Nolan Finley thinks Detroit hasn't sufficiently paid for the sins of filing bankrupt.

[iheartthed]

Bankruptcy IS a means to an end because usually EVERYONE gets dinged and everyone changes behavior afterwards. The individual gets to keep their house and have the second mortgage stripped, but they lose the classic car and the cottage. The bank loses money and the debtor isn't going to get any credit anywhere for 10 years...etc.

How is this any different from Detroit's situation? If the banks could do better then why did they settle? And what provision of any law forces the banks to do business with Detroit in the future?

[bailey]

How is this any different from Detroit's situation? If the banks could do better then why did they settle? And what provision of any law forces the banks to do business with Detroit in the future?

there is no provision that stops banks from doing business with Detroit... I would prefer there actually was one because there similarly is no provision for detroit leaders [[outside the somewhat undefined FAB) to mortgage the place to the hilt and beyond again.

[iheartthed]

there is no provision that stops banks from doing business with Detroit...

Is there one that requires a bank to not do business with an individual who files bankrupt?

[bailey]

Is there one that requires a bank to not do business with an individual who files bankrupt?

No.. which is why you get repeat offenders like Trump... [[or a particularly shifty relative of mine). very few places are going to touch you for 7-10 years after a bankruptcy and those that do tend do it at insane rates.

The one tiny thing I see in agreement with Nolan here is that there seems to be relatively little incentive to keep the political class from committing the same sins because most people are going to see an improvement in their lives... it's a weird dichotomy in this municipal BK situation. Hey, who cares about these bonds to cover operating expenses, no need to address the fact we have a city with physical infrastructure built out for 2 million people with less than 700k living here...etc. ... we can just wipe them in BK 10 years from now

[nain rouge]

WHAT IF - what if - somehow, someway, the banks and the city made out good on the deal, and the city was able to give pensioners a good kick in the teeth? Why is that such an impossible scenario to believe? Bank of America got Detroit to agree a ridiculous debt swap, for example, and collected way more interest over the years than it would have otherwise. All Detroit did was negotiate that highway robbery by BoA down to a more manageable number.

Of course, the sensationalist press reports that as BoA generously taking $0.crap on the dollar, but the reality is WAY more complicated. If you ask me, it looks like BoA made out decently in that deal. It's getting about as much from Detroit as it can realistically afford to give. I mean, c'mon, these banks weren't stupid when they presented a financially desperate Detroit with an interest rate swap.

The reporting going on is horrendous.

[nain rouge]

Detroit has agreed to pay debts that consensus opinion has deemed illegal debts. The banks are not getting taken to cleaners. Let's use some critical thinking skills here, people.

[Packard]

City employees are down and costs are down because it was at the point of a gun.... now that gun has been holstered? I guess we're leaving it up the FAB. Ok, how long before the FAB is just the overseer of the plantation and the man is keeping Detroit jewels for suburban interests?

The issue is there is no discussion about alternatives... its all about getting out of Bankruptcy and getting back to normal. "Normal" is what got Detroit to bankruptcy.

It seems to me there is a lot of ball spiking because of a belief that exiting BK was the goal line...when in fact it was only the 35 yrd line.

True the big challenge is still ahead;

Reducing crime
Improving schools
Improving all city services while cutting expenses
How about lowering tax rates to attract more tax revenue?

[Patrick]

Nolan comes off as a bit of a jabrone, but he gets paid to write the shit he writes. I wonder if he even believes half the shit that he puts into his columns.

[Wesley Mouch]

City employees are down and costs are down because it was at the point of a gun.... now that gun has been holstered? I guess we're leaving it up the FAB. Ok, how long before the FAB is just the overseer of the plantation and the man is keeping Detroit jewels for suburban interests?

The issue is there is no discussion about alternatives... its all about getting out of Bankruptcy and getting back to normal. "Normal" is what got Detroit to bankruptcy.

It seems to me there is a lot of ball spiking because of a belief that exiting BK was the goal line...when in fact it was only the 35 yrd line.

Bankruptcy avoided tough decisions. Tough would have been tearing up every union contract, firing everyone, and privatizing everything -- oh, and no pensions whatsoever -- until a 100% new city structure could be rise from the ashes like a Phoenix.

People here act like Nolan is a fool because he doesn't agree with the progressive logic that Detroit's problem is just a revenue problem. It was also a spending problem. Restoring every program from before the fall will just be setting up round 2.

Detroit is very lucky have been the first major city down this road. It will be different for the 10th city. There'll be no NYTimes coverage, nor love from the major media or politicians. There will be more bankruptcies, and it will get ugly.

[EastsideAl]

I'm not sure if the suffering leading up to Bankruptcy is the issue. The point is the banks [[rightly, IMHO) took a substantial haircut but, the citizens of Detroit aren't going to see anything but BETTER services and maybe even lower taxes for those services [[hopefully). I think there is a the legit point here... if the total burden falls on the lenders and non-resident retirees, where is the impetus for Detroit politicians to make the hard changes so that Detroit doesn't end up right back where it was?

So, you would prefer we received WORSE services [[which would have to be no services at all) and higher taxes [[on what is already the poorest population of a major city in the U.S.), so we can feel sufficiently "punished" for forcing BofA to take a little less profit on their fixed swap deal? Yessir, that's a real recipe for recovery. That should teach a lesson to all those entitled Detroit citizens prospering off of this bankruptcy!

So, you're really as bad as that asshole Finley. Screw you too.

[hewettbr]

So, you would prefer we received WORSE services [[which would have to be no services at all) and higher taxes [[on what is already the poorest population of a major city in the U.S.), so we can feel sufficiently "punished" for forcing BofA to take a little less profit on their fixed swap deal? Yessir, that's a real recipe for recovery. That should teach a lesson to all those entitled Detroit citizens prospering off of this bankruptcy!

So, you're really as bad as that asshole Finley. Screw you too.

again someone who just hates Finley and doesn't understand the point. No one wants the city to suffer, no one wants the city to fail, but if there is no negative reinforcement for the mistakes that were made people tend to not change how they operated. This is a major issue not only in municipal bankruptcy but also personal bankruptcy. The goal is a fresh start but also a chance to change, so it doesn't happen again.

Sorry if you dont like that opinion but it happens to be the truth. Avoiding the truth is what Detroit did for four decades. We all know how it turned out.

We need to look at what has happened here as a blessing and do everything in our power to never get in that position again. The article is trying to convey that message to the reader by stating how it could have been much worse.

[mwilbert]

The issue is there is no discussion about alternatives... its all about getting out of Bankruptcy and getting back to normal. "Normal" is what got Detroit to bankruptcy..

What kind of alternatives are you talking about? We just went through a pretty detailed study of the city's costs and revenues as part of the bankruptcy proceedings. If you think there are some large opportunities for improvement that were missed there, it might be helpful to let everyone else know.

[iheartthed]

Detroit is very lucky have been the first major city down this road. It will be different for the 10th city. There'll be no NYTimes coverage, nor love from the major media or politicians. There will be more bankruptcies, and it will get ugly.

Detroit isn't the first municipal bankruptcy. It was the biggest.

[mwilbert]

again someone who just hates Finley and doesn't understand the point. No one wants the city to suffer, no one wants the city to fail, but if there is no negative reinforcement for the mistakes that were made people tend to not change how they operated. This is a major issue not only in municipal bankruptcy but also personal bankruptcy. The goal is a fresh start but also a chance to change, so it doesn't happen again.

This is a ridiculous argument. To whom are you trying to teach a lesson? The people who ran the city as it declined are gone. They aren't in charge of anything anymore. Most of them are dead. You can't punish them, or discourage them from future bad behavior. Kwame is already in jail. For that matter, most of the residents who voted for them are dead or gone too. Can't teach them anything either.

And even if you wanted to discourage the people living in the city from voting for people who do things you don't like in the future, how is that supposed to work? Those people can leave too. Or do you think it is somehow appropriate just to disadvantage the very old and very poor who cannot leave if you try to teach them the error of their ways? The whole idea is at the same time absurd and repulsive.

Because cities are made up of people who can avoid responsibility for financial mismanagement by leaving, you need to have rules about what cities can do, and oversight to make sure those rules are followed. Michigan did not do a good job of this previously. Hopefully it will do a better job in the future, and at least in the case of Detroit that should be the case.

[EastsideAl]

again someone who just hates Finley and doesn't understand the point. No one wants the city to suffer, no one wants the city to fail.

Well, that's where you and I disagree at the start. I think Mr. Finley [[like a lot of people in our surrounding communities and our state) wanted both of those things, and is showing his disappointment here that it didn't end up as badly, and as restrictive of the remaining democratic rights of Detroit citizens, as he had hoped.

[sumas]

This is a ridiculous argument. To whom are you trying to teach a lesson? The people who ran the city as it declined are gone. They aren't in charge of anything anymore. Most of them are dead. You can't punish them, or discourage them from future bad behavior. Kwame is already in jail. For that matter, most of the residents who voted for them are dead or gone too. Can't teach them anything either.

And even if you wanted to discourage the people living in the city from voting for people who do things you don't like in the future, how is that supposed to work? Those people can leave too. Or do you think it is somehow appropriate just to disadvantage the very old and very poor who cannot leave if you try to teach them the error of their ways? The whole idea is at the same time absurd and repulsive.

Because cities are made up of people who can avoid responsibility for financial mismanagement by leaving, you need to have rules about what cities can do, and oversight to make sure those rules are followed. Michigan did not do a good job of this previously. Hopefully it will do a better job in the future, and at least in the case of Detroit that should be the case.

Boy you depressed my day. I think maybe I'll play the tune from Annie all day. You know the one, Tomorrow. It;s only a day away,

Gott in Himmel. Detroit is no dead dog. Quite kicking us.

[mwilbert]

Boy you depressed my day. I think maybe I'll play the tune from Annie all day. You know the one, Tomorrow. It;s only a day away,

Gott in Himmel. Detroit is no dead dog. Quite kicking us.

Your reaction makes me think you didn't understand what I wrote. Whether that is a problem with your reading or my writing or a combination I'm not sure. What do you see as the kicking?

[hewettbr]

This is a ridiculous argument. To whom are you trying to teach a lesson? The people who ran the city as it declined are gone. They aren't in charge of anything anymore. Most of them are dead. You can't punish them, or discourage them from future bad behavior. Kwame is already in jail. For that matter, most of the residents who voted for them are dead or gone too. Can't teach them anything either.

And even if you wanted to discourage the people living in the city from voting for people who do things you don't like in the future, how is that supposed to work? Those people can leave too. Or do you think it is somehow appropriate just to disadvantage the very old and very poor who cannot leave if you try to teach them the error of their ways? The whole idea is at the same time absurd and repulsive.

Because cities are made up of people who can avoid responsibility for financial mismanagement by leaving, you need to have rules about what cities can do, and oversight to make sure those rules are followed. Michigan did not do a good job of this previously. Hopefully it will do a better job in the future, and at least in the case of Detroit that should be the case.

To answer your first question : the region. Just because those in the past were to "blame" it doesn't mean that the current and future leaders wont go down the same path. I am not trying to to defend or attack anyone with my analysis, im just trying to state my opinion and interpretation on the piece.

I also did not say anything about making people suffer. I want and hope the city and its neighborhoods benefit from this who ordeal, i think you may have misinterpreted my comments.

[BankruptcyGuy]

WHAT IF - what if - somehow, someway, the banks and the city made out good on the deal, and the city was able to give pensioners a good kick in the teeth? Why is that such an impossible scenario to believe? Bank of America got Detroit to agree a ridiculous debt swap, for example, and collected way more interest over the years than it would have otherwise. All Detroit did was negotiate that highway robbery by BoA down to a more manageable number.

Of course, the sensationalist press reports that as BoA generously taking $0.crap on the dollar, but the reality is WAY more complicated. If you ask me, it looks like BoA made out decently in that deal. It's getting about as much from Detroit as it can realistically afford to give. I mean, c'mon, these banks weren't stupid when they presented a financially desperate Detroit with an interest rate swap.

The reporting going on is horrendous.

The bond insurers [[that's really who you're writing about, not really "banks") got hammered, as well they should have.

At the time, the swap fixed the interest rate to protect the city from interest rate risk. It's a gamble, but the swap counterparty [[B of A) normally plays both sides [[i.e. there is a buyer who is betting on floating rates). That person/company, who is not B of A, made out well.

The COPs are another matter altogether. The reduction in the amount due is essentially fee disgorgement, which is appropriate.

With permission, I'd like to use "$0.crap" in the future. Hilarious.

[sumas]

Your reaction makes me think you didn't understand what I wrote. Whether that is a problem with your reading or my writing or a combination I'm not sure. What do you see as the kicking?

Apologies always, perhaps I didn't hear/see the message. My Detroit is so different from what gets published. I really do live in a vital community. Trash talk so pisses me off. Just sayin!

[trstar]

What an asshole. If he doesn't think we're being punished enough he should come and live here and see for himself [[of course, having that asshole living here would be even more punishment for us).

Nolan Finley is what the young kids call a TROLL.

[erikd]

This is a ridiculous argument. To whom are you trying to teach a lesson? The people who ran the city as it declined are gone. They aren't in charge of anything anymore. Most of them are dead. You can't punish them, or discourage them from future bad behavior. Kwame is already in jail. For that matter, most of the residents who voted for them are dead or gone too. Can't teach them anything either.

And even if you wanted to discourage the people living in the city from voting for people who do things you don't like in the future, how is that supposed to work? Those people can leave too. Or do you think it is somehow appropriate just to disadvantage the very old and very poor who cannot leave if you try to teach them the error of their ways? The whole idea is at the same time absurd and repulsive.

Because cities are made up of people who can avoid responsibility for financial mismanagement by leaving, you need to have rules about what cities can do, and oversight to make sure those rules are followed. Michigan did not do a good job of this previously. Hopefully it will do a better job in the future, and at least in the case of Detroit that should be the case.

Best post on this thread.

This is exactly why federal bankruptcy laws are different for municipalities than for individuals and corporations.

[mwilbert]

To answer your first question : the region. Just because those in the past were to "blame" it doesn't mean that the current and future leaders wont go down the same path.

This doesn't make any sense to me either. Do you really think there are leaders, or voters for that matter, in other municipalities in the area that look at Detroit and say to themselves, "We should be more like Detroit. Let's spend lots of money [[or cut lots of taxes), even if we destroy our town's finances; bankruptcy isn't so bad."? If nothing else, you seem to be neglecting all the bad stuff that happens before you get to bankruptcy--the part where you lay off lots of city employees, and cut services and get an EM. I don't think this is an attractive package at all, even with a relatively easy bankruptcy.

And, if it were, how much would making Detroit's bankruptcy less easy help?
Remember that the chickens don't come home to roost that quickly--if I were a mayor and wanted to be irresponsible chances are I could serve a couple of terms and retire before the consequences became evident. Voters do not pay attention to or understand things like assumed rates of return on pensions, or the terms of asset privatizations, and these can easily be manipulated to make the current books better and the future books horrible. The correct assumptions to make about these kinds of transactions aren't even agreed among professionals.

Here is a concrete example. How many people were really paying attention when Detroit made that horrendous debt swap related to the POCs? Note that the reason that the debt swap was horrendous wasn't primarily that the interest rate bet embedded in the swap turned out to be a bad bet, although it was in fact completely wrong, but because even if it had been correct Detroit was virtually certain to violate the associated covenants, resulting in large and needless penalties. How many people know what a debt swap is? How many people, knowing what a debt swap is, are going to look at the covenants and understand their implications? Do the News or the Free Press have writers who could even write such a story, assuming they were assigned to do so? How exactly are people supposed to evaluate whether their elected officials are behaving appropriately?

Both the theoretical problem and the theoretical cure are implausible.

[Wesley Mouch]

This doesn't make any sense to me either. Do you really think there are leaders, or voters for that matter, in other municipalities in the area that look at Detroit and say to themselves, "We should be more like Detroit. Let's spend lots of money [[or cut lots of taxes), even if we destroy our town's finances; bankruptcy isn't so bad."? If nothing else, you seem to be neglecting all the bad stuff that happens before you get to bankruptcy--the part where you lay off lots of city employees, and cut services and get an EM. I don't think this is an attractive package at all, even with a relatively easy bankruptcy.

And, if it were, how much would making Detroit's bankruptcy less easy help?
Remember that the chickens don't come home to roost that quickly--if I were a mayor and wanted to be irresponsible chances are I could serve a couple of terms and retire before the consequences became evident. Voters do not pay attention to or understand things like assumed rates of return on pensions, or the terms of asset privatizations, and these can easily be manipulated to make the current books better and the future books horrible. The correct assumptions to make about these kinds of transactions aren't even agreed among professionals.

Here is a concrete example. How many people were really paying attention when Detroit made that horrendous debt swap related to the POCs? Note that the reason that the debt swap was horrendous wasn't primarily that the interest rate bet embedded in the swap turned out to be a bad bet, although it was in fact completely wrong, but because even if it had been correct Detroit was virtually certain to violate the associated covenants, resulting in large and needless penalties. How many people know what a debt swap is? How many people, knowing what a debt swap is, are going to look at the covenants and understand their implications? Do the News or the Free Press have writers who could even write such a story, assuming they were assigned to do so? How exactly are people supposed to evaluate whether their elected officials are behaving appropriately?

Both the theoretical problem and the theoretical cure are implausible.

Chickens in municipal finance do take a long time to roost.

While the chickens were so clearly assembling to roost on Detroit - the citizens and their elected officials worked to demonize Snyder for stepping in.

Perhaps they should have been spending an equal amount of time demanding that the State change the laws to prevent mayors and councils from plundering their treasures.

I don't accept the idea that because this problem requires years of malfeasance, we can excuse the citizens for electing fools. There is a deep structural problem that needs to be fixed, and no real discussion of how to reform municipal finances. The EM process is just a nice bandage that covers the real problem. The problem of spending future money to address today's needs. [[And in KK's case, he didnt' even address today's need -- but simply took the cash. But the problem is the same. Cities should not be allowed to do 'magic accounting' to push costs to our children. Our parents did that to us.

Finley is right. If this had really been painful, we'd be hearing talk about reform. All we hear now is how everything's gonna be OK if you trust me.

[mwilbert]

Chickens in municipal finance do take a long time to roost.

While the chickens were so clearly assembling to roost on Detroit - the citizens and their elected officials worked to demonize Snyder for stepping in.

Perhaps they should have been spending an equal amount of time demanding that the State change the laws to prevent mayors and councils from plundering their treasures.

I don't accept the idea that because this problem requires years of malfeasance, we can excuse the citizens for electing fools. There is a deep structural problem that needs to be fixed, and no real discussion of how to reform municipal finances. The EM process is just a nice bandage that covers the real problem. The problem of spending future money to address today's needs. [[And in KK's case, he didnt' even address today's need -- but simply took the cash. But the problem is the same. Cities should not be allowed to do 'magic accounting' to push costs to our children. Our parents did that to us.

Finley is right. If this had really been painful, we'd be hearing talk about reform. All we hear now is how everything's gonna be OK if you trust me.

From whom would we be hearing talk of reform? The only entity that can reform this is the state of Michigan. And, as I wrote earlier, I think that they should; specifically that we need both clear rules about what is acceptable, and oversight to make sure the rules are followed. But if you think that having made the bankruptcy more painful for Detroit would have somehow facilitated that, I disagree with you.

If you want reform, the actual problem is that the bankruptcy was basically painless for Michigan. If the state had been held responsible for the debt [[implausible) or at least for making the pensioners whole [[somewhat plausible), I think you would have seen rapid action at the state level. As it is, I think too many legislators look at this as a Detroit-specific problem, which it really isn't.