Really Not Looking Good for Syncora: AFSCME Endorses Plan of Adjustment. So did FGIC.

[corktownyuppie]

http://www.nextchapterdetroit.com/fr...l-with-afscme/

City might be able to walk into bankruptcy court with all creditors but Syncora endorsing the deal. Let's get this Plan of Adjustment approved and start pouring money back into the city.

[Wesley Mouch]

http://www.nextchapterdetroit.com/fr...l-with-afscme/

City might be able to walk into bankruptcy court with all creditors but Syncora endorsing the deal. Let's get this Plan of Adjustment approved and start pouring money back into the city.

I there a sympathetic soul anywhere on this forum. Me, the reactionary, John Birch Society, Tea Party Charter Member who wants to see Reagan, Goldwater, Walker, and Snyder added to Mount Rushmore... even I don't have any sympathy for bankers who loaned money to Detroit.

Anyone with a pulse -- and even evil corporation -- all knew Detroit was heading for the iceberg.

[Hermod]

I there a sympathetic soul anywhere on this forum. Me, the reactionary, John Birch Society, Tea Party Charter Member who wants to see Reagan, Goldwater, Walker, and Snyder added to Mount Rushmore... even I don't have any sympathy for bankers who loaned money to Detroit.

Anyone with a pulse -- and even evil corporation -- all knew Detroit was heading for the iceberg.

Yeah, I hear you, but can you imagine the accusations of "racism" if a bank refused to do business with Detroit because it was a kleptocracy.

[corktownyuppie]

Yeah, I hear you, but can you imagine the accusations of "racism" if a bank refused to do business with Detroit because it was a kleptocracy.

I don't know about that. The plantation politics may be loud and sometimes the loudest. But there are lots and lots of very capable people in the city administration that speak the language of business. If the lending dried up a long time ago, then we would have dealt with this a long time ago as well.

There's a reason why this bankruptcy is so damning to all the parties involved...they were all a party to creating the mess. Sure sometimes unions demanded things that we couldn't pay for in the long term. But the city, enabled by their financiers, exchanged short-term stability for long-term insolvency.

By the way, when was the last time that a union went to war with management, took it all the way to a strike, and eventually got their demands met?

[Hermod]

By the way, when was the last time that a union went to war with management, took it all the way to a strike, and eventually got their demands met?

As FDR [[very sympathetic to unions) noted, gummint employee unions have the political power to help elect politicians who give in to their demands without a strike.

[Wesley Mouch]

...By the way, when was the last time that a union went to war with management, took it all the way to a strike, and eventually got their demands met?

Not sure what you mean by 'get their demands met'. Its rare that labor negotiations are ugly. It really rare that it gets to a strike. But when it does, there is usually a settlement.

That settlement is usually not what either side wanted. Seldom does anyone 'get the demands met'.

And that's as it should be. I don't believe in municipal unions, but there are negotiations between workers and the officials they paid to elect. They agree. And 99% or more of the time we just get higher-than-average wage increases. And that's OK.

But work rules and job descriptions don't change. That's the real rub.

Here, AFSCME see that there's no choice. Give them credit for being reasonable for the first time.

[Hermod]

Here, AFSCME see that there's no choice. Give them credit for being reasonable for the first time.

The gummint unions are starting to see the bones of the goose who lays the golden eggs.

[Hypestyles]

... so why are the final court hearings getting delayed?

[Detroit500]

Fingers crossed.... And yes, the corporations knew exactly what they were doing. That being said, the days of "secured" Bondholders seem to be going away thanks to the corporations based in, and the city of Detroit.

[corktownyuppie]

Fingers crossed.... And yes, the corporations knew exactly what they were doing. That being said, the days of "secured" Bondholders seem to be going away thanks to the corporations based in, and the city of Detroit.

I don't think that anyone, including the corporations and the unions, were purposely doing anything harmful or wrong. I think that all parties were operating under a worldview that was no longer true...under rules and assumptions that were outdated.

In an ideal world, everyone would have arrived at this point much much earlier. Decades ago, maybe. But the forces and pressures to fight every battle to prevent change were just too strong. You can tell a kid not to touch a hot stove until you're blue in the face. Sometimes the kid needs to get burned a little in order to learn the lesson.

Hell some people still haven't learned. There are still large numbers of people that want to risk it all and take it to a court ruling.

As for secured bonds [[and, btw, insured bonds), I don't think they are going away. I think there will be far more scrutiny to determine exactly what is securing the bonds.

[motz]

Fingers crossed.... And yes, the corporations knew exactly what they were doing. That being said, the days of "secured" Bondholders seem to be going away thanks to the corporations based in, and the city of Detroit.

It was a piss poor investment made by bankers. Anyone who lived in Metro Detroit could've said "You would be better setting your money on fire and peeing on it", but the ~brilliant minds~ of Wall Street thought they could profit. What upsets me the most is that rather than being forced to own up to a terrible decision, someone like Syncora will drag this through the courts as long as they can, and probably not end up taking that terrible of a hit.

[Wesley Mouch]

I don't think that anyone, including the corporations and the unions, were purposely doing anything harmful or wrong. I think that all parties were operating under a worldview that was no longer true...under rules and assumptions that were outdated....snip...

Completely true. The problem isn't one of bad intentions.

The system is broken. Its obvious we don't know how to create sustainable local government. Our grandparents city council would never have borrowed money to pay for daily operating expenses. But today we have to. We made promises. We expect and requirement certain things from government.

[Packman41]

It was a piss poor investment made by bankers. Anyone who lived in Metro Detroit could've said "You would be better setting your money on fire and peeing on it", but the ~brilliant minds~ of Wall Street thought they could profit. What upsets me the most is that rather than being forced to own up to a terrible decision, someone like Syncora will drag this through the courts as long as they can, and probably not end up taking that terrible of a hit.

Very technically the “bankers” did NOT make the investment in Detroit – rather the bond purchasers [[bond holders) did. These are folks such as you, your parents and grand parents. Investment bankers are totally different from your local retail banker for your checking account, auto loan or home mortgage loan.

• The investment banking houses only underwrote the bonds and sold those bonds to the bondholders. Once the bonds are sold they have made their money and they have relatively little to do with the management of the bonds. Those duties of collecting money from the city to pay interest to the bondholders are done by the Bond Trustee and they collect a fee for that.
• When the investment bankers underwrite the bonds they have a credit rating agency[[ies) rate them for risk of loss [[for a fee). The better the credit rating, then the lower the interest rate and the easier the bonds are to sell.
• The credit rating agencies are supposed to determine the probability of the CofD being able to make good on paying interest and principle. But often the CRAs ask a bond insurance company [[such as Syncora) in re-underwrite the bond and add their guaranty of repayment. In effect the insurer becomes a co-signor for the CofD. So, if the CofD fails to pay money to the bondholders [[via the Trustee) then the bond insurance company must now make the payments.

Syncora has had a VERY bad record. They just came out of bankruptcy in 2009, they can no longer sell bond insurance policies in NY state and they have been de-listed from the NYSE – in 2007 their stock was at $34.58 and today it hovers around $2.22. However, they collected a big insurance fee for co-signing for the CofD and now that will cost them.

[Detroitnerd]

Very technically the “bankers” did NOT make the investment in Detroit – rather the bond purchasers [[bond holders) did. Syncora has had a VERY bad record. They just came out of bankruptcy in ...

Bla, bla, bla. We don't need facts like these. We've already decided that it's all the fault of the unions, thankyouverymuch!

[motz]

Syncora has had a VERY bad record. They just came out of bankruptcy in 2009, they can no longer sell bond insurance policies in NY state and they have been de-listed from the NYSE – in 2007 their stock was at $34.58 and today it hovers around $2.22. However, they collected a big insurance fee for co-signing for the CofD and now that will cost them.

I was going to write a super snarky post but decided against it.

So essentially plenty of people already profited off of this deal, regardless of how shady was? And by the design of the system, the investment bankers can say not us [[even though they knowingly wrote a product that, to anyone with an IQ over 70, was a terrible investment), and the credit rating agencies can say not us [[even though they could've said "Look, CoD's financial situation is near or at dire straits, this isn't a good idea), while those over at Syncora will take the majority of the blame, tanking their own business while still getting paid?

[compn]

while those over at Syncora will take the majority of the blame, tanking their own business while still getting paid?

it aint their money, what do they care?

[corktownyuppie]

it aint their money, what do they care?

Most of the higher ups in these kinds of companies get paid in company stock. For example, at Ford, Alan Mullaly may take a compensation package that is 10% salary, and the remainder is company stock.

I don't think Syncora will survive this. It may not be the nail in the coffin, but it's going to be very, very hard for them to stay in business. I'd say it's safe to say that the executives stand to lose a lot of money. Millions.

Now don't get me wrong, like Wesley Mouch said, I'm not crying any tears for them. Even their worst case scenarios mean they won't be living out of a cardboard box.

But don't worry, they're getting their *ss handed to them right now.

[Packman41]

So, if you are looking for a scorecard as to who is to blame and what they can lose, then here they are and in no specific order:

• Blame the Mayor, and other CofD leaders/lawyers for asking for $1.2 billion of additional debt. When you do not have the revenue from current operations to fund your pre-existing obligations you are already in trouble. This is the drunk begging the bartender for another drink. They have nothing at risk while kicking the can down the road and staying in power ….for now.
• Blame the bond underwriters for failing to explain EXACTLY the risk level of the CofD finances. Yes, municipal books use a different set of accounting, but they should have known better – especially for the fee they are taking. But again, their risk ended when the bonds were sold to the public. Consider them the bartender.
• Blame the Credit Rating Agencies for not doing their full due diligence and relying on CofD attorney letters and relying on the guaranty from Syncora. They should have also reviewed Syncora too. So they collected a fee and had no risk in the deal. Consider them the liquor store that sells booze to the bar.
• Blame the bond insurers [[Syncora). The buck stopped with them and they had the most, if not all, of the risk. They obviously did not look hard enough into the deal and no not anticipate all of the possible risks, financial or legal, if the CofD ever defaulted. They took their fee, did not do their home and now do not want to pay the bondholders because of their screw up. They should and will take a BIG hit, perhaps declaring bankruptcy again.

IMHO, it is hard to blame the bondholders. Most are your average, mom & pop investors that believed the comments the bond underwriters printed in the prospectus, the risk rating from the CRA and the bond insurer would pay IF it ever hit the fan. Still they could have done SOME research.

Take your pick.

Meanwhile, if Syncora does not pay the insurance claim, then the bondholders will take a real hit.