Tuesday, February 25, 2014
Still Watching Detroit
Many people are more than likely sick of hearing about Detroit these days. I don't blame you really but how that bankruptcy works itself out is going to set a precedence and give us a clear picture on how the biggest lying ponzi scheme in history is going to work itself out.
This problem isn't about the investor class versus the poor public employees who need their pensions. Nope, this is about ultimately who they are going to try and stick the bill to and everyone who owns property, works a paying job or buys anything from a business will be hit if the courts try and pass the cost off on the investors.
It really is that simple. Costs are always passed on or through the investment class in one way or another. This is why our original bankruptcy laws were set up the way they were and protected bond holders most of all. If bond holders take the brunt of this why those who voted in the crooks and rode the wave of promises with no thought to how or where this easy money was coming from are taken care of then the ultimate cost of paying these pensions will come from tax payers.
That's you and me.
Yields and interest for municipal bonds will sky rocket as they will now be seen as non-secure investment vehicles. Property taxes will rise along with other sales and use taxes accordingly as services will be reduced. A reduction in services will also then manifest itself in higher insurance costs and greater minimum coverage amounts while, get this, overall property values will decrease.
Detroit's debt adjustments plan hostile to bondholders
"Fitch considers Detroit's plan of adjustment to be hostile to GO bondholders," the rating agency said in a statement. "If this priority of creditors is upheld, Fitch expects that this disregard for the rights of bondholders will factor into higher borrowing costs for local issuers, and ultimately for local property taxpayers, in Michigan."
That's right by stiffing the bondholders the tax requirements and bill will ultimately raise the property taxes for all of Michigan.
It won't end in Detroit anymore than it really began there. Pensions are way under funded everywhere in the US and even those who report 80% or better total funding are using Enron accounting and unicorn style fantasy returns on investment that will surface.
You may also think it will work itself out to a small amount overall but this is wishful thinking as well. Once the total bill is spread out the extra taxes will kill commerce and make it impossible to service the debt regardless. Not to mention those munny and other funds will still need to resort to bond offerings with skyrocketed interest to continue to operate.
It doesn't matter where you live. A decision against the bond holders will directly effect your wallet whether you are in Oklahoma or Michigan.
Keep Prepping Everyone!!!