Detroit Banko Fallout Hit Muni Bond Market.....

**iheartthed** · August-09-13, 09:04 AM

Originally Posted by coracle

"Black Rock - the bond marketing firm - has suggested that the ideal solution is for the state to pay the unsecured bond obligations of Detroit and, presumably, the other municipalities and school districts that face debts they cannot pay with their current tax revenues".

Absolutely, definitely NO!!!. This would open Pandora's Box for the "obligations of Detroit and, presumably, the other municipalities and school districts that face debts they cannot pay with their current tax revenues". They should learn to live within their means like we all have to, or find a way of earning more without expecting handouts from those that do.

It was the state's decision for Detroit to file bankruptcy. I think it's fair to ask why shouldn't the state be on the hook for Detroit's financial obligations if the state is the one who decides that the city should file bankruptcy?

**Hermod** · August-09-13, 09:56 AM

Originally Posted by iheartthed

It was the state's decision for Detroit to file bankruptcy. I think it's fair to ask why shouldn't the state be on the hook for Detroit's financial obligations if the state is the one who decides that the city should file bankruptcy?

Now that is the least logical statement I have ever seen on DetroitYes.

At some point in time, the city will be forced into bankruptcy. They have -pretty much hocked everything of value except the DIA and Belle Isle. At some point, no one will buy Detroit GO bonds to cover the annual deficits.

If you face bankruptcy, it is better to go into it on your own terms than on the creditors terms.

**iheartthed** · August-09-13, 10:03 AM

Originally Posted by Hermod

Now that is the least logical statement I have ever seen on DetroitYes.

At some point in time, the city will be forced into bankruptcy. They have -pretty much hocked everything of value except the DIA and Belle Isle. At some point, no one will buy Detroit GO bonds to cover the annual deficits.

If you face bankruptcy, it is better to go into it on your own terms than on the creditors terms.

It's not a matter of opinion, it is fact. The state of Michigan made the decision that Detroit file bankruptcy. Detroit doesn't have the legal authority to do so without the state's approval. In this instance, Detroit itself did not even seek permission by its own authority to file bankruptcy. Instead, the state intervened and decided that Detroit was insolvent. If the state does not want to be held liable for Detroit's financial obligations then it should allow the city full authority over its own finances.

**mwilbert** · August-09-13, 10:10 AM

Originally Posted by iheartthed

It's not a matter of opinion, it is fact. The state of Michigan made the decision that Detroit file bankruptcy. Detroit doesn't have the legal authority to do so without the state's approval. In this instance, Detroit itself did not even seek permission by its own authority to file bankruptcy. Instead, the state intervened and decided that Detroit was insolvent. If the state does not want to be held liable for Detroit's financial obligations then it should allow the city full authority over its own finances.

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.

**iheartthed** · August-09-13, 11:15 AM

Originally Posted by mwilbert

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.

**Wesley Mouch** · August-09-13, 12:04 PM

Originally Posted by iheartthed

The city's financial situation is irrelevant to my point. The point is that Detroit doesn't make its financial decisions autonomously.

... I suppose that's true. But take off your blinders here. The City also does make a great number of financial decisions on its own. For example, nobody from the State approves the City's labor and union contracts. So how is the State to blame here? [[Not pinning blame, just discussing control.) btw, have you followed the Canadian debate going on about Ottawa starting to stick their noses into labor contracts of the CBC and Via Rail? If you think that the State has responsibility to pay, they also have responsibility to manage. Thus, governor Snyder should have a say in each individual labor agreement Detroit signs. Be careful what you wish for.

**iheartthed** · August-09-13, 12:12 PM

Originally Posted by Wesley Mouch

If you think that the State has responsibility to pay, they also have responsibility to manage.

The state has exercised its right to managed but has decided not to pay. That's why Michigan municipalities are being judged as more risky investments. That has been my point all along.

**Honky Tonk** · August-09-13, 10:43 AM

Originally Posted by iheartthed

It's not a matter of opinion, it is fact. The state of Michigan made the decision that Detroit file bankruptcy. Detroit doesn't have the legal authority to do so without the state's approval. In this instance, Detroit itself did not even seek permission by its own authority to file bankruptcy. Instead, the state intervened and decided that Detroit was insolvent. If the state does not want to be held liable for Detroit's financial obligations then it should allow the city full authority over its own finances.

"Dad, can I use the car?" "Ok" "Well, since you approved it, it's up to you to fill the gas tank".

**Wesley Mouch** · August-09-13, 11:51 AM

Originally Posted by iheartthed

It was the state's decision for Detroit to file bankruptcy. I think it's fair to ask why shouldn't the state be on the hook for Detroit's financial obligations if the state is the one who decides that the city should file bankruptcy?

ummm, maybe because its the city's problem.

That is the least logical argument ever made. Its like asking the cop to pay for the traffic ticket he just wrote you because he 'caused' the ticket.

Until Detroit takes responsibility for its part in this mess -- even though others are to blame as well -- nobody's going to pitch in.

Oh, and did you hear the one about the $1,000,000 check lost by Detroit's accounting department [[Deadline Detroit). Sure, I'll help you pay your bills, but first deposit that check!

**iheartthed** · August-09-13, 12:00 PM

Originally Posted by Wesley Mouch

ummm, maybe because its the city's problem.

That is the least logical argument ever made. Its like asking the cop to pay for the traffic ticket he just wrote you because he 'caused' the ticket.

Until Detroit takes responsibility for its part in this mess -- even though others are to blame as well -- nobody's going to pitch in.

Oh, and did you hear the one about the $1,000,000 check lost by Detroit's accounting department [[Deadline Detroit). Sure, I'll help you pay your bills, but first deposit that check!

This isn't about retribution. This is about how an investor, who probably gives less than two shits about your local turf wars, views the risk of investing in municipalities in Michigan.