There Goes Detroit!

Detroit just filed for bankruptcy.  This is the largest city bankruptcy in U.S. history and much of it has to do with the banks.

Legions have fled Detroit over the last decade.

Detroit lost a quarter-million residents between 2000 and 2010. A population that in the 1950s reached 1.8 million is struggling to stay above 700,000. Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them.

Yet the Detroit bankruptcy details show the desire to slash city pensions and health benefits while too big to fail banks are first up to get their derivatives paid off.

Sources agree that Orr’s deal with creditors, widely reported to be Bank of America Corp. and UBS AG, to pay a $344-million swap with a $255-million debtor-in-possession loan, is instrumental in the timing of the potential bankruptcy filing.

The deal gives the city access to $11 million a month in casino tax revenues that Orr has said is key to maintaining city services while negotiations, in or out of bankruptcy court, take their course with other creditors and unions.

There are other reports that banks and their swaps will be paid first in any bankruptcy proceedings.

Wall Street firms that sold interest-rate swaps to Detroit as part of $1.4 billion of pension-bond issues stand to get paid before investors and the retirees the borrowings were supposed to help.

In 2009, the companies -- UBS AG (UBSN) and SBS Financial Products Co. -- could have forced the city to pay a fee to end the agreements, which were designed to cut the cost of the debt. Instead, the firms struck a deal giving them a claim on Detroit’s gambling-tax revenue, guaranteeing they’ll get paid $50 million a year.

Under Emergency Manager Kevyn Orr’s proposal last week to restructure the insolvent city’s finances, the payments get priority over promises to retirees and holders of unsecured debt, including the pension borrowings. Being ranked among secured creditors gives the banks the same protection as investors in water and sewer bonds or general obligations secured by liens on state aid.

While the banks are going to get theirs, guess who gets the shaft, public workers of course.  The bankruptcy filing protects the city against their claims.

The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities.

There is an entire website devoted to exposing bank loans and derivatives to the city of Detroit, demanding that debt be canceled, obviously to no avail.  All of this amounts to Wall Street 1, Detroit 0 as banks and hedge funds get paid 100% while the workers, pensions and public services get tanked.  The negotiations before filing were so low, the city wanted to pay pensions and benefits less than 10¢ on the dollar.  That's over a 90% cut!

The Detroit Pension board also tried to stop the bankruptcy and filed a lawsuit attempting to block cuts to workers benefits, clearly to no avail as bankruptcy was filed.

Detroit has been dependent on the banks since 2005 and in case you missed it, Bloomberg wrote an in depth exposé on banks making a killing off of Detroit and their financial woes.

The only winners in the financial crisis that brought Detroit (9845MF) to the brink of state takeover are Wall Street bankers who reaped more than $474 million from a city too poor to keep street lights working.

The city started borrowing to plug budget holes in 2005 under former Mayor Kwame Kilpatrick, who was convicted this week on corruption charges. That year, it issued $1.4 billion in securities to fund pension payments. Last year, it added $129.5 million in debt, 9.3 percent of its general-fund budget, in part to repay loans taken to service other bonds.

If anyone is aware bankruptcy is where pensions go to die, getting turned over to the PBGC.

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Comments

This is the US in a few years - predictable

No jobs, no manufacturing. Tax base shrinks. Despite shrinking tax base, corruption continues unabated. Despite shrinking tax base, public services are more needed than ever as crime rises, arson, robberies, etc. rise. No one wants to pay more taxes to make up for tax base shrinking so people that can move and find work anywhere else do. People left behind can't move, public services cut, no sane business wants to move into an area like that. Foreigners think they can buy cheap real estate in cities that are collapsing, and are shocked to find that Americans are leaving these places for a reason and real estate is cheap for a reason. Corrupt foreigners with $ to launder and legitimate foreign interests explore more areas to buy up real estate and businesses. US and state and county govt. bemoan lazy Americans, how "dumb" we all are, yet continue to lick corporate boots and go along with outsourcing everything = destroying more US jobs. Fewer US jobs, smaller tax base, more people need tax-funded public services = the cycle spirals out of control and quicker and quicker.

Corporations and puppet govt. here want US citizens to be temps only and expendable within 24 hours. Minimum wage only. $ spent on education a waste. So Americans stop wasting $ on STEM and every other major (e.g., history, psych., etc.) because it doesn't matter anyway, we're all cogs. Americans no longer buy BS of working hard, having a family, believing in communities because corporations and politicians don't want us setting up in communities, we're all temp workers that can't afford mortgages, let alone commit to a 12-month lease (temps can't do that). People lose faith in communities and govt., turn completely to themselves and close family, give middle finger to anyone else, including govt. and big business. US self-destructs, along with other corporate countries in which corrupt politicians lick the boots of paymasters. World burns, people roast marshmallows as it does and just don't care anymore.

But hey, the US govt. and corporations have a clue, really, they do. Why I'm sure Communist officials from China, JP Morgan/Jamie Dimon and Goldman/Blankfein and Corzine, DC bootlickers from both parties, and the Clintons and Bushes etc. are working on a plan right now to save Detroit and the rest of the US. You know who won't be there? The average American because we apparently count for sh*t. The last few decades have proven that time and time again. Anyway, the plan is being hatched right now in the Hamptons and Brussels or Frankfurt or some Wall Street office. I'll be busy drinking Bloomberg-banned beverages so my mind doesn't explode with too much thinking about things we can't change.

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amen dude. the only i think

amen dude. the only i think u forgot was the unions, yes the unions caused the bankruptcy of detroit, the evil unions who fought and died for a living wage at the turn of the 20th century, the same unions who lifted the floor for the benefits of all workers union and non-union alike.

well at least there's wal-mart with their billionaire heirs to dole out minimum wage and gov't benefits to those in need of meaningful work

GOD bless America

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