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The Masked Tulip

Detroit Is Bankrupt - Judge Includes Pensions As Assets

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I'm a bit surprised not to see a thread on this already.

Detroit was declared bankrupt a few hours ago and the judge included the city pensions as part of the assets. They are now talking about 16% cuts to Detroit pensions.

This will have a huge knock-on affect IMPO to other cities in the US, especially those who have had former Detroit workers employed in their councils and, as a result, have become responsible for part of their pensions under US law.

This could result in lots more cities just opting for the bankruptcy option.

Thank goodness all the UK public pension pots are fully funded by the employees :rolleyes:

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Yahoo/AP 3/12/13

'

DETROIT (AP) — Detroit is eligible to shed billions in debt in the largest public bankruptcy in U.S. history, a judge said Tuesday in a long-awaited decision that now shifts the case toward how the city will accomplish that task.

Judge Steven Rhodes turned down objections from unions, pension funds and retirees, which, like other creditors, could lose under any plan to solve $18 billion in long-term liabilities.

But that plan isn't on the judge's desk yet. The issue for Rhodes, who presided over a nine-day trial, was whether Detroit met specific conditions under federal law to stay in bankruptcy court and turn its finances around after years of mismanagement, chronic population loss and collapse of the middle class.

The city has argued that it needs bankruptcy protection for the sake of beleaguered residents suffering from poor services such as slow to nonexistent police response, darkened streetlights and erratic garbage pickup — a concern mentioned by the judge during the trial.

"This once proud and prosperous city can't pay its debts. It's insolvent. It's eligible for bankruptcy," Rhodes said in announcing his decision. "At the same time, it also has an opportunity for a fresh start."

Before the July filing, nearly 40 cents of every dollar collected by Detroit was used to pay debt, a figure that could rise to 65 cents without relief through bankruptcy, according to the city.

Rhodes' decision is a critical milestone. He said pensions, like any contract, can be cut, adding that a provision in the Michigan Constitution protecting public pensions isn't a bulletproof shield in a bankruptcy.

The city says pension funds are short by $3.5 billion. Anxious retirees drawing less than $20,000 a year have appeared in court and put an anguished face on the case. Despite his finding, Rhodes cautioned everyone that he won't automatically approve pension cuts that could be part of Detroit's eventual plan to get out of bankruptcy.

There are other wrinkles. Art possibly worth billions at the Detroit Institute of Arts could be part of a solution for creditors, as well as the sale of a water department that serves much of southeastern Michigan. Orr offered just pennies on every dollar owed during meetings with creditors before bankruptcy.

Behind closed doors, mediators, led by another judge, have been meeting with Orr's team and creditors for weeks to explore possible settlements.

Detroit, a manufacturing hub that offered good-paying, blue-collar jobs, peaked at 1.8 million residents in 1950 but has lost more than a million since then. Tax revenue in a city that is larger in square miles than Manhattan, Boston and San Francisco combined can't reliably cover pensions, retiree health insurance and buckets of debt sold to keep the budget afloat.

Donors have written checks for new police cars and ambulances. A new agency has been created to revive tens of thousands of streetlights that are dim or simply broken after years of vandalism and mismanagement..'

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Great minds etc.just posted one up as you did.

It's big news and will pave the way for more.

Edited by Sancho Panza

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States can't declare bankruptcy, while municipalities can. Detroit is not alone in the recent faltering of various US cities including San Bernardino, California, Stockton, California, Jefferson County, Alabama, Central Falls, R.I.

Plenty more will follow, along with the Wall St vultures buying up infrastructure and assets for pennies.

Edited by cashinmattress

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I remember reading a few years ago about how some Californian towns had allegedly hired ex Detroit fire fighters and cops.

Bizarrely, the Californian towns then became partially repsonsible for their pensions and now many of those Californian cities are basically broke.

If your populance is taxed out paying unaffordable public sector pensions and you see Detroit going bust, and its pension costs reduced, then how long before the clamour from your own tax payers comes to do likewise?

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....best thing is not to promise anything......because anything can happen......goes to show just how fragile the foundations really are. ;)

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Funny how any contract involving bankers pay and conditions are impervious to any kind of revision- while contracts made to lesser mortals seem to made of tissue paper.

How many times have we been told that it's impossible to claw back the ill gotten gains of the financial sector due to the sanctity of contract law?

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Well at least they are lucky that they are in Michigan....

Ten states exclude all federal, state and local pension income from taxation. These include Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania.

http://www.retirementliving.com/taxes-by-state

Seven states don't have personal income tax

A total of 41 states impose income taxes. New Hampshire and Tennessee apply it only to income from interest and dividends. Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming) do not tax personal income. Of the 41 with a broad-based income tax, 35 base the taxes on federal returns, typically taking a portion of what you pay the IRS or using your federal adjusted gross income or taxable income as the starting point.

Work in Texas or Washington then retire to Hawaii?

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Chicago reported to have 12 billion of unfunded pension liabilities. Boston, Atlanta, numerous other US cities are in the same position apparently and the talk in the US tonight is that such cities will now seek bankruptcy merely to reduce their pension debt.

Lots of boomers complaining and worried. Talk off very generous pensions for boomers paid for by the young who will not get the same pensions.

Sound familiar.

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It does look like "the Walking Dead" is in fact an educational program for things to come (a bit like the 80's BBC "Threads").

Keep that in mind :ph34r:

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Firefighters, along with police officers, don’t qualify for Social Security while other city workers do. The city has about 23,000 former employees collecting pensions. On average, general workers collect about $18,700 a year and police and firefighters average around $30,700.

http://www.detroitnews.com/article/20131203/METRO01/312030082#ixzz2mT30T0ax

I am not sure whether they are talking about a 16% cut in the pensions or 84% - anyone know?

Edit:

Good grief - they are talking about 75% to 84% cuts in the pensions. They have to come up with a cut and propose it to the judge by March 1st. He has said it must be fair.

Edited by The Masked Tulip

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Apparently for decades Detroit has been paying all sorts of extra bonus benefits to people in its pension scheme from a 13th month bonus through to payments to staff not yet retired. Staggering gravy train by all accounts.

http://dealbook.nytimes.com/2013/09/25/undisclosed-payments-cost-detroit-pension-plan-billions/?_r=1

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Apparently for decades Detroit has been paying all sorts of extra bonus benefits to people in its pension scheme from a 13th month bonus through to payments to staff not yet retired. Staggering gravy train by all accounts.

http://dealbook.nytimes.com/2013/09/25/undisclosed-payments-cost-detroit-pension-plan-billions/?_r=1

Yep - 20p to 30p in the pound.

Not just Detroit, all American public employees have been doing that sort of stuff.

It was cheaper to give people magic, future money than real money now.

Now we've hit the future.

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Chicago reported to have 12 billion of unfunded pension liabilities. Boston, Atlanta, numerous other US cities are in the same position apparently and the talk in the US tonight is that such cities will now seek bankruptcy merely to reduce their pension debt.

Lots of boomers complaining and worried. Talk off very generous pensions for boomers paid for by the young who will not get the same pensions.

Sound familiar.

I've never heard that line of argument before.

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"German banks were big buyers of Detroit's pension debt; now they are complaining that they were told it was sovereign debt, as if it were issued by a national government."

I thought they would have verified things first before committing.

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Apparently for decades Detroit has been paying all sorts of extra bonus benefits to people in its pension scheme from a 13th month bonus through to payments to staff not yet retired. Staggering gravy train by all accounts.

http://dealbook.nyti...-billions/?_r=1

'But the total excess payments in some years ran to more than $100 million, a crushing expense for a city in steep decline. In some years, the outside actuary found, Detroit poured into the pension fund more than twice the amount it would have had to contribute had it paid only the specified benefits.

The outside actuary, Joseph Esuchanko, concluded that the various nonpension payments had cost Detroit nearly $2 billion from 1985 to 2008 because the city had to constantly replenish the money, with interest. It appears that Mr. Esuchanko could not get data for years before 1985.

“This abuse of discretion was most egregious in 2009,” said Mr. Moore, a managing director at the firm of Conway MacKenzie. He said the pooled pension trust had lost 24 percent of the value of its assets that year, but the trustees appeared to have credited the individual accounts with 7.5 percent interest.'

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"German banks were big buyers of Detroit's pension debt; now they are complaining that they were told it was sovereign debt, as if it were issued by a national government."

I thought they would have verified things first before committing.

German banks were big buyers of sub prime MBS.They have form for this sort of thing.

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Mish 3/12/13

Mish calls the bottom for Detroit.It sets a precedent that will worry a lot of Unionistas/Bankers.

What would you rather have,a city decaying slwoly around you,or a city that people are moving to with optimism for their future.

'I mentioned to my wife Liz tonight, that I thought "the bottom was in for Detroit". She asked "why?"

Here's my lengthy answer.

Unlike Vallejo, California, it is highly likely Detroit will actually shed pension obligations in the first go-around.

A mere 25% of students graduate from high school. Can Detroit schools get any worse?

Bottom Catalyst

Still, things do not bottom until there is a catalyst.

After discussing the above, I happened to read some comments from the New York Times article Detroit Ruling on Bankruptcy Lifts Pension Protections.

The article itself did not say much more than I said on my blog earlier. But check out this comment by Kathleen Kelly ...

I was born in and grew up in Detroit. My parents moved to Detroit from another country with their three other children, prior to my birth. The city was, at that time, a gleaming jewel, and a global center of manufacturing.
Yes, the city has taken a turn downward for the past several decades. It's been sad, painful, and sobering to watch. The key question is "what now?".
A lot of turnover has occurred on City Council in the past year. The city also has a new mayor and a new police chief.
Young artisans, craftsmen and business people are moving into the city, specifically into downtown and midtown, to take full advantage of affordable rents. Business owners like Dan Gilbert are funding revitalization efforts in terms of rehabbing or demolishing empty buildings.
Areas of NYC have been renowned, over my lifetime, for re-gentrification. Detroit may learn something from that. Yes, the tune was called & played, and now the piper must be paid. But for those of us who've stayed close and who love the city, we see a blank slate now, replete with new possibilities. And yes, it won't be like "it was" with auto plants dotting the city landscape. But that doesn't mean it still can't or won't be great in its own way.
Finger-pointing won't help, and I'd have thought we'd moved beyond that. Safe, affordable housing, stable infrastructure, education and jobs. That's where our focus needs to be, and that's what will make Detroit great again.

I was in Ann Arbor, Michigan over Thanksgiving with Liz's family. Jan, a niece of Liz who runs a property management company in Detroit made similar comments about revitalization of Detroit by young artists.

Fresh-Start Proposal

Let's hope Detroit makes the most of this bankruptcy opportunity. But it can only do so if it sheds a huge chunk of pension and bond obligations.

Here is my six point fresh-start proposal.

  1. An agreement to end collective bargaining for all city workers
  2. An end to defined benefit pension plans for new workers and also for workers with less than 10 years of service
  3. A sustainable benefit model for existing workers with over 10 years of service, with pension plan assumptions equal to the long-term treasury rate
  4. Automatic provisions for further pension cuts if plan assumptions were not met
  5. An end to the right to strike for public safety workers
  6. An end to all prevailing wage laws

It may take years, if ever, for Detroit to be "great" again. But for the first time in decades, Detroit actually has a chance.

Read more at http://globaleconomi...Umbe73s8AatU.99'

Edited by Sancho Panza

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Apparently for decades Detroit has been paying all sorts of extra bonus benefits to people in its pension scheme from a 13th month bonus through to payments to staff not yet retired. Staggering gravy train by all accounts.

http://dealbook.nytimes.com/2013/09/25/undisclosed-payments-cost-detroit-pension-plan-billions/?_r=1

The article says

Of all the nonpension payments, she said, 54 percent went to active workers, 14 percent went to retirees and 32 percent went to the city, which used its share to lower its annual contributions to the fund.

It looks as though Detroit City was actually raiding the pension fund to pay its current workers and to fund current expenditure as 86% of the extra non pension payment money dished out from the fund did not go to retirees

That sounds exactly like the type of fraud perpetrated by Robert Maxwell

BTW those average annual pensions look very generous even by British public sector standards.

Edited by stormymonday_2011

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I don't know whether to celebrate the non honouring of pensions as a 'good thing' or not.

On the one hand I feel sorry for those who thought they had been promised a lot more than they will get.

On the other, we need to give our young hope.

People need to remember that pensions are not the only type of financial promise that may not end up getting honoured.

At the end they may prove no more illusory than some of the savings which some people on here have in their bank accounts

When the Cypriot banks went into 'resolution' it was not just pensioners who ended up getting stiffed.

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