City of Detroit Files for Bankruptcy Protection

[mwilbert]

But the mathematics are in place for a neat Constitutional Crisis...this is nearly the "perfect storm" combination that can un-do it all.

There has to be some check for fraudulent bankruptcy filing, to insure that it wasn't done to elude a lawsuit...certainly there is case law already done, just not at this level...with government using another level of government to protect itself from civilian creditors.

Geez, this has so many dimensions of approach...it could be an entire economic system crisis. The President is going to HAVE to bail out Detroit, with as cozy a terms as the bankers got.

I don't think so.

Except for city pensioners, a small number of bond insurers, and [[possibly) residents, there is no crisis here, and there isn't going to be any kind of response as if there were. There's no systemic risk.

[48205to24]

Question to the legal minds on the board:
If the bankruptcy proceedings are held up in court or delayed for some reason passed the 2014 election AND Snyder is replaced by a Democrat.... could all this go in a different direction? Or is it too late to put the genie back in the bottle?

[EastsideAl]

http://www.freep.com/article/2013071...must-withdrawn

Well, even if it is toothless, at least someone recognizes that workers shouldn't be screwed out of their contractual benefits in favor of speculators, and the protection of those who failed to meet their obligations to pay into the funds. But, Constitution be damned, I'm sure Snyder et. al. will continue in their campaign to backdoor working people and retirees through the federal courts.

[professorscott]

Well, even if it is toothless, at least someone recognizes that workers shouldn't be screwed out of their contractual benefits in favor of speculators, and the protection of those who failed to meet their obligations to pay into the funds. But, Constitution be damned, I'm sure Snyder et. al. will continue in their campaign to backdoor working people and retirees through the federal courts.

The problem with invoking the constitution is you can't pick and choose. Once you invoke it, you invoke the whole damned thing. Here's the relevant section:

"The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities."

So the judge sayeth: it's completely OK that Detroit trampled all over the second paragraph for years and years, but now the state can't step on the first paragraph?

My crystal ball sees a supremacy clause case coming here and I suspect, not being an attorney but having seen enough of this stuff over the years, some higher-up judge is going to decide one or both of the following:

1. An Ingham County judge has no jurisdiction over what a Wayne County city does in a Federal court.

2. Federal bankruptcy rules do not generally allow a petitioner to favor one group of creditors over another, except in the inherent distinction between secured and unsecured creditors. The Michigan constitution [[which, by the way, has coexisted for years with Michigan laws specifically enabling municipal bankruptcies) has the effect, in a Chapter 9 case, of creating a specially favored class of unsecured creditors. So as the large "medical" marijuana operators have found to their chagrin, Federal laws tend to trump State-created law, whether found in the State constitution or in its code.

I could be wrong about any of this; as I said, I'm no expert. But I wouldn't bet against me on this one.

[corktownyuppie]

Well, even if it is toothless, at least someone recognizes that workers shouldn't be screwed out of their contractual benefits in favor of speculators, and the protection of those who failed to meet their obligations to pay into the funds. But, Constitution be damned, I'm sure Snyder et. al. will continue in their campaign to backdoor working people and retirees through the federal courts.

This isn't about promises. It's about how the promises get paid. I'm not against pensioners receiving their pension. But who will pay them? I have no objection to the state stepping in and picking up the tab. I have no objection to a federal judge to rule that pensioners have first right comparable to secured creditors. [[Which my gut feeling says might happen).

But Detroit doesn't have the money, and the way we figure out how it all gets done is in bankruptcy court.

[Lowell]

The following quote from Crain's reminds me of the rosy predictions that the war in Iraq would be over quickly...

Hours after filing the petition in U.S. Bankruptcy Court in Detroit, Orr joined Mayor Dave Bing at a news conference, saying city departments will remain open, services will continue and paychecks will be paid.

Orr also indicated an endpoint for bankruptcy: The goal is to emerge from Chapter 9 in late summer or early fall of 2014, he said.

[corktownyuppie]

The following quote from Crain's reminds me of the rosy predictions that the war in Iraq would be over quickly...

Note that he said "goal" and not "expectation". We'll just have to see....

[48009]

Some WSJ quotes:

The police don’t respond. Why bother? Blacks “never see anything” happen, so who you gonna arrest?

How can you talk about Detroit decline and not mention the riots and the toxic black culture propogated by a series of socialist and anti business mayors?

New Tiger Stadium and casinos and empty condos….all smoke and mirrors meant to distract from the real problems at hand. Detroit needs to get private capital investment to create real jobs that attract actual taxpaying residents, and in return it needs to give those residents streets without gaping potholes and police presence. Detroit is in the country’s midsection, with a nearby top- tier university [[Michigan), plentiful water supply, nice airport, has a fairly well-educated and skilled workforce in the surrounding metro, and has a climate that while cold and gray is also a stranger to natural disasters [[no earthquakes, hurricanes, mudslides, rare tornadoes and flooding). Dallas rose out of a buttugly wheat field in nowhere Texas. Detroit can learn from there.

Pittsburgh came back but it wasn’t run by racist black officials with no idea how to run even a lemonade stand. Detroit is over unless you can start over.

[EastsideAl]

Some WSJ quotes:

Just to be clear, those quotes are from the comments, right? The WSJ editorial page can be pretty extreme and even ugly, but it's hard to imagine even them publishing such out-front racism.

[rb336]

http://www.detroitnews.com/article/2...xt%7CFRONTPAGE

[Meddle]

Coverage on Reuters, Wall Street Journal, USA Today, Chicago Tribune, New York Times, Businessweek, Irish Times, BBC, Seattle Times, Washington Post, CBS, ABC, Voice of America, and who knows how many more.

Way to go Detroit!

[BankruptcyGuy]

Maybe, but the bankruptcy court looks to state law to establish the priority of creditors.

What's likely is that, if the pensioners won't accept the terms of the plan, they'll object, and the BK court will seek the Michigan Supreme Court's interpretation of that clause. I don't know if the pensioners want to open that door; they might not like what's behind it.

[erikd]

At this point, it doesn't matter much what the state constitution says about the sanctity of public pensions, because the city simply doesn't have the money to pay for them. The unions can file all the lawsuits they want, but lawsuits and court orders don't generate money that simply doesn't exist.

This isn't much different than the bankruptcy laws that state that student loans can not be discharged. That may work for a while, but when the debtor simply has no money to pay, all the laws in the world don't matter.

[erikd]

Being that I'm trying to find refuge and have written Michigan off I no longer have a dog in the fight.

However I hope this leads to exposals. Snyder, Gary Brown, Orr, Bing, Andy Dillon, bring out ALL of their bullshit and backroom deals and gamesmanship and interviews with the answer.

If the city/state is going to look this foolish internationally then let's flush everything. Two elections in the next 16 months.

Votes matter.

You have listed off a state Republican, a state Democrat, two [[technically non-partisan) city officials, and the city's EM/Bankruptcy lawyer. Who do you propose to replace them, and exactly how do you want them to manage the situation differently?

We don't have the money to pay our bills. PERIOD.

Do you think Virg Bernero, Tom Barrow, Joann Watson, and Krystal Crittendon can manage this crisis better?

Show me better candidates with a better solution and I will vote for them.

[ElbertHanks]

At this point, it doesn't matter much what the state constitution says about the sanctity of public pensions, because the city simply doesn't have the money to pay for them. The unions can file all the lawsuits they want, but lawsuits and court orders don't generate money that simply doesn't exist.

This isn't much different than the bankruptcy laws that state that student loans can not be discharged. That may work for a while, but when the debtor simply has no money to pay, all the laws in the world don't matter.

You pointed out the major difference. Federal law precludes discharging as I understand it federally backed student loans. And as I understand it they will take your social security at the other end if you still owe. Student loans simply don't go away. Pensions aren't similarly protected under Federal law. We wouldn't have unenforceable orders coming out of Ingham County if they were. I can't blame the pension funds for fighting like hell. They simply want to position themselves to get the best possible deal they can. Though I dont believe any of us including some very sharp bankruptcy attorneys can say with certainty what that best possible deal or result will be. We are in largely uncharted territory.

[erikd]

You pointed out the major difference. Federal law precludes discharging as I understand it federally backed student loans. And as I understand it they will take your social security at the other end if you still owe. Student loans simply don't go away. Pensions aren't similarly protected under Federal law. We wouldn't have unenforceable orders coming out of Ingham County if they were. I can't blame the pension funds for fighting like hell. They simply want to position themselves to get the best possible deal they can. Though I dont believe any of us including some very sharp bankruptcy attorneys can say with certainty what that best possible deal or result will be. We are in largely uncharted territory.

You point out a big difference here. In personal debt, the government and courts can garnish wages, benefits, and payments to satisfy the debt.

For municipal debt, the state and/or federal government could theoretically seize revenue to pay debts, but in the case of Detroit that would result in city employees not getting paid, the lights shutting off, and a total shutdown of city government. If it came to that point, the state would really have no choice other than completely dissolving the city, and turning over governmental responsibility to a neighboring city [[basically a type of annexation), turning it over to the county, or creating some type of new local municipality.

The state holds absolute authority over the management of its local municipalities, and the state can dissolve, merge, transform, or create local governments as it sees fit.

Contrary to popular belief, local municipalities are not sovereign forms of government, and they have no rights or authority unless granted by the state.

[Hypestyles]

so with the Ingham county judge ruling, what's the next appearance in court for any of the parties involved here? This has become very confusing very quickly..

[Lowell]

Ray, I would say that it all depends on how the bankruptcy court defines "accrued financial benefits."

In a corporate pension fund, the total dollars held by the fund are allocated to the present and future [[vested) pension recipients. An individual's allocation, however, likely does not actuarially equate to the actual benefit that recipient has been promised. Most pensions calculate pension amounts on other factors, such as age and years of service, not amounts allocated to them in a plan.

For example, if a corporation goes into bankruptcy or otherwise becomes unable to fund a pension plan, the Pension Benefit Guaranty Board [[PBGC) then takes over the plan. The first thing the PBGC does is to actuarially recalculate each person's pension. Most plans have built in early retirement and other incentives that are not calculated based solely on one's age. So, anyone who retired prior to how the plan defines full retirement age [[usually 65) will have their pension reduced to an actuarially calculated amount [[which could easily halve the pension). Also, future COLA will be eliminated and previously granted COLA removed.

So, if the court defines "accrued financial benefits" as an amount allocated to a recipient, or follows the PBGC process, I would expect the pension amount for most City retirees to be at risk for reduction.

I was digging around on the web wondering if the PBGC [The federal government Pension Benefit Guaranty Corporation that protects pensioners of collapsed pension funds] comes into play here. I searched this thread and discovered your post. I wanted to know if the city pension plans are protected by the PBBG. Do you know?

BTW, I discovered that the PBGC has its own ponzi bubble with a $23 billion deficit on $103 billion in obligations. Corporations reap 'free' labor on the alleged ability to make future payment and pockets those as profits. If the company fails those obligations get dumped on the government [us] who has to hand out the haircuts to the pensioners.

[mwilbert]

No, the PBGC doesn't cover municipal pensions. And, no, it isn't a Ponzi scheme either--just because something is underfunded doesn't make it a Ponzi scheme.

[Jimaz]

Much of this is about pensions too:

DetroitYES Home » Non Detroit Issues » Thom Hartmann » Detroit is Bankrupt!

[Meddle]

Court of Appeals tells Ingham County Busy Body to bugger off:

http://www.freep.com/article/2013072...-judge-aqulina

The panel’s ruling also prohibits Aquilina from having any further proceedings on the matter until the appeal is resolved.

[Eber Brock Ward]

State court challenges are gone. All issues to be determined in BK court. Huge news for getting this thing done more quickly.

All issues related to bankruptcy "must be decided by the bankruptcy court exclusively," Judge Rhodes rules.

Rhodes says in all other recent Chapter9 cases, it was the bankruptcy court that determined all eligibilty issues raised by all the parties

http://live.freep.com/Event/Live_blo...ruptcy_hearing

[Wesley Mouch]

The governor flat out lied and said Kevyn Orr hadn't recommended bankruptcy to him. But his letter says Orr recommended it on July 16th. ...

Its all in perspective, isn't it? Bill Clinton didn't have sex with that woman. Did Orr 'recommend' bankruptcy, so say 'hey, I think we're gonna have to go that way'? What's the difference? Is catching Snyder in a 'lie' important? So yes, let's move onto what happens next. Suits are filed. Judges are going to settle them. Let's leave arguments about how many angels can dance on the pension check or whether an official recommendation was made to the past. Let's discuss the issues -- not the political spin.

[Locke09]

Its all in perspective, isn't it? Bill Clinton didn't have sex with that woman. Did Orr 'recommend' bankruptcy, so say 'hey, I think we're gonna have to go that way'? What's the difference? Is catching Snyder in a 'lie' important? So yes, let's move onto what happens next. Suits are filed. Judges are going to settle them. Let's leave arguments about how many angels can dance on the pension check or whether an official recommendation was made to the past. Let's discuss the issues -- not the political spin.

The trustworthiness of the parties involved is always going to be an issue for me. I am never going to be willing to overlook subterfuge and outright lies. Snyder has a letter from Orr recommending bankruptcy, not some verbal discussion that could have been misinterpreted. As others have pointed out, it isn't Snyder's first time playing with the truth.

I would think a judge will also want to have confidence that what people on both sides present in court is truthfulness to the best of their knowledge.

I would think that detroit citizens also want to have confidence that when Snyder/Orr tell them they will benefit from this [[not just a few anointed neighborhoods) then they will keep their word.

Actually, if you think about it, a bankruptcy occurs because people cannot or will not keep their word - doesn't it? Trustworthiness helps you believe a person when they say it's "I cannot" vs. "I choose not to."

[mwilbert]

The trustworthiness of the parties involved is always going to be an issue for me. I am never going to be willing to overlook subterfuge and outright lies. Snyder has a letter from Orr recommending bankruptcy, not some verbal discussion that could have been misinterpreted. As others have pointed out, it isn't Snyder's first time playing with the truth.

I would think a judge will also want to have confidence that what people on both sides present in court is truthfulness to the best of their knowledge.

I would think that detroit citizens also want to have confidence that when Snyder/Orr tell them they will benefit from this [[not just a few anointed neighborhoods) then they will keep their word.

Actually, if you think about it, a bankruptcy occurs because people cannot or will not keep their word - doesn't it? Trustworthiness helps you believe a person when they say it's "I cannot" vs. "I choose not to."

I think you are correct that trustworthiness/credibility is important. However, it was always apparent that bankruptcy was the likely destination of this process, and presumably the bankruptcy judge will review the actual facts of the situation, including whatever facts the pension beneficiaries and the bond insurers want to present, so while I understand your distaste for whatever level of deception you think occurred, I don't see that it has any substantive effect.