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Wed Jun 19, 2013, 02:37 PM

 

Unelected Emergency Manager Set To Break Detroit’s Pension Promises

Rick Cooley ‏@rcooley123

Unelected Emergency Manager Set To Break Detroit’s Pension Promises
http://thinkprogress.org/economy/2013/06/18/2174741/detroit-pension-bankruptcy/


Detroit’s unelected “emergency manager” wants to stiff the city’s pensioners while repaying the large financial firms that hold the city’s debts. Emergency manager Kevyn Orr unveiled the plan last Friday while announcing that the city is unable to pay its current debts.

The proposal asserts that the funding gap for Detroit’s pension obligations is five times wider than previously thought, at $3.5 billion rather than the $644 million estimated in 2011. Reuters reporter Cate Long dug into the numbers and came up skeptical: “Orr is going to have to show math that demonstrates the pension funds are so massively underfunded,” Long wrote, calling the pensions “reasonably well-funded according to national standards.”

But regardless of the validity of Orr’s numbers, the proposal appears designed to facilitate a bankruptcy filing. Once in bankruptcy court, Orr would no longer need public workers’ unions to sign off on a plan to renege on pension promises. Michael VanOverbeke, a lawyer for the pension fund, explained the basic unfairness of prioritizing investors over retirees: Where bond investments carry “a certain amount of risk,” he told the New York Times, “[p]lanning for retirement and working for employers was not an investment in the market. These are people who are on a fixed income…they can’t go back to work and start all over again.”

Elsewhere, Orr’s report summarizes the barely-functioning state of the Motor City: 40 percent of its street lights are dark, two-thirds of its ambulances are out of service, and 78,000 buildings stand empty. How did Detroit get here? The fundamentals of the city’s economy declined along with the U.S. auto industry, but ill-considered debt schemes and manipulation by big international banks exacerbated the problem. Convicted former mayor Kwame Kilpatrick oversaw huge loans that went bad, including billions of dollars in the interest rate gambles known as “swaps.” But banks were rigging the rates that determine who wins and who loses on interest rate swaps like Detroit’s, as last year’s LIBOR scandal revealed. The city paid nearly half a billion dollars in fees to Wall Street firms for engineering the swaps and other financing schemes that only deepened Detroit’s debt hole.

("emergency manager" law is made by Michigan's governor Rick Snyder who is a stealth "tea party" politician. The Koch brothers co-created the "tea party" along with big tobacco, so they are directly responsible and profit directly from this all-together purposeful smash-and-grab. It's vulture capitalism per the movie "Wall Street".)

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Reply Unelected Emergency Manager Set To Break Detroit’s Pension Promises (Original post)
Fire Walk With Me Jun 2013 OP
sigmasix Jun 2013 #1
HiPointDem Jun 2013 #5
Fire Walk With Me Jun 2013 #9
Cal Carpenter Jun 2013 #20
dixiegrrrrl Jun 2013 #2
Mosby Jun 2013 #3
HiPointDem Jun 2013 #6
Sgent Jun 2013 #17
1gobluedem Jun 2013 #29
WinkyDink Jun 2013 #4
badtoworse Jun 2013 #7
HiPointDem Jun 2013 #8
badtoworse Jun 2013 #10
HiPointDem Jun 2013 #11
badtoworse Jun 2013 #12
HiPointDem Jun 2013 #13
badtoworse Jun 2013 #14
HiPointDem Jun 2013 #16
badtoworse Jun 2013 #18
Proud Liberal Dem Jun 2013 #15
badtoworse Jun 2013 #19
Proud Liberal Dem Jun 2013 #21
badtoworse Jun 2013 #22
Proud Liberal Dem Jun 2013 #23
badtoworse Jun 2013 #24
ShadowLiberal Jun 2013 #26
HiPointDem Jun 2013 #25
FrodosPet Jun 2013 #27
KoKo Jun 2013 #28

Response to Fire Walk With Me (Original post)

Wed Jun 19, 2013, 04:17 PM

1. where is the outrage over destruction of civil rights

DU has an active "outrage" patrol with plenty of moral outrage for the POTUS and support of hyperbolic right wing lies about spying on every American, all the time. Where is the outrage over the crimes against democracy and American civil rights that the right wing governor of Michigan has commited? Did the outrage patrol decide that right wing politicians get a free ride? How very obviously right wing and unAmerican of them. Not one of them have registered a single note of outrage concerning the criminal rape of Michigan's democratically held elections. Obama Derangement Syndrome is a powerful strain of delusional hatred and bigotry. It is responsible for many DU posts and notions about being able to call this president a traitor and a liar, while insisting that the accusers are supportive of democratic principles and liberties.
Why isnt the outrage patrol outraged by the actions of right wing governors that steal election results?
They aren't REALLY outraged at all- they seem to be doing what they have been told to do by right wing media activists and Koche brothers political operatives. Right wing media and Koche brothers are fine with the actions of Michigans' governor- that's why DU's outrage patrol feels no need to speak up against this right wing attack on American liberties; they weren't told to be upset by thier right wing bosses, so they aren't.

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Response to sigmasix (Reply #1)

Wed Jun 19, 2013, 04:54 PM

5. good question. right now there's a big debate going on about largely symbolic 'racism,' but i

 

rarely see those same posters in threads like this, where a largely black workforce is about to get the shaft.

real racism, like putting the majority of black citizens under dictatorship in michigan, so that their livelihoods and property can be stolen, isn't so exciting as paula deen using the n- word, or the 'racist' *beliefs* of powerless individuals, i guess.

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Response to HiPointDem (Reply #5)

Wed Jun 19, 2013, 05:29 PM

9. To both you and sigmasix:

 

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Response to HiPointDem (Reply #5)

Thu Jun 20, 2013, 03:20 PM

20. Great post n/t

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Response to Fire Walk With Me (Original post)

Wed Jun 19, 2013, 04:23 PM

2. In Greece, Spain, Italy the unhired heads of state are called "technocrats"

there is an obvious trend ofcreating unaccountable-to-the-voters positions, from which to steal as much money as possible.
The Simpson-Bowles Commission is another example.

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Response to Fire Walk With Me (Original post)

Wed Jun 19, 2013, 04:48 PM

3. aren't all city managers unelected? nt

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Response to Mosby (Reply #3)

Wed Jun 19, 2013, 04:56 PM

6. no. and the choice of whether to use city managers is subject to the vote. the emergency

 

dictatorships in michigan were established by the governor's fiat.

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Response to Mosby (Reply #3)

Thu Jun 20, 2013, 01:50 PM

17. In most (all?) states yes

however the city manager is hired and fired by either the elected mayor or the city council. In this case its appointed by the state governor with no input from Detroit's elected officials.

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Response to Mosby (Reply #3)

Sat Jun 22, 2013, 08:56 PM

29. He isn't a city manager

He's an emergency financial manager appointed by the governor. Weeks before he actually announced that he planned to hire one, apparently. Lawsuit for breach of the open meetings act is in court now.

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Response to Fire Walk With Me (Original post)

Wed Jun 19, 2013, 04:50 PM

4. "manipulation by big international banks" = the cause of the ENTIRE WORLD'S FINANCIAL PROBLEMS.

 

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Response to Fire Walk With Me (Original post)

Wed Jun 19, 2013, 05:11 PM

7. When Detroit goes bankrupt, everyone will get a haircut

 

That includes the banks, the employees and the retirees. There just isn't enough money to keep everyone whole. In the end, it will be a judge handing out the haircuts. The city has been run by morons and this is the result.

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Response to badtoworse (Reply #7)

Wed Jun 19, 2013, 05:21 PM

8. i doubt it. and the pols weren't the ones really running the city. the people running the city

 

were their financiers, and they took it down on purpose.

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Response to HiPointDem (Reply #8)

Wed Jun 19, 2013, 05:39 PM

10. The banks made the city run up $15 billion in debt?

 

In a declining tax base? How did they do that? I always thought the elected officials had to approve any borrowing by the city.

Better question: Why would they do that? Property values (the banks' collateral) have gone down the crapper and the banks took losses when they foreclosed on worthless property. They are also going to have write off a substantial portion of Detroit's debt in bankruptcy court.

Maybe you can explain what their upside is.

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Response to badtoworse (Reply #10)

Wed Jun 19, 2013, 05:57 PM

11. Politicians are beholden to their campaign donors. If the donors don't like their policies, they

 

don't fund them, or actively fund the opposition. Additionally, the rich are the most likely to vote, and the likelihood of voting diminishes all the way down the economic ladder. Additionally, the rich are the most likely to be civicly & politically involved.

So it's nonsense to pretend that the politicians had a free hand in detroit.

In case you haven't been keeping up, there's a very obvious gentrification going on in Detroit. The property is not 'worthless' at all.

Detroit was deliberately taken down.

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Response to HiPointDem (Reply #11)

Wed Jun 19, 2013, 08:58 PM

12. The most obvious and most likely explanation is that the people governing Detroit were idiots

 

If it makes you feel better to believe in some grand conspiracy to "take down" Detroit, keep deluding yourself. If it were as you say, why wouldn't the rich do it to some place where it's nice to live? Apologies in advance to any Detroit residents, but it really isn't a very nice place to live and hasn't been for a long time. Why would the rich bother with it?

Sorry, but your argument doesn't pass the sniff test.

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Response to badtoworse (Reply #12)

Thu Jun 20, 2013, 12:51 AM

13. the superficial mainstream explanation is always the most obvious. but generally not the most

 

correct.

the top taxpayers in detroit are *corporations,* not homeowners. the rich are not invested in detroit because it's 'a nice place to live'.

who likes detroit's debt? wall street.

Only Wall Street Wins in Detroit Crisis Reaping $474 Million Fee

The largest part is $350 million owed for derivatives meant to lower borrowing costs on variable-rate debt.

Municipal borrowers from the Metropolitan Water District of Southern California to Harvard University in Cambridge, Massachusetts, have paid billions to banks to end interest-rate swaps that didn’t protect them.

“The banks promise to get you the money and say you can pay later,” said Greg Bowens, spokesman for Stand Up For Democracy, a Lansing group that campaigned last year to repeal the law allowing appointment of a financial manager. “They get their fees off the top, and you trust that they’re doing what’s in your taxpayers’ best interest.”

As banks were collecting fees from bonds, some targeted city homeowners with subprime loans that led to foreclosures, depressing real-estate values and tax revenue, Sole said.

http://www.bloomberg.com/news/2013-03-14/only-wall-street-wins-in-detroit-crisis-reaping-474-million-fee.html

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Response to HiPointDem (Reply #13)

Thu Jun 20, 2013, 01:42 PM

14. I've seen the Bloomberg article before and it confirms my point

 

Last edited Thu Jun 20, 2013, 02:56 PM - Edit history (1)

The article gives a distorted picture of what swaps are designed to do. It states "The largest part is $350 million owed for derivatives meant to lower borrowing costs on variable-rate debt". That is simply not true. An interest rate swap is designed to reduce variable interest rate risk, not cost. You pay a premium for that, i.e a higher total rate, but it's fixed and doesn't change no matter what happens to variable rates. That is elementary and if Detroit's financial managers did not understand that, they either weren't qualified to do their jobs or they were idiots.

The article is also disingenuous because it only focuses on the swap payment Detroit has to make because the spread between the fixed rate and the variable rate has widened. It fails to mention that the payments that Detroit makes under its variable debt have shrunk such that their total cost of debt service remains constant (which is what they wanted when they executed the swap).

As for the fees charged by banks to arrange Detroit's bond offerings, this the banks' business. Would you expect them to do it for free? Presumably, Detroit shopped around and UBS gave them the best deal.

The real problem here is that Detroit kept borrowing to repay maturing debt and cover current expenses when their revenues were insufficient. Only a bunch of morons wouldn't recognize that you can't do that indefinitely and that this day would eventually come.

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Response to badtoworse (Reply #14)

Thu Jun 20, 2013, 01:46 PM

16. gosh, you sound like a banker.

 

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Response to HiPointDem (Reply #16)

Thu Jun 20, 2013, 02:54 PM

18. My career has been in electric power, but I do a lot of work with financial institutions

 

I've also managed assets that used interest rate swaps to lock in debt service costs.

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Response to Fire Walk With Me (Original post)

Thu Jun 20, 2013, 01:45 PM

15. Again

how the hell is this legal/constitutional/democratic and is anybody planning on challenging this?



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Response to Proud Liberal Dem (Reply #15)

Thu Jun 20, 2013, 02:55 PM

19. Bankruptcies are ugly, but that's the way they work.

 

What would you challenge?

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Response to badtoworse (Reply #19)

Thu Jun 20, 2013, 03:26 PM

21. The Emergency Manager law

Other than the fact that they he has the legal authority to do so per the Legislature, I don't understand how the Governor can simply appoint individuals to replace/supplant the democratically elected representatives in a given locality. It seems rather extraordinary and dictatorial-like.

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Response to Proud Liberal Dem (Reply #21)

Thu Jun 20, 2013, 03:41 PM

22. What difference does it make?

 

Do you think the elected city government could have avoided bankruptcy? Either way, a judge is going to decide who gets hosed and by how much.

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Response to badtoworse (Reply #22)

Thu Jun 20, 2013, 03:58 PM

23. IDK

Still, I find the idea of "Emergency Managers" appalingly anti-democratic.

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Response to Proud Liberal Dem (Reply #23)

Thu Jun 20, 2013, 04:08 PM

24. Keep in mind that the city is granted its authority to govern from the state.

 

The state does have the right to revoke the authority if the city mismanages itself (which is what haoppened here)

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Response to badtoworse (Reply #22)

Sat Jun 22, 2013, 05:29 PM

26. The Emergency Manager Law repealed by a people's vote, and then repassed in a few weeks

And then there's the fact that the original Emergency Manager Law was illegally passed in such a way to make it go into effect right way, despite not having enough votes to go into effect right away. That should have gotten the first law struck down by a court, but it didn't.

(Laws in Michigan need a super majority vote to be declared an emergency to go into effect right away, it's written into the state constitution, in an amendment that George Romney himself helped write decades ago. If a law's not an emergency it can't go into effect until the end of the state legislature's yearly legislative session, which is in December).

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Response to badtoworse (Reply #19)

Sat Jun 22, 2013, 05:18 PM

25. bankruptcies work by taking away people's civil rights? since fucking when?

 

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Response to Fire Walk With Me (Original post)

Sat Jun 22, 2013, 07:39 PM

27. The Detroit City Council has been busy applauding a homophobic anti-Semite

Minister Farrakhan Addresses Detroit City Council (May 17, 2013)



(Does Minister Farrakhan have any idea that City Council President Charles Pugh is openly gay? Does City Council President Charles Pugh have any idea that Minister Farrakhan is openly homophobic? And why are so many people applauding a homophobic anti-Semite who sounds like a hard right Republican over 95% of the time?)

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Response to Fire Walk With Me (Original post)

Sat Jun 22, 2013, 08:50 PM

28. K&R!

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