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Detroit Bankruptcy and Slow-Acting Suicide Pills

December 4, 2013


Judge Steve Rhodes said some interesting things during his ruling on the Detroit bankruptcy.  It will also be interesting to watch the union legislators react.  Judge Rhodes said;

  • Detroit has been unable to pay its bills for years.
  • The city is certainly bankrupt now.
  • The city could have and should have filed earlier.
  • It was probably impossible to bargain in good faith with the 100 thousand creditors and unions.
  • Union pension obligations are a contracted debt and can be addressed in the bankruptcy restructuring like other debts.
  • The judge will not stay his decision while the unions appeal his ruling.

Judge Rhodes decision will effect the ongoing San Bernardino and Stockton bankruptcies.

I assume state politicians controlled by the unions will pass legislation trying to limit the scope of the judge’s decision.  Blue states are the obvious places to watch for these bills.  The pro-debt legislators are only held in check by the institutions that issue bond ratings.  The obvious way to pass the debt-suicide bill is to have it go into effect years after it is passed.  Blue state voters would sleep through that sort of legislation.  Slow acting financial suicide pills are easier to swallow.

On the other hand, maybe President Obama will issue a decree demanding that unions be paid ahead of other creditors.

My earlier comments on Detroit are here.

Rob- off to work.

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