OT: Detroit files for bankruptcy
Feel free to lock this thread (would probably be a good idea), but it will be posted ad nauseum if it's not up.
Detroit has filed for bankruptcy.
http://finance.yahoo.com/news/detroit-emergency-manager-files-bankruptcy-201540926.html
what you say is true, but its not like the art would disappear, it would just move somewhere else.
I have thought long and hard about this and I think the art should be sold. Sacrifice involves some pain and losing the DIA, or a majority of it would suck, but you can't ask to be removed of all your debts and keep your nicest things.
how would I look asking for bankruptcy but wanting to keep some piece of art I owned?
IF nothing else we would still have the Diego Rivera murals...
Courts having superior authority to state constitutions is crazy--especially in an instance like this. It's one thing for Congress or President to have supremacy, but a bankruptcy court?
This is a law that needs to change.
This arises from the simple fact that Federal laws supercede state laws. It is the supremacy clause of the US Constitution. You really wouldn't want to change that aspect of the constitution if you thought through its implications. States could have subverted the Civil Rights Act of 1964 by simply amending their constitutions, and the South would still have segregation, just to pick a particularly radical example.
I know you were targeting bankruptcy laws, not all Federal laws, but it is quite important to have a national standard for bankruptcy, otherwise states would compete to have certain types of bankruptcy laws more amenable to a certain type of debtor, and people would be travelling the country looking to find the best venue to file bankruptcy. And what if bankruptcy provisions in state constitutions conflicted? How would they be resolved? A Federal standard for bankruptcy makes sense for a lot of reasons.
I still don't it is fair for a court to force a state to sell cultural artifacts. There has to be limits to the power of the court.
No, man. It's derived from the supremacy of the federal government over the state governments. The bankruptcy court is a federal court, it is the arm of the federal judicial branch, and yes, it has power over all state laws, period, end of story (though state supreme courts are only bound by the U.S. Supreme Court). The U.S. Constitution, at Article III, created the judicial branch. It also allowed Congress to create a federal judiciary. So Congress did (in 1789). The federal judiciary, which the BK court is a part of, along with district courts, the courts of appeals, and the U.S. Supreme Court, make up the judicial branch. The judicial branch's power is rooted in both the U.S. Constitution and acts of the United States Congress. As such, it has massive supremacy over any State anything. Remember the Civil War? Remember desegregation in the South? Same idea, really. The BK court may seem like a long tentacle/far removed from the nexus of Federal power, but it's the long arm of one of the three branches of government, and one of the other two branches- the legislative- is actually the creator of the bankruptcy court. So on one side, it's the Michigan constitution. On the other side, it's Congress, the Federal judiciary, and the U.S. Constitution. So Michigan's constitution loses.
states or cities to sell cultural artifacts. There has to be limits to the courts power.
Well, Congress (which created the bankruptcy court and gives it its powers, as Congress was allowed to do pursuant to Art. I of the Constitution, whereas Art. III gave Congress the power to create the federal district courts that also heard bankruptcy matters up until about 35 years ago) could stop that by passing a law for municipalities or state entities exempting certain things from asset sales in bankruptcy. However, Congress has not done so, and I imagine the idea occurred to at least one member of Congress at some point in the 200-plus years that federal courts have been handling bankruptcy matters. So, in the end, you could say that Congress, the most representative form of the collective will of the populace that exists in our tripartite federal republic, and therefore the people of the U.S. who those representatives and senators purport to represent, do not agree with you, and weigh the rights of people to be paid when they loan a municipality money as being more important than what pieces of property that bankrupt debtor wishes to hold on to for the public good.
that are not representative of the desires or needs of the people.
Well, as Ben Franklin said, "Democracy is the worst form of government, except for all the others." I get what you're saying, obviously. But in our current governmental framework, Congress is the closest to the will of the people, I would argue, than either the President or the Judiciary, which makes sense. Representatives are elected every 2 years. But yes, I certainly understand your frustration with Congress; its public approval ratings have dived over the past half-decade to a decade, regardless of which party's in power in the White House or Congress.
You might be right that bankruptcy courts should be limited in their power. That's a perfectly valid opinion. But that doesn't mean STATES should be the ones who can limit those powers. Congress has plenty of power to modify the remedies available to bankruptcy courts.
Besides, these are entities that are seeking protection from these courts, so they give up certain rights.
It's a sad day in many respects, but it's also just a process. At the end of the day, whether an agreement is reached with pensions or the bondholders or both, Detroit should have more cash flow to meet the basic health and safety obligations it owes to its citizens. That's not a bad thing; the question is how do you get there. I hope Orr, Jones Day and Snyder have a plan.
Orange County came out better. I don't think City of Valejo is doing that well, post bankruptcy. I'd be curious to see if there are any strong examples of a city going through this process and coming out super-awesome-better 3-5 year afterwards.
What's my insane theory for fixing up Detroit? Glad you asked. Tie up immigration reform with urban renewal. If you are here illegally, but pay your taxes and are free of criminal offenses, you get instant amnesty if you move to Detroit, buy property and start a business for a minimum of 5 years. Or, if you are in Mexico and face an 8 year wait to get here legally, you get to jump to the front of the line if you committ yourself to moving to Detroit for 5 years, buying property as part of the bargain. I have no idea if it would work or even if it would legal or feasible, but it might mean an instant tax base, which is what the city desperately needs. Just one idiot's thoughts...
Why don't we just burn this mother down?
This brings nothing to the conversation, if you want to look like less of a troll then I suggest you stop posting these type of comments.
Eh it's about as insightful as all the fake economists and public policy experts here offering their revolutionary ideas to fix the crisis.
Sounds good to me.
Opposed to real economists and public policy makers...because they're such great, insightful people making the world go-round so smoothly.
(Not a "Politics" post)*
I love Michigan more then anywhere, but time to start fresh....where's the matches ;-)
The PBGC only covers corporate or multi-employer pension plans (MEPPs), not municipal plans, so the PBGC won't guarantee the Detroit workers' plans.
To the poster asking "who will pay?," that is a complicated question with a complicated answer, but the short answer is that the creditors will. In this case, that is largely pension holders in Detroit.
If you want a good summary of what the pre-bankruptcy plan (that was effectively rejected) looks like, here is the link:
And a brief summary for people: you'll see lots of numbers throw around on the liabilities side, but if you want the best summary of the relevant numbers, click on that file and go to page 98. That summarizes the "unsecured" claims Detroit has. They total about $11.5B. About $2B of that is investor-owned debt. A little over $9B is due to retirees, either for pension payments or healthcare (referred to as OPEB: other post-employment benefits).
You'll also see a $20B number thrown out there. That is a much less relevant number, because some of those liabilities are "secured," meaning that they have specific revenues and/or assets pledged against the liability. In bankruptcy, those liabilities get access to the revenue stream or assets to pay off those liabilities before anyone else can get them. So, if you have a Sewer System bond, the money the city collects for sewage is yours, it can't be used to pay unsecured creditors like the pension funds. In all likelihood, these secured creditors will get paid in full, or close to in full, because if you don't pay them, they can basically repossess the assets they are owned.
To draw an imperfect but illustrative comparison, here is the analogy to a person filing bankruptcy: if you go bankrupt with two pieces of debt, a car loan and a credit card loan, they get treated differently. The car loan is secured by the car -- the lender who gave you the money for the car gets the car back as collateral if you default. Then, if that lender is still owed money, they are unsecured, just like the credit card loan is from the start. If there is anything left over after you sell the car, it would be split between the credit card company and the car lender (assuming selling the car didn't entirely cover the loan outstanding on the car). In Detroit's case, the sewer and water systems (as well as a host of smaller systems) are secured and get paid first. The remaining assets (pensions and investor-owned bonds) are unsecured and get paid a fraction of what they are owed.
Lots of oversimplification here, but its a start. The reality is that Detroit's pensioners could take a very big hit in this process, no matter what.
Another good article on that question: http://www.detroitnews.com/article/20130620/BIZ/306200039
Thanks. I found this to be very helpful/informative.
excellent reply.
Choice quote from an article earlier;
"Q: Will retiree health care be affected?
With all due respect, the article says this in its last two paragraphs:
They say it is “unclear” whether the constitutional protections for pensions in Michigan and Louisiana, to name two, apply only to state government “or whether they would also apply to bankruptcy modification. Construing the intent of state constitutions presents a serious quandary for a bankruptcy court.”
And that presents an equally serious quandary for the unions and their pension funds conditioned to think the state constitution had their proverbial back. It might not.
Looking at this subject pragmatically, my guess is that pensioners are going to get hurt due to the huge shortfall involved and the funds that would need to be generated through additional taxation to compensate for same. We can take some degree of solace in realizing that Detroit is just one of many cities, counties, etc. facing this problem. Seems like actuarial assumptions about rates of returns were grossly overstated and lifespans understated. Reading about unfunded pension liabilities across the US is not something that one should read before bedtime as it is rather unsettling.
This was part of the reason we lost the bid for the X-Games, can't say I blame them but it would have been a nice boost for the downtown area.
http://www.detroitnews.com/article/20130717/SPORTS07/307170116
What are the practical implications of this?
I know very little to nothing about the effects of this. Can anyone offer a simplified explanation of what the consequences of this will be?
on this afternoon's broadcast of Marketplace from American Public Media (it's my favorite business podcast, kinda religious about it). It's only a few minutes long and I think it answers better than most people could. click link and listen to the audio player. 3:54 run time.
http://www.marketplace.org/topics/economy/numbers/detroit-bankruptcy-long-time-coming
Perfect, thanks! I also love Marketplace, I just haven't heard this yet. I look forward to listening to it.
stayed 5 years to long if you looking at the evoulution of the downward spiral of WHAT was the economic engine of this GREAT country...truly sad day for us Detroiters. But,the pain has yet to come...
He couldn't prevent jobs from being lost to Canada or Mexico. And he couldn't stop the flood of imports from overseas. Detroit is a perfect example of what happens when your primary industry falters. Just imagine if we outsourced our government jobs, including the Congress; DC would fall on economically hard times.
Corruption and crime contributed but the poster's point about the auto industry is a sizable factor.
What happens when your expenses far exceed income. This will not be a unique situation in the future
Hello Chicago, Hello California, Hello United States.
of the Romans. Outspending ourselves into collapse
My question is, with $18.5 billion in debt, what the hell took them so long?
It's sometimes counter-intuitive, but things like bankruptcy and foreclosure, while undesirable financial outcomes, exist for good reasons. Everyone thinks it's the worst thing that could ever happen to an organization. While it's not the best thing happen, it's definitely not the worst. Besides, whatever reality people have been holding on to about Detroit before was long gone anyway.
Before this announcement, I don't think anyone gave Detroit much of a chance. Now official procedure is around it, and for the first time the reset button will actually be pushed in and the city can move forward. Not without pain, but then again the pain was there all along anyway and about to get a lot worse. So I say congratulations to Detroit for facing facts, not kicking the can down the road anymore and moving forward.
You (and a few others) summed that up better than how I tried to, above. Bravo. I'm not an expert on any of this but like you say Bankruptcy exists for a reason. With some structure and "official procedure" around the city maybe this can help kickstart the process of rejuvenation. This line of thought may very well be wishfull thinking but it seems the time has come to suck it up and do some things to get back on track.