Finally!! Someone acts against the scam that tipped Detroit into bankruptcy!

[EastsideAl]

The LIBOR rigging had nothing to do with tipping Detroit into bankruptcy.

As I noted on this thread back on Nov. 4, 2011, Mayor Cockrel and the City Council agreed in April 2009 to pledge the city's casino wagering revenues as collateral to avoid paying a crippling $400 million termination payment for having violated their interest rate swap agreement. The city violated the agreement when Detroit's debt was downgraded by the ratings agencies. The downgrade was the result of the Kilpatrick administration's habitually late audits.

Therefore, like the proverbial butterfly whose beating wings created air currents that evolved into a hurricane, the late audits started a cascade of events that resulted in the inability of the City Council to use casino revenue as collateral for short term tax anticipation notes as they normally have done in the past, since it was already pledged to solve the interest rate swap problem. This further exacerbated the city's cash flow crunch, hastening the downward spiral into bankruptcy.

Well, I believe some of the "facts" you state are in dispute. But even if everything you say is true, it still seems sort of beside the point. I am told by people involved in the bankruptcy proceedings that these interest rate swaps were given a "hard sell" by the banks to many municipal governments in trouble, including Detroit, as a potential panacea for their cash flow problems. And the reason for this hard sell treatment was that they were manifestly fraudulent products, based on a rate that the banks could always manipulate in their favor. So, even if the city had done everything they were supposed to do - no late audits, no rating reduction - they still stood to lose hundreds of millions of dollars on this deal in the end, and there was no possible way that they could ever have realized any of the potential benefits that were part of the sales pitch to them by UBS and BOA. The game was completely rigged from the start.

[Mikeg]

Well, I believe some of the "facts" you state are in dispute. But even if everything you say is true, it still seems sort of beside the point. I am told by people involved in the bankruptcy proceedings that these interest rate swaps were given a "hard sell" by the banks to many municipal governments in trouble, including Detroit, as a potential panacea for their cash flow problems. And the reason for this hard sell treatment was that they were manifestly fraudulent products, based on a rate that the banks could always manipulate in their favor. So, even if the city had done everything they were supposed to do - no late audits, no rating reduction - they still stood to lose hundreds of millions of dollars on this deal in the end, and there was no possible way that they could ever have realized any of the potential benefits that were part of the sales pitch to them by UBS and BOA. The game was completely rigged from the start.

Here's links to support what I wrote.

Swaps deal will save Detroit from insolvency: Mayor

City of Detroit's Cash Flow Challenges

If you think they are in dispute, perhaps you can provide evidence to the contrary instead of casually dismissing them with "scare quotes".

Yes, the interest rate swap agreements were a risky proposition, but they were made even riskier when the city signed them knowing full well that they were in deep financial trouble and that the probability of a credit ratings downgrade was close to 100% over the life of the agreements and thus much more likely to happen than a change in the LIBOR interest rate, rigged or otherwise.

Yes, the council was probably subjected to a "hard sell", but did those wicked bankers hold a gun to the head of the city council to make them sign the interest rate swap agreements?

The council irresponsibly agreed to the swaps because they figured that by the time the city's finances cratered, it would be on someone else's watch.