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Detroit files for Chapter 9 bankruptcy
Largest municipal bankruptcy in history
Detroit, once the nation's fourth most populous city, has filed for Chapter 9 bankruptcy, according to the New York Times. It is the largest city ever to file for bankruptcy, and the largest in terms of debt. Details are sketchy this early, but according to the Times, the decision to turn to the federal courts required approval from the emergency manager assigned to oversee the troubled city and from Gov. Rick Snyder.
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Detroit files for Chapter 9 bankruptcy
Largest municipal bankruptcy in history
Detroit, once the nation's fourth most populous city, has filed for Chapter 9 bankruptcy, according to the New York Times. It is the largest city ever to file for bankruptcy, and the largest in terms of debt. Details are sketchy this early, but according to the Times, the decision to turn to the federal courts required approval from the emergency manager assigned to oversee the troubled city and from Gov. Rick Snyder.
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I'm from there. I grew up there, went all through school there (they're all empty or torn down now). Moved here in 1975, soon after the start of the decline. Joined the Army, from here; came back, went through SDSU, and never, ever, had any idea to move back there. Detroiters are their own worst enemies, and for what reason? Chicago is a short 400 miles away and it's relatively thriving in comparison. It's not just the failed auto industry. The racial climate is so thick there, you can cut it with a butter knife. Poster city for suburban 'white flight'. Has been for decades. One of the reasons I left. Why can't they make the best of what they've got? Detroit has an OK climate; well, better than Chicago certainly; and few tornados. And possibilities? Look at the Michigan shoreline. Gotta be longer than California, or Florida. As for hope? I understand there are foreigners coming there. I think I read Chinese investors were buying old plants? But the decline has been going on all my adult life, and I don't know if this bankruptcy is bottom. As I've said for many years, Detroit is a good place to be from. Not in, but from.
mridolf: I've only been to Detroit once, but when I was writing for Business Week in Cleveland, I of course dealt a lot with Detroit, because the economies were intertwined. I am from Chicago, but have been gone since 1966. Frankly, I do not understand how Chicago has survived the economic hits it has taken. It was once the center of consumer appliances and products such as TVs. They're mostly gone. It was the center of the meat industry. Gone. It had monstrous steel mills in the immediate area. They are closed. Chicago is not really a money center, although it once was. Government was always corrupt and still is. Of course, the more I read about Chicago's financial situation, the more I am concluding that finally Chicago is coming asunder -- maybe even economically as well as politically. Best, Don Bauder
Chicago is a short 400 miles away and it's relatively thriving in comparison IL AND Chicago are as bad as Detroit, or close to it.
SurfPup: Illinois and the city of Chicago both have deep financial problems. Best, Don Bauder
MORE FACTS ON DETROIT BANKRUPTCY. Here is more information on the Detroit Chapter 9 bankruptcy, taken from the Detroit Free Press and MarketWatch.com. The filing came after the city's emergency manager failed to reach agreements with enough of the bondholders, pension funds, and other creditors to restructure the city's massive debt outside of court, according to MarketWatch. Long-term liabilities are close to $20 billion. Assets are not clear but the city is definitely functionally insolvent. It recently missed a payment to the city's pension system of almost $40 million. It is the combination of massive debt, population flight, loss of tax revenue and decades of mismanagement, says the Free Press.
The filing begins a 30-day to 90-day period to determine whether the city is eligible for Chapter 9 protection. This process will define how many claimants might compete for limited settlement resources, says the Free Press. The bankruptcy protection would seek protection from creditors and unions who are negotiating $18.5 billion in debt and other liabilities. Best, Don Bauder
The dam just broke, $18 BILLION in red, CA is $500 BILLION in the red
No, SurfPup, haven't you heard? The California budget is balanced. It even has a surplus. Jerry Brown said so.
aardvark: Well, at least Brown has apparently gotten rid of the redevelopment scam and is working to get rid of the enterprise zones scam. Best, Don Bauder
Don, the RDA and the enterprise zones don't have a $500 BILLION deficit, and never did, the pension scam is the ONLY issues Clown should be working on.
SurfPup: Good point, but California is a state and Detroit a city. Best, Don Bauder
I have heard pensions will be paid only 10 cents on the dollar.
I am reading Meredith Whitney's book "Fate of the States" right now, and she goes over this muni death spiral with a fine tooth comb.
SurfPup: Her earlier sweeping generalizations haven't come true yet, but Detroit certainly makes her look better. Best, Don Bauder
reply to donbauder yes,except that her prediction in late 2010 was that there would be 50-100 or maybe more municipal bond defaults totaling in the 100's of millions of dollars and they would occur in the next 12 months. I don't pay much attention to financial news, maybe watching a little cnbc or bloomberg if I'm home, but I don't seem to remember hearing about that happening.
100's of millions of dollars should be 100's of BILLIONS of dollars
danfogel: It's hard to tell millions from billions -- except, of course, in your portfolio. Best, Don Bauder
danfogel: She overstated her case at that time. Particularly on Wall Street, overstating one's case is essential to getting attention. Best, Don Bauder
reply to donbauder yeah, but going off the deep end can also result in a loss of credibility, which from what I read, seems to be the case in a lot of peoples opinions. And on wall street, what have you done for me lately seems to be an oft repeated mantra.
danfogel: On the other hand, swimming in the shallow end doesn't get you headlines. Best, Don Bauder
Bagehout said "To illustrate a point, you must exaggerate much, and you must omit much."
response to twister
Or you can just make up a shit as you go. Seems to me there's a lot of that going on in San Diego right now.
Twister: Those words smack of verisimilitude. Best, Don Bauder
Those words smack of verisimilitude
Don, keep the vocabulary at my 5th grade level please.
This could be VERY interesting. I am sure plenty of cities are watching this case VERY closely.
aardvark: You aren't kidding. Stockton and San Bernardino are bad enough. But Detroit is a really big one. Best, Don Bauder
About an hour ago, an Ingham County judge ruled Detroit bankruptcy filing violates the Michigan constitution and state law and has to be withdrawn. A declaratory judgment was issued that says the bankruptcy filing violated the Michigan constitution. “In order to rectify his unauthorized and unconstitutional actions ... the Governor must (1) direct the Emergency Manager to immediately withdraw the Chapter 9 petition filed on July 18, and (2) not authorize any further Chapter 9 filing which threatens to diminish or impair accrued pension benefits,”
http://www.freep.com/article/20130719/NEWS06/307190075/detroit-bankruptcy-ingham-county-rosemarie-aquilina-pension
danfogel: Most interesting. I was not aware of this. I will see if I can get more. Best, Don Bauder
LOL...Ingam Couty 30th Circuit Court-I have filed and litigated cases there!!
SurfPup: Your name will no doubt come up in the cases. Then we'll find out who you are. Best, Don Bauder
Don, I had a professor from my law school file a suit against ME at the 30th!! Many years ago-needless to say he was not my biggest fan!!!!!! Funny story, and the very first case I ever litigated was when I was actually in my second year of law school and I sued Kellogg Company, the cereal maker, and as luck would have it they had their corporate HQers in battle Creek MI just 50 miles away from the 30th!
It was is if there was a race to the courthouse. The city of Detroit "won" the first round by filing for bankruptcy first. What happens if the city refuses to abide by the judge's ruling to rescind the bankruptcy filing?
aardvark: Detroit at least has the Ingham County judge on its side. Best, Don Bauder
OOPS. I meant to say that Detroit has the state attorney general on its side. Best, don Bauder
PENSIONERS AND FUNDS GOT SPECIAL HEARING. According to a story in USAToday, lawyers representing pensioners and two city pension funds got an emergency hearing with Judge Rosemarie Aguilina today (Friday, July 19), the day after the bankruptcy filing. She is the judge who ruled that the bankruptcy filing was a violation of the state constitution. She said Friday that the governor and Detroit's emergency manager must take no further actions that threaten to diminish the pension benefits of City of Detroit retirees, according to USAToday.The state attorney general will appeal her decision. Best, Don Bauder
response to donbauder the interesting thing is that the lawyers representing pensioners and two city pension funds had scheduled emergency hearing with this judge yesterday and she said she planned to issue an order to block the bankruptcy filing. But this emergency manager, instead of attending the meeting as was expected, instead filed the Detroit bankruptcy petition in Detroit five minutes before the hearing began. To me, that has to raise some questions.
danfogel: If what you say is true, the incident will raise some questions, I would think. Best, Don Bauder
reply to donbauder I personally can't testify to the veracity but the statement is in the article that I provided the link to.
reply to aardvark in her statement, the judge said “Let’s get this moving to the Court of Appeals, because that’s where you all are headed." The city is saying they will appeal, so I would imagine a request for a stay would be a perfunctory move. And one of the attorney's said there are no contempt implications if the judge’s instructions aren't followed, so he would likely have to return to court to seek further relief if they don't withdraw the bankruptcy filing.
danfogel: No contempt implications if the judge's instructions aren't followed? Hmm. Curious, that. Best, Don Bauder
response to donbauder Only repeating what is in the article I provided the link to in my earlier comment.
danfogel: I wasn't questioning you. I was questioning the statement. Best, Don Bauder
In an interesting development, considering what happened in Detroit yesterday, a few minutes ago, the SEC charged the city of Miami and its former budget director with securities fraud related to several municipal bond offerings. Apparently they seem to have violated an SEC a cease-and-desist order from 2003 related to similar misconduct. I guess it's been a bad week for some people.
danfogel: That is interesting. The Wall Street Journal says the Detroit case may raise the cost of issuing munis for other entities. Higher interest rates would have to be paid. Best, Don Bauder
reply to donbauder Intereresting?? well, I guess. It's not so much the charges, more the timing I found interesting. I think this is the 4th or 5th time this year that they have done basically the same type of thing by charging or accusing a municipality with something like this. Earlier this year the SEC charged Victorville with fraud for inflating the value of some city property that was used to secure a bond sale. I remember that one because I happened to be sitting in the Barstow Station McDonalds, after having just driven past Victorville, when I read it in the paper. funny the things you remember sometimes.
danfogel: Yes, I posted that Victorville item. Best, Don Bauder
Egad--from the armpit to the bunghole's five-star eatery? Consumption? But, you survived!
Twister: How do you know? Best, Don Bauder