Quote Originally Posted by mwilbert View Post
This doesn't make sense to me. The city's financial position was untenable whether it went into bankruptcy or not. Why is the state on the hook in one case but not the other? It isn't as if the bankruptcy made the city's situation worse.

And of course the creditors think someone should pay them. Water is also wet.
The city's financial situation is irrelevant to my point. The point is that Detroit doesn't make its financial decisions autonomously. The city of Detroit had to seek state approval to sell bonds. The city of Detroit has to seek state approval to levy taxes. The city isn't even allowed to levy a sales tax. These are all potential revenue streams that are controlled by the state because Detroit is not financially autonomous from the state.

Anywho, within the bounds of what tools the state allowed Detroit to use to finance its operations, it exploded in spectacular fashion. The state then steps in and decides 1) that Detroit is insolvent, and 2) that Detroit should file bankruptcy. The state could also decide to just cover Detroit's debts but that is not what the state decided to do.

Say I'm an investor. Yes, I acknowledge that Detroit was a city in economic decline for decades. I look at Oakland County and acknowledge that yes, this is a place with a lot of wealthy residents. It is a place that has continually grown in population. It's unlikely that it would go into bankruptcy, but not impossible: http://www.nytimes.com/1994/12/08/bu...nd-market.html

So, considering the way that the state has handled investors in Detroit's case, should something happen in Oakland County then how would that be handled? Oakland is under the same constraints on its financial autonomy as Detroit. Should something happen that spirals out of control very fast then it would be the state making the same decisions for putting the county into bankruptcy. If Michigan puts Oakland into bankruptcy then the precedent is already set for how Michigan treats bondholders with how it handled Detroit.

It's like if your child damages someone else's property when they are 16. Sure, they're old enough to be charged criminally as an adult, but in a civil court you would be responsible for the financial obligations of your child.