It will be interesting to see how pension liabilities and current pension guarantees are handled. This is a very large scale problem not just in Detroit but across America, where the retirement guarantees given to retiring politicians and government workers is very costly.
If they force the bond holders to eat it all then the market for municipal bonds will be hurt badly. The irresponsible largess in the current government pension system needs to come to an end.
Pensions are a joke. I hate to say this but look at the teachers of Mass as a good example of just how much so. 20 years ago teachers paid 2% of their salary into the pension, today they pay 10%. Do you expect that in any reality today's teachers are going to see that returned to them?
Basically, promises are made that have no bearing on reality and the now has to suffer for it. I wish they'd give them the opportunity for a 401k. At least then they'd have an option of seeing something after 40 years of dedicated public service.
Oh, please. These pensions are impossible now, but that's because of decades of underinvestment and out-of-control health care costs.
Also, the workers didn't promise themselves anything. They made a deal with their employers. The employers didn't have to agree to anything. They did, and those deals should be honored.
The employees getting the pensions are not the same ones doing the negotiating. By your theory, government employees would always get what they wanted and therefore never strike, but that's demonstrably not the ase.
It's not as though they let the garbage man write his own pension.
It's funny, when a bank NINJA-loans a half-million dollars for a 1000ft^2 bungalow, it's always the-purchaser-took-advantage-of-the-bank, and never, the-bank-should-have-known-better-and-deserves-to-go-broke.
No, certainly the garbage man doesn't write down his own pension. His union negotiates with the government over how much money (that doesn't belong to either of them at the time) to promise to all garbage men.
Banks deserve to be exposed to the risk they assume in general, but this issue has problems in addition to the problem of banks being sheltered from risk.
I think, in the case of Detroit, they will both be taking pretty painful hits. Snyder is serious about this. The bankruptcy administrator is likely to be unsympathetic. And very little help is likely to come from DC. Couple all of that with Chapter 9 providing all creditors with FAR fewer rights, and I think the writing is pretty much on the wall.
The only thing the creditors can try at this point is to get a judge to rule that Detroit is not eligible for bankruptcy. Slim chance there... but we've all seen stranger things happen.
If they force the bond holders to eat it all then the market for municipal bonds will be hurt badly. The irresponsible largess in the current government pension system needs to come to an end.