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Mish's Global Economic Trend Analysis

Idiocy vs. Common Sense in Detroit; Judge Rules Bankruptcy Invalid; What's Next?

Posted: 21 Jul 2013 11:22 AM PDT

On Friday, a Michigan Circuit Judge Rosemarie Aquilina ruled Detroit bankruptcy is unconstitutional.

On Friday, a circuit court judge in Ingham County ruled that Detroit's federal bankruptcy filing violated a part of Michigan's constitution that protects union pensions. She ordered it withdrawn, a day after Detroit became the largest U.S. city in history to file for chapter nine bankruptcy.

Judge Rosemary Aquilina also said the filing did not honor President Barack Obama's work for the city, who she said "took [Detroit's auto companies] out of bankruptcy." Aquilina said she would send a copy of her order to Obama.

"It's cheating, sir, and it's cheating good people who work," the judge told assistant Attorney General Brian Devlin. "It's also not honoring the (United States) president, who took (Detroit's auto companies) out of bankruptcy."

The Detroit News reported "attorneys representing the pension boards hurried into Aquilina's court to ask for a restraining order" on July 18, but Michigan Gov. Rick Snyder (R) and Detroit's emergency manager Kevin Orr "beat them by a few minutes" in filing for bankruptcy. The filing did not deter lawyers for union pension boards, who can use "court maneuvers to slow down federal bankruptcy proceedings."

Idiocy

The whole point of bankruptcy court is to resolve debt issues that cannot be paid. It is impossible for Detroit to meet its pension obligations and the only way to resolve the issue is in bankruptcy court.

Common Sense

In a common sense position, Michigan Governor Says Detroit's Bondholders Part of Bankruptcy

Governor Rick Snyder of Michigan said today that the bondholders of the city of Detroit should expect to be "part of the process" of the largest municipal bankruptcy in U.S. history

"Realistically, if you step back, if you were lending to the city of Detroit in the last few years, didn't you understand there were major issues and problems?" Snyder, a Republican, said on the CBS's "Face the Nation" today. "Look at the yields they're obtaining compared to other bonds. They were getting a premium."

The plight of city pensioners is "one of the other tragic situations" in the Detroit bankruptcy, Snyder said on CBS. He said that during discussions with creditors, "no one" wanted to represent retirees, so he has asked the federal judge in the case to assemble a group of retirees to speak for them.

Pension Funding

"Short-term through the end of the year, there won't be any change," Snyder said. "Beyond that, the real question also is, to the degree those pension plans are funded, that they're our assets, that they are not part of this process."

"It's the unfunded piece, and there's a terrible history there of mismanagement and poor investment that should get aired out in public and should be part of this discussion," Snyder said on CBS.

In contrast to the idiotic circuit court ruling, the statements by governor Snyder represent a fresh breath of common sense.

1. Bondholders knowingly took risks so they must take a haircut.
2. The funded assets of the pension plan cannot be touched
3. Bankruptcy court will resolve the unfunded portion

What's not to like about that?

And in regards to point number three, I would hope the burden falls on the highest pension beneficiaries (most likely city officials, police, firefighters) but also taking into account length of service, rather than something like 50% haircuts across the board.

What's Next?

I expect the circuit court ruling will be overturned with prejudice, the pension plans will take a huge haircut, boldholders will take some haircut, and the overall fairness of the final decision as to how pension haircuts will be applied is up in the air.

Many other cities will follow Detroit's lead.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

I don't normally do this

Hey everyone,

I don't usually write emails like this, and we don't usually send messages like this to this list. But I just finished reading the draft of a speech the President plans to deliver on Wednesday, and I want to explain why it's one worth checking out.

Eight years ago, not long after he was elected to the United States Senate, President Obama went to Knox College in his home state of Illinois where he laid out his economic vision for the country. It's a vision that says America is strongest when everybody's got a shot at opportunity -- not when our economy is winner-take-all, but when we're all in this together.

Revisiting that speech, it's clear that it sowed the seeds of a consistent vision for the middle class he's followed ever since. It's a vision he carried through his first campaign in 2008, it's a vision he carried through speeches like the one he gave at Georgetown University shortly after taking office that imagined a new foundation for our economy, and one in Osawatomie, Kansas on economic inequality in 2011 -- and it's a vision he carried through his last campaign in 2012.

Watch that history here and see why this moment is so important.

All of these speeches -- Knox College, Georgetown, Osawatomie -- make clear that since day one, the President has had one clear economic philosophy: The American economy works best when it grows from the middle-out, not the top-down.

This Wednesday, almost five years after the financial crisis fueled a devastating recession, and two years after a debate over whether or not America would pay its bills that harmed our recovery, the President will return to Knox College to kick off a series of speeches that will lay out his vision for rebuilding an economy that puts the middle class and those fighting to join it front and center. He'll talk about the progress we've made together, the challenges that remain, and the path forward.

And over the next several weeks, the President will deliver speeches that touch on the cornerstones of what it means to be middle class in America: job security, a good education, a home to call your own, affordable health care when you get sick, and the chance to save for a secure, dignified retirement. They will include new ideas and new pushes for ideas he has discussed before. They'll outline steps Congress can take, steps he'll take on his own, and steps the private sector can take that benefit us all.

The point is to chart a course for where America needs to go -- not just in the next three months or even the next three years, but a steady, persistent effort over the long term to restore this country's basic bargain for the middle class.

Why now? Well, we've made important progress with the Senate passing comprehensive immigration reform and will continue to work with the House to push to get that enacted into law. But the President thinks Washington has largely taken its eye off the ball on the most important issue facing the country. Instead of talking about how to help the middle class, too many in Congress are trying to score political points, refight old battles, and trump up phony scandals. And in a couple of months, we will face some more critical budget deadlines that require Congressional action, not showdowns that only serve to harm families and businesses -- and the President wants to talk about the issues that should be at the core of that debate.

As I was reading through his draft, I was reminded what drives this President to work so hard. I hope you'll watch this video showing the context of the last eight years and then tune in on Wednesday to find out. I don't think you'll be disappointed.

Thank you,

Dan

Dan Pfeiffer
Senior Advisor to the President
The White House

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Seth's Blog : Principles for responsible media moguls

Principles for responsible media moguls

If you run a media company (and you do--you publish regularly on all sorts of social media, don't you?) then it's worth two minutes to consider some basic groundrules, listed here for you to embrace or reject:

Establish your standard for truth, and don't vary it. Are you okay reporting rumor or innuendo in order to get attention? How about rushing to judgment so you can beat everyone else to the punch? People will put up with a lot as long as you don't become inconsistent.
What's your content to noise ratio? Will you choose to fill 'air time' by vamping, interviewing irrelevant passers by and generally wasting minutes merely because you have minutes or paper or bits to spare? (I heard a podcast last week that took 14 minutes to get a fifteen-second point across).
How will you honor, protect or expose those that give you money? Do your bosses, advertisers and customers benefit or suffer because of their relationship with you?
Will you amplify fear? If your readers eat it up, will you make more of it?
How often are you comfortable saying, "ditto"?
Will you raise the bar or lower it? If a crank yells "fire" in the crowded moviehouse, will you loudly report that there might just be a fire, will you ignore the troll or will you call him out and push us back to some standard of normalcy?
Is it more important to you to have ever more readers/watchers, or would you prefer to have a deeper interaction with those you've already got? Hard to do both at the same time.
Is your work designed to stand the test of time, or is it only for right here and right now?
Who, precisely, are you trying to please? They don't offer a Pulitzer for most of what we do, so if not the judges, then who?
When you get to the point where you're merely saying it because it's your job or because it's expected, will you stop?