The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

The “Cram Down” on Detroit City Pensioners Moves Forward

Apr 14, 2014

The “Grand Bargain” by the politicians and the bankruptcy courts to cut Detroit City retirees’ pensions and hand over hundreds of millions of dollars to big banks and bond insurers is nearly complete.

Detroit Emergency Financial Dictator Kevyn Orr announced his agreement with certain big bond insurers for them to accept a “reduced” repayment of 288 million out of 388 million dollars from the city. Then bankruptcy Judge Steven Rhodes approved a deal Orr made to repay 85 million dollars to the big banks holding “interest rate swaps” the city purchased in 2005 and 2006.

The decisions mean insurers backing the bonds held by the biggest bondholders will get back 74 percent of what they will pay out to the bondholders. That’s on top of the money the insurers already made on the insurance they sold to cover the debt.

The big bondholders will get 100 percent of what is owed them, because they generally insure the bonds they purchase against losses due to debtors’ bankruptcies. Many of these same bondholders have already been paid over and over and over again for money they previously loaned to the city.

Detroit city pensioners, on the other hand, would receive only 26 percent of what is owed to them. Also, the money to pay the 74 percent to the bondholders will come from a lien on state aid payments to Detroit, meaning much less money to spend on services to city residents!

The latest decisions likely pave the way for the city to go ahead with what is appropriately called a “cram down” settlement agreed upon by Orr and Michigan Governor Rick Snyder and then forced on the pensioners. Rhodes has made it clear he is willing to accept such a deal.

These decisions mean a life of living in poverty, or near poverty, for many city retirees who gave decades of their lives to working for the city, all so the big banks and insurers can get their hundreds of millions. Unless city workers and others who support them stand up and say “No!” to these attacks.