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jpdoctor | 12 years ago

What I don't see in the comments yet: This is interesting not only for Detroit, but for the precedent it sets. There are 10 or 15 municipalities that will study how to screw the retirees & bondholders as thoroughly as Detroit plans to and then go down that path.

discuss

order

nostromo|12 years ago

I have a hard time feeling sorry for bondholders in these situations. There is always some risk in lending money. Perhaps they should try and find more creditworthy institutions next time.

A lot of money in the US is being lent with the assumption that creditors will always be bailed out by the state or federal government; that mindset exasperates excessive borrowing and spending at the local level and encourages creditors to make risky loans. This is the textbook definition of a moral hazard.

kcg|12 years ago

Even as a credit analyst, I agree that you can't really feel sorry for the bondholders here. If you want to lend in any market, you need to assume the risk that the debtor goes bankrupt. Pensioners are a different story though.

However it's absolutely not true that "a lot of money in the US is being lent with the assumption that creditors will always be bailed out by the state or federal government", at least not a large amount relative to the total bond market size. Rates are low now, yes, but that's because the Treasury rates are so low, not because of some implicit government backing of credit that is making assets less risky. In fact, spreads (bond yield - treasury yield) are near historical norms.

e40|12 years ago

I'm very liberal, but I don't see this as screwing the retirees. I think they got a better than they should have deal. The unions over-reached and they got rates of return that were unsustainable. We haven't even talked about the gaming of the system that happens (punching up salary for the last year, so their retirement benefit goes up).

The police chief in a town near mine retired on something like $300-400K and it was discovered that he had taken a job at another city, several hundred miles away.

There is so much corruption and abuse of the municipal retirement plans that I think a reboot is in order.

rdouble|12 years ago

In California the police can pre-retire and collect their retirement while they are still working at their same job. So you have the San Luis Obispo sheriff making upwards of $600,000.

If you're ever living in San Francisco making $130K as a programmer yet still wondering if you've made the right career choice, browse the public salary databases in the area to confirm the fact that you indeed did not.

jpdoctor|12 years ago

I particularly like the idea of promising firefighters a too-good pension, make them run into burning buildings to save people, and then reneging on the promise now that they won't be running into buildings any more. Serves them right for trusting a promise, the fools.

I wonder what effect that will have on future muni workers?

wpietri|12 years ago

Could you post the numbers that lead you to believe that most or all of the specific people here have unjust or unreasonable pensions? Because I'm pretty sure those numbers don't exist.

JumpCrisscross|12 years ago

Note that much of Detroit's debt is insured by monoline insurers who viewed the probability of a majour U.S. city entering Chapter 9 in the way S&P and Moody's viewed a nationally correlated housing meltdown pre-2008. I have not yet seen how this bankruptcy will (a) affect the monolines' solvency, or, (b) change their behaviour around municipal credit wraps.