Althouse: "We have here a judicial finding that this once-proud city cannot pay its debts."

December 3, 2013

"We have here a judicial finding that this once-proud city cannot pay its debts."

"At the same time, it has an opportunity for a fresh start. I hope that everybody associated with the city will recognize that opportunity."

48 comments:

Wince said...: Dominic Nanni who uttered a threat in reaction to the judge's decision on Twitter got it wrong on two counts:

Judge Rhodes, if you ever show your face in #Detroit, please expect to either be beaten or run over. You have betrayed this city. #uniteblue—
Dominic Nanni (@dominicnanni) December 03, 2013

Beside the mistake of threatening a federal judge, any "betrayal" of Detroit was by the same politicians who made the promises in the first place.; 12/3/13, 1:13 PM
Nonapod said...: including a potential spinoff of the water and sewer department

For sale: One sewer system; gently used.; 12/3/13, 1:14 PM
test said...: I hope that everybody associated with the city will recognize that opportunity [for a fresh start].

I suspect they will recognize that opportunity, but almost certainly not in the way the judge is alluding to.; 12/3/13, 1:15 PM
YoungHegelian said...: Next legal hurdles:

1) Can a territory file for bankruptcy (Puerto Rico)?

2) Can a state file for bankruptcy (Illinois)?; 12/3/13, 1:33 PM
Lauderdale Vet said...: I was following the @dominicnanni thing as it was happening. As it unfolded he claimed that Dems are not to blame for this.

How is this not an indictment of statist policies?; 12/3/13, 1:42 PM
SteveR said...: However successful the bankruptcy process goes for Detroit, the real problem is the politics that created the financial mess. Good luck with all that.; 12/3/13, 1:44 PM
Unknown said...: Unions and retirees argued that Detroit emergency manager Kevyn Orr conducted no substantive negotiations with creditors and argued the city fell short of its duty to conduct "good faith" negotiations before filing for bankruptcy. No financial creditors objected to the filing.

Pretty much says it all. The banks and businesses realized that they're never getting all the money they're due, so it's time to make the best out of a bad situation.

The retirees and the unions, on the other hand, are absolutely sure that Detroit must have some money hidden in its mattress. And by God, they're going to insist that the city keep paying out on the generous pensions and benefits that destroyed it in the first place.

As Instapundit likes to say, something that can't go on forever, won't.; 12/3/13, 1:45 PM
I'm Full of Soup said...: We will be paying down, for the next 100 years, the accumulated debts from the last 50 years of govt overspending and phony baloney accounting.

Wall Street should see this as an opportunity and create a 100 year govt bond.

It will be win-win for all. No abrupt spending cliff, no draconian cut in current promised soc sec pmnts and govt pensions but, on a go forward basis, more focused and disciplined govt spending for only the true necessities and basics.; 12/3/13, 1:56 PM
Anonymous said...: The fiscal malfeasance that is Detroit is amazing. I'd be in favor of tar and feathers for every person even remotely associated with management of those pensions. And for the Lawyers, CPAs Actuaries, license revocations all around; 12/3/13, 2:04 PM
Oso Negro said...: It might be best for all if the retirees are simply told to go scratch. It would serve as an object lesson for other public employee unions.; 12/3/13, 2:27 PM
Robert Cook said...: Wall Street and corrupt city politicians destroyed Detroit, not the pensioners. This is pure rape of the retirees and the residents of Detroit by the wealthy and powerful.; 12/3/13, 2:40 PM
Brennan said...: I think the bankruptcy is a political choice. Kevyn Orr could explore restructuring if he wanted.; 12/3/13, 2:43 PM
Brennan said...: How come Wall Street is only successful at destroying a municipal bond market when they work with Democrats?

There is a lesson here in electing low information politicians.; 12/3/13, 2:45 PM
Ipso Fatso said...: "Can a state file for bankruptcy (Illinois)?"

Which is exactly why I will be voting a straight D ticket from here on out. It is the fastest way to ruination. Mike Madigan, Pat Quinn, Ed Burke, and the great Todd Stroger you all have my vote!!!

EBRACE THE DECLINE!!!!!!; 12/3/13, 2:47 PM
Brennan said...: Illinois has a nearly identical clause in the state constitution to protect pensions issued by the state and its chartered governments.; 12/3/13, 2:49 PM
Joe said...: RE: The Unions expectations regarding pensions:

Liberals, it seems, are convinced that money, like websites, just magically appears.; 12/3/13, 2:50 PM
Scott said...: People get the government they deserve. Democrat hubris and a willfully ignorant electorate kept Coleman Young in power for twenty years. The damage won't be undone, even in bankruptcy court. Until its citizens abandon Black Power politics, Detroit will remain a Zimbabwe in miniature indefinitely.; 12/3/13, 2:50 PM
Andy Freeman said...: I think that everyone else should be paid before bondholders, regardless of the law because screwing bondholders will have one of two effects:
(1) No one will loan to cities/states/the feds.
(2) Cities/states/the feds can get free money by screwing lenders who didn't choose (1).

(1) Is the only way to impose financial discipline on cities/states/the feds.; 12/3/13, 2:58 PM
MadisonMan said...: @EDH, I love those kinds of stories, thanks for linking to it.

I wonder if Mr. FBI is visiting the former tweeter.; 12/3/13, 3:06 PM
MadisonMan said...: Doing a little google, I see he's a grad student in Political Communications (What the hey?)

Maybe he's learned something today. But who is going to hire someone who is so intemperate in their postings?; 12/3/13, 3:08 PM
Anonymous said...: @Robert Cook said...

I'd be a bit supportive if you included the Pension Trustees, all the consultants (CPA's lawyers, actuaries, etc), and the Union Leaderships.

There was absolutely no excuse for the looting of those pension funds by:

- 13th checks
- bonus payments to pensioners
- 401(a) top offs
- etc, etc; 12/3/13, 3:11 PM
PB said...: This comment has been removed by the author.; 12/3/13, 3:32 PM
David said...: Brennan said...
I think the bankruptcy is a political choice. Kevyn Orr could explore restructuring if he wanted.

Brennan, Bankruptcy is restructuring. When an entity is insolvent, it can not restructure because there are more people asking to be paid the debtor has money to pay. They all can't get all of their money.

Bankruptcy provides a legal structure for determining how the losses are allocated. At least in theory, it does no according to rules that everyone knew (or could have known) when the debts were incurred.

Insolvency creates paralysis. For example, there is may be money to pay salaries. Bankruptcy is an anti paralytic procedure.; 12/3/13, 3:36 PM
PB said...: For how many years have people told public employees that things were unsustainable? For how many years have voters voted in the same people who created and expanded the mess? They basically voted for a free lunch, figuring it would be delivered each day for the rest of their lives.

If you start to stiff secured creditors, you're going to make it more expensive for credit-worthy cities to borrow in the future.

Bankruptcy proceedings should follow regular order and pay off debts in order of priority.; 12/3/13, 3:41 PM
damikesc said...: Wall Street and corrupt city politicians destroyed Detroit, not the pensioners. This is pure rape of the retirees and the residents of Detroit by the wealthy and powerful.

...so, it wasn't sending the "excessive profits" for a year in investments to the city recipients as a gift 13th check?

That didn't lose $1 or $2B because city hacks don't understand basic economics (hint: you need big years to offset bad years, morons); 12/3/13, 3:50 PM
Wince said...: This comment has been removed by the author.; 12/3/13, 3:52 PM
Wince said...: Robert Cook said...
Wall Street and corrupt city politicians destroyed Detroit, not the pensioners.

Democrats to union supporters:

"Can't spend your whole life worrying about your mistakes. You fucked up, you trusted us. Hey, make the best of it."; 12/3/13, 3:55 PM
Anonymous said...: "Judge Rhodes, if you ever show your face in #Detroit, please expect to either be beaten or run over

...nothing personal, you understand, it's just what happens to people in Detroit."; 12/3/13, 3:59 PM
Anonymous said...: This comment has been removed by the author.; 12/3/13, 4:07 PM
MadisonMan said...: I am glad I live in a state with a conservative pension fund in which I have some money (in addition to my own 403B and Social Security). One of the three should provide for me, and I hoping they all do. Otherwise I can move in with one of the kids.

It's too bad that the cronyism in politics that bred this Detroit fiasco was in the past -- those politicians are long ago voted out of office. It's tough to punish them now -- at least their pensions are on the line too.

I have some sympathy for the retirees whose plans have been upset, because it could happen to me, I am sure, given the right set of circumstances. That it happened to them is their bad luck in combination with imprudent financial decisions made by the overseers of the pension fund.; 12/3/13, 4:37 PM
madAsHell said...: Mr. Nanni is now tweeting directly to Detroit police, the local FBI, the Michigan state patrol, and claiming that his comments were taken out of context.

He's a poly sci student at Wayne State.

I'm thinking he's not cut out for poly sci.; 12/3/13, 4:48 PM
Andy Freeman said...: > If you start to stiff secured creditors, you're going to make it more expensive for credit-worthy cities to borrow in the future.

You write that like it's a bad thing.

"credit-worth city" is at best a temporary state. At some point, someone loots the city. Borrowing makes that eventuality worse.

It's best to simply avoid the problem.

Secured by real property loans (aka "something that can be repossessed) might be okay. Everything else should be pay as you go.; 12/3/13, 4:51 PM
MarkW said...: "Until its citizens abandon Black Power politics, Detroit will remain a Zimbabwe in miniature indefinitely."

Detroit just elected a white mayor -- by a pretty wide margin. And downtown Detroit is actually gentrifying. But the neighborhoods mostly remain a disaster.

"I am glad I live in a state with a conservative pension fund in which I have some money."

Michigan actually converted state-level employees to 401K-style defined contribution plans in the 1990s. The state as a whole is in pretty decent shape fiscally (much better than Illinois, for example).; 12/3/13, 5:24 PM
Paul said...: And soon Chicago will follow them down the drain....; 12/3/13, 5:46 PM
Illuninati said...: There is plenty of blame to go around. Capitalism produces growth by creative destruction. Companies which can not change and compete are allowed to fail and are replaced. From that standpoint, capitalism is working just as it is supposed to work except this time it is a city which has failed.

Generally free trade is good, provided all players follow the rules. China has followed an aggressive mercantilist policy against the USA without any apparent push back. We have benefitted by lower prices but have hollowed out our manufacturing base in the process. Many of our citizens are not college material and need the manufacturing jobs which went to China. The blame for this belongs to both parties who were not willing to take the steps which would have made manufacturing jobs here more competitive.

That said, the Democrats and unions in Chicago should shoulder most of the responsibility for this disaster since they have had the power for decades and directly contributed to the decline in many ways. The fact that other cities were able to adjust to changing economic conditions and thrive while Detroit failed is their responsibility.; 12/3/13, 6:02 PM
Andy Freeman said...: > We have benefitted by lower prices but have hollowed out our manufacturing base in the process.

By what measure?

Manufacturing jobs have gone down but manufacturing's share of US GDP has been roughly constant.

We did basically the same thing with agriculture 30 years earlier.; 12/3/13, 6:36 PM
William said...: Has Detroiy truly bottomed out? I'd just as soon not relocate myself to a city where adverse judicial rulings trigger death threats. Part of Detroit's problem is that it is regarded as a lawless place where people get beat up and run over...... If you buy property in Detroit, aren't you also buying a lawsuit?.....I suppose there's blame to go around, but, in the written accounts I've seen, the administration of Coleman Young is treated very gently.; 12/3/13, 6:38 PM
Illuninati said...: Andy Freeman said:
"Manufacturing jobs have gone down but manufacturing's share of US GDP has been roughly constant.

We did basically the same thing with agriculture 30 years earlier."

I'm not sure agriculture is a good comparison. The number of people engaged in agriculture has dropped but the agricultural production has remained constant or increased. Many areas of manufacturing have disappeared from the US. The jobs which have gone are the low skilled labor intensive ones which the unemployed of Detroit could be filling. One example which comes to mind is the mass clothing manufacturing business which is almost entirely offshore. Many tools and household goods are either unavailable or very expensive if made in the USA.

There is some hope that the manufacturing with good jobs will return to the USA with the lower energy costs and the rising wages for Chinese workers. This can only happen if the Democrats allow it to happen.

New manufacturing techniques such as 3D printers will undoubtedly make it less attractive to manufacture overseas but they will cut into the number of unskilled laborers needed to manufacture the products since so much of the manufacturing process will be automated.; 12/3/13, 6:52 PM
Illuninati said...: Incidentally, talking about jobs, one of the best areas to produce middle class jobs is healthcare. It is hard to outsource healthcare although the bean counters have done their best to stifle this source of new middle class jobs. Since they haven't found a way to send US patients overseas for care they have done the next best thing and have imported thousands of foreign doctors and nurses to compete with and often to replace American trained doctors and nurses.; 12/3/13, 7:02 PM
Douglas B. Levene said...: "Illinois has a nearly identical clause in the state constitution to protect pensions issued by the state and its chartered governments." My interpretation of those provisions is that they are similar to the Contract Clause of the Fifth Amendment. They mean that the state cannot by statute reduce or invalidate pension promises. But bankruptcy is all about breaching perfectly valid contracts. That's what generally happens. The abrogated contract is not invalidated; on the contrary, the non-breaching party gets a claim for damages and shares pro rata in the recovery with all the other unsecured creditors. And that is exactly what is going to happen here to the beneficiaries of the pension promises made by Detroit.; 12/3/13, 7:12 PM
Michael K said...: " Part of Detroit's problem is that it is regarded as a lawless place where people get beat up and run over."

I remember the 1967 riots and the "Devil's Night" tradition that began then.

There were some things Detroit could not control, like the steel industry and the ore boats that made lake front plants economical. However, the unions and the auto industry prevented a revival or a transition to other industries.

The IAM is trying mightily to drive Boeing out of Seattle. A brilliant new city council member has announced that Boeing can leave. The "people" will build airplanes. They don't need no stinkin' management. The city council can probably do as good a job as the Obama people have done with healthcare.

It's Zimbabwe all over again.; 12/3/13, 7:20 PM
MadisonMan said...: I remember the 1967 riots and the "Devil's Night" tradition that began then.

My Dad, prior to being shipped overseas in WWII, was sent to Detroit to help quell race riots. He says he was more alarmed by grown-up-in-cities soldiers who didn't know gun handling protocol.

By Detroit's been a hellhole for a long long time.; 12/3/13, 8:01 PM
Rusty said...: Ipso Fatso said...
"Can a state file for bankruptcy (Illinois)?"

Which is exactly why I will be voting a straight D ticket from here on out. It is the fastest way to ruination. Mike Madigan, Pat Quinn, Ed Burke, and the great Todd Stroger you all have my vote!!!

EBRACE THE DECLINE!!!!!!

It doesn't make any difference who you vote for. It's illinois. Michael Madigan rules here.; 12/3/13, 8:43 PM
SJ said...: including a potential spinoff of the water and sewer department

I don't know about the sewer department, but Detroit Water Department sells fresh water to most of the ~4 million residents of the Tri-County Area.

If turned into a privatized system, it will likely be self-supporting.; 12/3/13, 9:40 PM
Michael The Magnificent said...: There, but for the grace of God...

Thank you, Scott Walker!; 12/3/13, 10:04 PM
MadisonMan said...: There, but for the grace of God...

Thank you, Scott Walker!

No. You can thank Walker for a lot of things, but the solvency of Wisconsin's pension plan long predates him.

Pensions are the millstone around other state's necks, but no here.

Of course, if the Stock market tanks, then the WI Pension plan won't be paying out a lot, but I don't think taxpayers are on the hook for any shortfalls. They'll just have to listen to complaints.; 12/4/13, 6:35 AM
Michael The Magnificent said...: MM, before he was elected Governor, Scott Walker was elected Milwaukee County Executive:

Milwaukee County pension scandal trial primer; 12/4/13, 9:02 AM
Andy Freeman said...: >> "Manufacturing jobs have gone down but manufacturing's share of US GDP has been roughly constant.

>>We did basically the same thing with agriculture 30 years earlier."

> I'm not sure agriculture is a good comparison. The number of people engaged in agriculture has dropped but the agricultural production has remained constant or increased.

That's exactly what happened with manufacturing.

> Many areas of manufacturing have disappeared from the US.

Jobs or even specific good-wise, yes. However, the value of stuff manufactured in the US has grown with the rest of the economy.

Yes, we don't make some things that we used to make. However, we also now make things that we didn't make before (mostly things that no one made before). That's the big difference between manufacturing and agriculture - we haven't changed what we're growing (much) while we have changed what we're making.

However, in both cases, the value remained the same while the jobs went down.; 12/4/13, 4:56 PM