Detroit's Bankruptcy Is Just Politics By Other Means

thenews 2013.10.23 17:00 #21

Detroit's bankruptcy case in court

A federal judge is hearing arguments over whether Detroit city should be granted protection from its creditors.

In opening remarks, Bruce Bennett, the lead attorney for Detroit, said there was a "mountain of evidence showing the insolvency of the city".

But representatives for the city's unions and pension funds disagree and say the city is solvent.

With $18bn (£11bn) of liabilities, Detroit's case is the biggest municipal bankruptcy filing in US history.

The case to determine whether or not Detroit can continue with its bankruptcy filing is expected to last anywhere from five to 10 days.

Hands off

In opening testimony, Jennifer Green, a lawyer for the Detroit pension fund boards, argued that the city and the state of Michigan had always planned to file for bankruptcy - despite earlier assurances in 2013 that newly appointed emergency manager Kevin Orr would be evaluating all options.

As part of the bankruptcy hearing, the unions and pension funds are trying to prove that the city did not negotiate with them "in good faith".

If Steven Rhodes, the bankruptcy judge overseeing the case, agrees with them, the city would have to go back to the drawing board.

Protesters outside the court in particular singled out Mr Orr, chanting, "Down with Orr" and "Orr no more".

The appointment of Mr Orr, who is scheduled to testify on Monday, was controversial as it was done without voter support.

Unions and pension funds won a small victory when it was ruled that Michigan governor Rick Snyder would have to testify on Friday.

What Detroit crisis? Pension Press review The next Greece may

thenews 2013.10.27 18:44 #22

Detroit Pensioners Face Miserable 16 Cent On The Dollar Recovery

If there is ever a case study about people who built up their reputation and then squandered it for first being right for all the wrong reasons, and then being wrong for the right ones, then Meredith Whitney certainly heads the list of eligible candidates. After "predicting" the great financial crisis back in 2007 by looking at some deteriorating credit trends at Citigroup, a process that many had engaged beforehand and had come to a far more dire -and just as correct - conclusion, Whitney rose to stardom for merely regurgitating a well-known meme, however since her trumpeted call was the one closest to the Lehman-Day event when it all came crashing down, it afforded her a 5 year very lucrative stint as an advisor. Said stint has now been shuttered.

The main reason for the shuttering, of course, is that in 2010 she also called an imminent "muni" cataclysm, staking her reputation once again not only on what is fundamentally obvious, but locking in a time frame: 2011. Alas, this time her "timing" luck ran out and her call was dead wrong, leading people to question her abilities, and ultimately to give up on her "advisory" services altogether. Which in some ways is a shame because Whitney was and is quite correct about the municipal default tidal wave, as Detroit and ever more municipalities have shown, and the only question is the timing.

However, as Citi's Matt King recent showed, when it comes to stepwise, quantum leap repricings of widely held credits, the revelation is usually a very painful, sudden and very dramatic one. This can be seen nowhere better than in the default of Lehman brothers, where while the firm's equity was slow to admit defeat it was nothing in comparison to the abject case study in denial that the Lehman bonds put in. However, as can be seen in the chart below, when it finally came, and when bondholders realized they are screwed the morning of Monday, Septembr 15 when the Lehman bankruptcy filing was fact, the move from 80 cents on the dollar to under 10 cents took place in a heartbeat.

Detroit's Bankruptcy Is Just Politics By Other Means - page 3