Detroit in largest US bankruptcy The US city of Detroit in Michigan has become the largest American city ever to file for bankruptcy, with debts of at least $15bn (10bn). State-appointed emergency manager Kevyn Orr asked a federal judge to place the city into bankruptcy protection. If it is approved, he would be allowed to liquidate city assets to satisfy creditors and pensions. Detroit stopped unsecured-debt payments last month to keep the city running as Mr Orr negotiated with creditors. He proposed a deal last month in which creditors would accept 10 cents for every dollar they were owed. Mr Orr suggested at the time there was a 50-50 chance of the city needing to file for bankruptcy. He also said the city's long-term debt could be between $17bn and $20bn. 'Only alternative' In a letter accompanying Thursday's filing, Michigan's Governor Rick Snyder, a Republican, said he had approved the request from Mr Orr to file for Chapter 9 bankruptcy. "Only one feasible path offers a way out," Gov Snyder said, adding that residents needed a clear exit from the "cycle of ever decreasing services". "The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations. "It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available". Meanwhile, the White House said it was closely monitoring developments in Detroit. "While leaders on the ground in Michigan and the city's creditors understand that they must find a solution to Detroit's serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalise and maintain its status as one of America's great cities," said White House spokeswoman Amy Brundage. Analysts say there are some concerns that businesses might ditch their operations in Detroit. But, in the wake of the filing, US car company General Motors said it did not expect any impact on its operations, and hoped it would mark a "clean start" for Detroit. "GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come," the company said. The city, once renowned as a manufacturing powerhouse, has struggled with its finances for some time, driven by a number of factors, including a steep population loss. Between 2000-10, the number of residents declined by 250,000. Detroit's government has also been hit by a string of corruption scandals over the years. Declining investment in street lights and emergency services have made it difficult to police the city. Detroit is only the latest US city to file for bankruptcy in recent years. In 2012, three California cities - Stockton, Mammoth Lakes and San Bernardino - took the step. In 2011, Harrisburg, Pennsylvania tried to file for bankruptcy but the move was ruled illegal. But Thursday's move in Detroit is significantly larger than any of the earlier filings
Could be the first domino to fall. Detroit has unfunded pension liabilities at $27 billion. Other creditors include: http://www.wsws.org/en/articles/2013/06/14/cred-j14.html
I reckon the Fed govt will bail them out Can't let their mates at JP Morgan and other banks take any losses Bernanke has plenty of freshly minted money floating around Plus it would cause the interest rates on all muni bonds everywhere to go up It will be argued it is necessary for the stability of the country
In turn, shafting all of the public sector retirees - retired teachers, police, firies, city employees etc who are drawing pensions. Unlike Australia where pensions are paid by the federal government, many US pensioners are paid out of these local pension funds that the city is supposed to contribute to. "Unfunded liabilities" indeed.
There are probably 100 others cities waiting in line for a Government/taxpayer bailout. .....or 1000! OC
Next stop: Detroit's city assets change ownership to JPMorgan Chase & Co., Royal Bank of Canada, Bank of America
I found the news reporting for this to be very poorly laid out - for example, what exactly is the "city" of Detroit? Is it a publicly owned entity? What does it "do" (other than some vague alluding to "operational issues" I've seen nothing solid. What is its fiduciary responsibility ie what services; employment numbers. Where & how is its revenue gathered? What is its balance sheet? I find it frustrating that the media simply gobble up sensationalist reports; when there might be very interesting items to be uncovered. What happened to investigative reporting? Not any more matey, too expensive. Nope, just regurgitate what's on the wire. For example, many supposed public entities in this country refuse to supply information about their spending eg. We are not "allowed" to know how much of the tax-payers' money was given over the years to a fully commercial operation (Ford). Why not? What if Detroit has been tipping money into the car industry? Also for example, many public entities have carved off their larger financial elements into "private corporations" (Government Owned Corporations) which are required to turn a profit and act commercially, eg water; electricity; garbage collection you name it. But the dividend goes back to the government still but the asset can be shown off-balance sheet - as well as any liabilities. Much creative accounting in other words. So if I was a gov entity, I could potentially "outsource" much of my operation; increase the costs since I now have to pay for those outsourced operations; RETAIN my liabilities on the balance sheet - and hey presto, "bankrupt" - pass Go, collect $200bn from the handouts and start over (feeding your cronies again). It all sounds very suss to me. I'm going to go and outsource all my revenue from my job to my friends; then write to my bank and credit card providers and tell them I'm bankrupt. @GP - I agree - this is their chance to stick the knife in further to the poor sheep, no doubt the 'casualties' will not be anyone connected wit the City's senior management, nor its advisors & financiers.
I haven't seen them for a few months (must have finally got my spam settings correct) but I used to get emails from all of these US Investment newsletters/advisers etc saying you could get large quarterly dividends nearly risk free. Perfect for retirees etc. After a bit of digging they turned out to be selling muni-bonds (municipal bonds). These things were going at near junk rates for years (i.e. 7-12% yields). After seeing the first couple of bankruptcies a couple of years ago, it quickly became obvious why people had been flogging them so cheap and these "brilliant" financial advisers quickly went into my spam bin.
ZH is reporting Obama is being pressured to bail out Detroit. He doesn't have to.. there has been precedent... President Gerald Ford To New York City "Drop Dead" Wikipedia
Its like any second Robocop is going to come out of the woodwork. Its not even been 30 years, and Detroit is defaulting for real.
Let them default. Yeah there's going to be sob stories. The media will find some real tear jerkers. However, whilst the present generation owe the previous generations something, they don't owe them everything. Otherwise how will they provide for themselves, their children and the future if they're to busy paying for the previous generations largesses / mistakes? Lending money / having money owed to you comes with risk. Sometimes that risk, even if it's only a small one, sometimes that risk is realised.
Les Gold from Hardcore Pawn has reportedly offered Detroit Mayor Dave Bing $50 + $25 store credit for the city of Detroit
I was in Detroit last year for a whole about 2 hours driving through and yeah its the biggest shitpit I've ever been to in the US. The bankruptcy wont be bailed out by the Federal government (at least publically) because many others arent far behind. The state of California for one is in pretty ugly shape.
Whoever is left in Detroit would already be democrat voters anyway if they vote. There's really no reason to bail them out
