Weekend Economists American Bad Boys Part 1 July 12-13, 2014

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38. Detroit Vote Deadline Sets Stage for Bankruptcy Showdown

http://www.bloomberg.com/news/2014-07-11/detroit-vote-deadline-sets-stage-for-bankruptcy-showdown.html


Detroit’s public workers, retirees and bondholders finish voting today on a plan that would impose $7.4 billion in cuts on investors and pensioners, just short of a year after Michigan’s biggest city filed a record $18 billion bankruptcy.

Since the July 18 filing, Kevyn Orr, Detroit’s emergency manager, has been negotiating with stakeholders to put the city of 700,000 back on its fiscal feet after years of decline. Imposing cuts was the only way to continue supplying essential services and repair Detroit’s blighted landscape, according to Orr.

Current and former city employees, as well as investors, would be forced to take less than the $10.4 billion they are owed if U.S. Bankruptcy Judge Steven Rhodes approves the city’s plan after a trial set to begin next month. Some bondholders would recover as little as 11 percent of their claims. Others will be paid in full.

“Bankruptcy is never about a win. Bankruptcy is about a settlement,” Mark Young, head of the union that represents city police lieutenants and sergeants, said in an interview. “Nobody should be happy coming out of bankruptcy.”