entire US and even the entire western world has huge pension debts.
If they bail out one municipal, what do you think the reaction of other municipals will be? The whole reason why eurozone countries were so cautious bailing out other countries and making strong demands was because they didn't want to encourage other countries to just come knocking for a bail-out too. This same problem will probably arise throughout the municipals.
Oh yeah, I was following that pattern about the municipal bankruptcies not too long ago (until I stopped caring--seeing too much of this nonsense gets to me).
The currents means of providing "what the public demands" through the political process is clearly unsustainable, yet for many (a) it doesn't matter cuz they'll be old/dead by then, or (b) they're not aware of it.
RE: EU, yeah, 'strong demands' were verbally stated, and sure, 'austerity' was enacted, but the structural changes which were fundamental to many of those countries' problems were hardly implemented--which is one reason why that crisis still isn't resolved. (The unemployment is mainly due to labor regulations which are too expensive). There's also the problem that the governments of the bailed out countries know that the ECB, the EU, and the European Commission(?) are unwilling to let the Euro Project fail, so they'll talk their talk, get their money, and hardly implement any reforms, and then... be rewarded for it with another round of bond purchases.
Anyway, yeah, that shit drives me crazy. It's so immoral and completely unfair and messed up to the citizens of all those countries.
Haha, I hope this isn't the case: If I was to purchase many muni bonds, I'd probably know the mayor or wealthy established people who have clout in D.C. Faced with the prospect of a huge loss from a Detroit bankruptcy, would I pull as many strings as possible in order to get a bailout?
(I hope that's not the case, but I wouldn't put it past 'the system'.)
Boston University economist Laurence Kotlikoff calculates a “fiscal gap” amount of $222 trillion using the Congressional Budget Office’s alternative long-term budget forecast. The fiscal gap measure takes into consideration the present value of all the expenditures now through the end of time (including servicing the official debt) and subtracts all the projected taxes from that amount.
This means that the government would have to invest $87 trillion or $222 trillion right now in something that will earn a certain positive rate of return in order to meet its future obligations, mainly with respect to entitlement programs.
Last edited by BigBallinStalin on Thu Jul 18, 2013 10:04 pm, edited 2 times in total.
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
You remember what happened to the bond holders of GM when that bailout happened?
Well, I see how it's going to go, there will be a bailout, the pensioners won't lose any money in the end. The pensions will still be in trouble, but those collecting will still keep on collecting (a deal is a deal, after all). However, the vendors who the city owes money, and those who hold Detroit muni's will be the ones who take the hair cut.Serves em right for extending a dime of credit to Detroit or buying those muni bonds.
It depends on how things are settled in the bankruptcy.
If there's a bailout, then even the owners of those muni bonds may reap in a profit--even if they took some cut. I imagine that (a) due to the risk the interest rate would be relatively high and (b) depending on the maturity, it could work out for them. It would be like the people who bought Greek bonds which were later bought by the IMF and the ECB. Or like the people who bought shares of companies as they sank in value but were later bailed out.
You remember what happened to the bond holders of GM when that bailout happened?
What'chu talkin' 'bout, patches?
Typically, bondholders have a higher precedence to debt holder claims than say the UAW. Under the administration's deal (which bypassed the typical bankruptcy proceedings) the UAW received 50% and 40% stakes in Chrysler and GM respectively. The bondholder however were to receive 33 cents on the dollar and 24 cents on the dollar for their stakes in Chrysler and GM respectively. The bondholders rejected this offer outright, the UAW certainly accepted as the deal favored them over the bondholders (even though the bondholders were owed a lot more money than the UAW was owed). The bondholders were owed twice what UAW's outstanding debt was. Yet UAW gets the lion's share of the deal (after Uncle Sam of course).
The bondholders offered a counter proposal, which was ignored completely. The bondholders were forced to sell (at 33 and 24 cents on the dollar) and those shares were promptly bought back from Chrysler and GM at the full share amount. HA HA!
Considering also that the price of the shares had dropped substantially (of which the bondholders only got at best a 1/3 of that price) where as the government just threw a ton of money at GM and Chrysler, amounting to something like $54 a share where the bondholders where forced to sell at less than a third of that.
The government several years later went and sold those very stocks for something like $30 a share resulting in at least a $25 billion dollar loss for the taxpayer.
The bondholders themselves, at the time, were portrayed as nothing more than greedy speculators. Now, I know that's a bad word, but those who think speculators are bad don't really understand the role speculators play in markets. (I'd figure you know BBS), but I'm not going to get into that. That's too long of a discussion. Speculation can be bad, it can be good. Suffice it to say, if you buy a house and are counting on that house to rise in value, then you are by definition a speculator. Just sayin' is all.
Anyway, the bondholders were owed twice as much as the UAW was owed, yet the UAW recovers more of their debt than the bondholders and way better position within owning the company, stolen from bondholders who were forced to sell at dirt prices.
Now, issuing debt to a company is a risk, certainly, but this type of thing isn't handled like this through typical bankruptcy court without government interference. The UAW was shown preferential treatment for political reasons, not debt reasons. That's not how it's supposed to be done.
That's all, the UAW wouldn't have gotten such a sweet deal without their political connections and that political involvement. Not to mention the loss of all that taxpayer money.
Don't get me wrong, I don't care if rich people lose their money, but the bondholders aren't just rich people, there were pension fund accounts that held some of those bonds. Regular people, Mom and Pops, and they weren't given a fair shake in court and were forced to cave to government demands. It was unlawful, $7 billion was held by Mom and Pop investors, and they all got taken to the cleaners while the UAW, Canada, China and Europe gobbled up the rotting remains.
But, it was a long time ago and I don't think many people will remember (or care). But it is what it is, a travesty of how it should have gone in the legal system.
BigBallinStalin wrote:That's pretty interesting, patches, and I enjoyed reading it, but I've got two questions, sir:
who are the "stockholders" of Detroit? (you talked of the UAW receiving shares, so... what would the 'shares' in the possible Detroit 'exchange'?)
and which special interest groups--other than the bondholders--would resemble something like the UAW?
Oh! Now that is a very good question!
Ok, now I don't have access to Detroit's books, mind you, so we'll just do a "typically" answer. It'll probably be close to the actual facts.
Detroit is about $20 billion in the hole. Just recently they defaulted on some pension payments. About $300 million+ or so. So, there is one debt holder for you, the pension funds. City employees, long retired living until their 95 (if they aren't shot, they are living in Detroit after all).
Then you've got the investors who bought muni bonds. That's billion upon billion of dollars. Some of that overlaps in the pension fund accounts, said accounts invest in muni bonds, but so do every day ordinary people. Detroit's credit rating is something like "D", so interest on those muni's is high.
Then you've got the vendors. Construction companies, service companies, all the private companies that are contracted by the city to do all types of jobs. Outstanding bills all, each company extending credit to the city. That's $100's of millions if not a few billion owed.
Then of course you have just the regular old city employees. The cops, the fire fighters (hell, does Detroit even have any of these guys anymore?), their salaries are debts.
Then there are those who sued, or are suing the city. There will be a number of these people who have won settlements from the city or are going to win settlements. Detroit owes them money as well.
Then there are probably Federal loans, but poor Detroit, no bankruptcy proceedings ever can negate Federal debt.
Then there are the city entitlement fund accounts. Welfare, food stamps, all kinds of entitlements which any money that was in those accounts has long since been used to buy muni's or deferred. That money is still owed to someone.
All this will be adding up to at least $20 billion. I'm sure I'm missing a lot of parties, OMG! I just remembered one of the most important debt holders!
Water, sewage and a few other public services. The city owes them money. And guess what?! During most bankruptcy proceedings (including this one), lots of payment types are suspended until it all gets sorted out. Like the litigants who were awarded money from the city or those suing the city. All their case get put on indefinite hold.
But the guys running the water and sewage and a couple of other services I can't recall at the moment from the top of my head? Well these guys, if they don't get paid, they start seizing city property. Despite the bankruptcy, these guys are allowed to keep being paid. Allowed by the courts that is. Detroit might not be able to pay their pensions, but by God they'll pay these people or the city of Detroit will no longer exist, owned by those companies that run those services.
I can get a lot more solid numbers for you if you want, it'll just take a little bit of time and research. I have the means.
BigBallinStalin wrote: and which special interest groups--other than the bondholders--would resemble something like the UAW?
Oh, and that would be the pension holders and accounts. They are the ones who are really pissed about this bankruptcy, gimme a minute and I'll let you in on something that'll blow your mind....
BBS wrote:and which special interest groups--other than the bondholders--would resemble something like the UAW?
Ok, then pension accounts. There is a lot of money tied up in these accounts, I don't need to tell you that do I?
Do I also not need tell you who it is that really runs these accounts? I better not, that'd ratchet up to hearsay, libel and such, so I'll just let you ponder that on your own.
Anyway, it's these pension accounts that last week filed to keep Detroit from going into bankruptcy proceedings. When Detroit officially filed for bankruptcy, all court proceedings against it go on hold. Including these pension account suits.
Stick with me here for a minute. You'll absolutely love this.
Now, when these pension accounts go filing to stop the possible bankruptcy, Detroit has no choice but to open their books up. I can imagine there are two sets of books. Get it?
So now you've got a ton of local politicians demanding that federal funds be used to bail out the city. Any information that the city would have been forced to show in court is now postponed. Good thing for these guys!
I will bet you a dollar to a doughnut that those accounts aren't...kosher. I'll give you a couple of guesses what happened to the money, and the right guess involves a lot of local politicians and their, friends.
Anyway, another party we can't forget is those in the derivative markets. There are people betting against Detroit, who see the default coming and hedge accordingly. We can't go forgetting about the massive derivative market (some 6,000X bigger than the GDP of the entire world) and the systemic risk due to the shadow banking industry.
I've been reading a lot about this for a while now, and it's ugly. Detroit just might be the canary in the coal mine. I dunno, we'll see how it plays out, but it ain't gonna be pretty. But I don't think Detroit going the bankruptcy route at this point in time a coincidence. Not with the pension suit happening just last week. It's connected. And not in a good way at all. But I doubt we mere mortals will ever get to the bottom of this. But, we do live in the age of information, and if I learn more about this particular subject, I'll be sure to toss it up here.
But most likely how it will be played out in the general media will be two sides blaming each other. "It's all the entitlements, pensions and Unions fault!" and "It's all the greedy evil speculator's fault!". "Democrat's fault!" "Republican's fault!" "Black people's fault!" "White people's fault!" So on and so on.
The true culprit of our malaise (of which Detroit is but a symptom) won't ever be mentioned. And that's the frustrating thing.
The petitioners for pension funds were minutes late, and that's why Detroit was able to declare bankruptcy. The city got their official filing in the nick of time.
Now I'm going to look around, but I believe that just recently a huge audit was done on Detroit's pension funds and what was found was massive cases of abuse, fraud and corruption.
In that light, all you need to do is do a search on Meredith Whitney and see what rabbit hole that leads you down. Then you'll see more of what I'm seeing, in the above post I attempt (poorly) to explain.
Well, Detroit might be screwed after all. It appears that Obama is not willing to throw good money after bad in the Motor City.
The White House issued a statement on Detroit-
"The president and members of the president's senior team continue to closely monitor the situation in Detroit.
While leaders on the ground in Michigan and the city's creditors understand that they must find a solution to Detroit's serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America's great cities."
In political legalise, that means- No bailout for you.
Now, if you are wondering why no bailout for Detroit, you have to remember the GM bailout. Where pensioners were favored over creditors. Those were private bonds. In Detroit you are dealing with muni bonds. If Obama goes favoring pensioners over muni bond holders then it could well lead to a collapse of the muni bond market which would leave a lot more cities out in the cold. Cities that depend on those munis.
But, in the end, it's still my guess that Detroit will be bailed out. The muni bond holders might get screwed anyway, bailout or not (which still leads to a collapse in the muni bond market anyway). Obama is in a bad position, he can come in on the side of his voting block, the pension holders, or come in on the side of the muni holders, the people who fund every city in the US. Decisions, decisions. Since Obama doesn't have to worry about getting elected.....Hmmm.
