Detroit bankruptcy. The war between pensioners and banks begins

Downtown Detroit. Many empty blocks. Credit: Google Maps
Downtown Detroit. Many empty blocks. Credit: Google Maps

Will the pensioners come before the bondholders in the Detroit bankruptcy? Right now, the plan is for bondholders to get 75% and pensioners to be kicked to the curb and get 10-20%. However, a judge has halted the bankruptcy saying the Michigan Constitution blocks pensions from being reduced. In addition, it sure looks like banksters and other vultures want to privatize and loot whatever can. Make no mistake, this is a multi-level war that will be fought for years to come.

I hope Detroit comes back. Do a Google Maps of Detroit in satellite mode. It’s scary. Much of the city no longer exists. Block after block has no buildings. 78,000 buildings are vacant. The population has dropped hugely. NYC never got that bad.

The man who saved NYC from bankruptcy explains why Detroit is different

“We couldn’t do this today,” says Rohatyn. “The various stakeholders are no longer around the same table.”

He’s referring to three major breakthroughs that helped refinance the Big Apple. First, municipal unions, as well as conceding pay cuts, used their pension funds to invest in the city. Then big Wall Street banks, which owned a lot of New York municipal debt and therefore had strong incentives to cooperate on restructuring, agreed to defer loan repayment and underwrote new securities on the cheap. And despite President Gerald Ford’s famous message to New York, pressure from Congress—and even from foreign governments fearing a default—led to federal guarantees on the city’s debt.

There is no such consensus today, no agreement between the competing interests. Plus, unions don’t have extra pension money and the bonds are spread around worldwide.

Is Detroit’s bankruptcy a feeding frenzy for privatization?

There have been a lot of conversations under the emergency manager, and certainly now under bankruptcy, about all the city assets that can be put up in a fire sale to help the city, supposedly to help the city pay off their debts. So they’re talking about, for example, selling what’s a very cherished public park in the middle of the Detroit River called the Belle Isle. They’re talking about selling that. They’re talking about selling the art collection that’s housed Detroit Institute of Art, which is apparently worth millions [billions, actually], and so that they’re going to just have a feeding frenzy privatizing what previously were understood to be public assets. And that’s partly what I see coming down the pipe.

Cries of betrayal as Detroit plans to cut pensions

Kevyn D. Orr, the city’s emergency manager, has called for “significant cuts” to the pensions of current retirees. His plan is being fought vigorously by unions that point out that pensions are protected by Michigan’s Constitution, which calls them a contractual obligation that “shall not be diminished or impaired.”