Jun 24, 2013
“We have to change. We need to restructure the city’s operations .... This path will require painful sacrifices from all interested parties,” said Detroit Emergency Manager Kevyn Orr.
Orr puts out the idea that the city’s creditors will have to take a “haircut” just like the one city workers will have to take. The news media carry stories about the bondholders possibly seeing their bond values cut to 10 cents on the dollar.
That begs the question, just who stands to lose from Orr’s “restructuring” plan, and how much?
In reality, out of 11 billion dollars in unsecured debt – whose holders would stand to lose the most if the city declared bankruptcy – nine billion is owed to city workers either in the form of retiree health care benefits or pensions. So only about 9 per cent is owed to all the other creditors.
Also, many of those other bondholders are insured against losses due to bankruptcy. Much of the city’s other debt is in the form of water and sewer department bonds, which are secured because they are paid back out of the revenues taken in by those departments, before anything else is paid.
Orr makes it seem like the banks and other big financial interests will take big cuts. That’s just propaganda to cover up his real aim: to squeeze every penny he can from city workers. Ninety-one per cent of the pennies being “sacrificed,” in fact, will come from city workers and retirees who already have a hard time making it on what little they get.