Sunday, November 9, 2014

Sunday Reading - Bond Holders Scalped in Detroit

So we are finally seeing the shape of things to come from the Detroit bankruptcy but with a twist no one saw coming.

Apparently the judge managed to beg public and private foundations for the money needed to keep the pensioners from taking too big of a hit, or more to the point managed to get these foundations to pick up a portion of it after the State (and taxpayers) of Michigan was tapped out.

The end result was a messily 4.5% cut for pensions, with retired police and firemen receiving less of a cut while bond holders across the country got scalped and in some cases got mere pennies on the dollar.

Finding $816 Million, and Fast, to Save Detroit

So far the bond holders are not saying much and in fact they did agree to this so it wasn't as if they were openly forced and threatened into taking a loss like the Government Motors fiasco. My bet is there were enough tax break incentives and  other behind the scenes agreements that it smoothed things out. However the problem is no where near fixed and municipal bonds just took another hit.

The ironic thing is these bond losses will in fact reverberate back into other pension funds across the world. Funds directly invested in Detroit will take a hit and funds invested elsewhere will see increased risk going forward, not to mention all municipalities will see slightly higher rate demands as well for the future.

It will be interesting to see how this continues to play out. The repercussions are no where near complete as the State of Michigan must now shell out $350 million over the next 20 years and the agreement plan relies on the same fantastical assumption of growth in Detroit and ballooning rates of return.

Finally the agreement also stipulates that the State of Michigan gets to appoint an advisory council which will have oversight of Detroit's finances going forward.

Ya that's going to go well.

So the bottom line here is Detroit pensioners got bailed out. They laundered the money a few times, scalped the bond holders and hid who was paying for it in small amounts here and there but they didn't hurt the pensioners much at all.

Now you see how this is going to play out going forward.

How does one go bankrupt? Why slowly at first and then all of a sudden.

Keep Prepping Everyone!!!!


  1. I think everyone got screwed. Once again the unions won.

  2. I saw a thing on TV a year ago or so where a big business in Detroit was demolition of neighborhoods that have become abandoned. It looked like they were making farmland again but it probably isn't that big of an area but you never know.

    1. Sf - Last time I was through there was way back in about 2001 or so. At that time I spent a good amount of time in that area and you could already see it falling apart. Some of those old pre-suburb type developments were huge and falling apart so they could be turned into farmland but it would take a lot of work.


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