Motor City Meltdown
Detroit Chooses Pensioners over Bondholders in Debt Plan
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  • rheddles

    Bondholders got screwed in Detroit by the President in 2009. I wonder how many of them are ready to suck it up again in the same city. They may be more willing to contest the proposal in front of BK judge than the Chief Magistrate. I wonder how many of the bond holders are non-Detroit pension funds.

  • Andrew Allison

    I’m confused. 38% of the unsecured debt would be repaid, but the pensioners would get 40% and the bondholders 20%?
    If that doesn’t spook the muni market, what will? As an aside, shouldn’t the haircut be the same for all unsecured creditors?

  • Pete

    No surprise here. The parasites have to be accommodated. They are, after all, a big constituency of the Democrat Party

  • free_agent

    You write, “The political pressure to get the best possible deal for pensioners is
    near-irresistible. … The irony here is that many of the bondholders
    are themselves pension funds; Detroit’s pensioners are getting a bit of a
    break at the expense of many retirees and near-retirees across the
    country.”

    I don’t think there are a lot of people who would argue that putting the pensioners ahead (in part) of the bondholders is fundamentally unjust.

    As for other pension funds, it seems strange to me that pension funds (which should have conservative investments) would buy bonds from a city whose finances are a disaster waiting to happen.

  • BobSykes

    Anyone who holds any state or municipal bonds or bonds from any unionized company or any foreign bonds is an idiot.

  • Fat_Man

    The Bankruptcy Judge made it clear at the outset that any plan would have to be fair and equitable. I do not see how a plan that pays one class of unsecured creditors a higher percentage of its claims than any other will be fair.

    To my mind, this bankruptcy cannot be completed until the pensions are put on a sound basis. At a minimum:

    1. There must be haircuts of pension benefits so that they do not exceed social security and PBGC standards.

    2. disabled and over 65 health care beneficiaries should be transferred to Medicare without penalties, but without benefit enhancements.

    3. other medical plans should be put in the Obamacare exchanges and subsidies should be granted on a need basis for silver level policies.

    4. The plans should be terminated and replacemed with social security and defined contribution plans,

    5. There should be damage payments by the union fiduciaries who fell down on their jobs by failing to ensure proper funding of the plans.

    6. The representative status of the unions that got the plans into this mess should be terminated.

  • Anyone surprised? This is what Obama did to Chrysler & GM.

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