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untanglingwebs
El Supremo
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By Abayomi Azikiwe Published by the Detroit Voice, an independent newspaper
March 19, 2013
Michigan’s multimillionaire Gov. Rick Snyder on March 14 appointed Washington lawyer Kevyn Orr as “emergency manager” over the city of Detroit. This has become the latest majority African-American municipality in Michigan to fall under the dictatorship of the state, which is serving as an agent of the banks. The banks claim the people owe them approximately $16.9 billion in long-term debt.
The Detroit City Council filed an unsuccessful appeal on March 12 against the state takeover, but Snyder went ahead with the seizure just two days later.
As Snyder introduced Orr at a press conference at the state office building in the New Center area, demonstrators picketed outside. They condemned the governor’s act of dictatorship and total abrogation of the democratic rights of voters, who just in November had voted down the emergency manager law in a statewide ballot initiative.
Orr, who was involved in the Chrysler bankruptcy restructuring in 2009, immediately warned the city unions that they would be a target of his efforts. “Don’t make me go to the bankruptcy court. You won’t enjoy it,” he said at the press conference. (miamiherald.com, March 15)
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“Bankruptcy’s been my stock and trade,” Orr stated. “I’m very comfortable in bankruptcy courts. You can do everything by consent. … When I say consensual, I mean … let’s get at it and work together because we can resolve this.”
The bankruptcy of Chrysler led to massive layoffs of tens of thousands of workers, freezing wages and institution of a two-tier wage structure. Before that, Orr worked for the international Jones Day law firm which specializes in “turnarounds” for private corporations.
Detroit city workers have already been forced to take up to 20 percent pay cuts and see the erosion of their health care and pension benefits. Since corporate-oriented Mayor Dave Bing took office in 2009, some 4,000 city jobs have been eliminated.
The city is facing a monumental economic crisis. Public transportation is in an abysmal state, lighting is out in large sections of the city, and streets are in gross disrepair.
The emergency manager’s main role, however, is to guarantee that debt service is paid to the banks. All existing labor contracts and other measures can be thrown out based upon the interests of capital.
‘Make the banks pay!’
Jerry Goldberg, of the Moratorium NOW! Coalition to Stop Foreclosures, Evictions and Utility Shutoffs, spoke to the protesters at the press conference on March 14. Goldberg, who said the appointment of Orr is designed to enrich the financial institutions, was met with great applause and people chanting “Make the banks pay!”
In response to the declaration of a “financial emergency” by Snyder on March 1, the Moratorium NOW! Coalition issued a statement pointing out that the banks and corporations are responsible for the city’s economic and political crisis. The statement was widely circulated online and prompted Bloomberg News to interview coalition leader and retired Detroit city worker David Sole.
The Moratorium NOW! statement read in part: “Snyder along with the corporate media is blaming the people of Detroit for their current plight, yet the situation … in the city is a direct result of racist and exploitative practices of the financial institutions and the corporations. Over the last decade more than 237,000 people were forced out of the city due to home foreclosures, utility shut-offs and the elimination of jobs.”
Read http://www.bloomberg.com/news/2013-03-14/only-wall-street-wins-in-detroit-crisis-reaping-474-million-fee.html
Regarding the debt, the statement continues: “Piled on top of this massive loss of employment and fraudulent mortgage lending, the city government was forced into credit default swaps (cds) and other questionable municipal loans which have rendered the people to indebtedness that can never be paid off. In addition, the bond rating agencies such as Moody’s, Standard & Poor’s and Fitch have continued to lower the creditworthiness of the city and [are] therefore driving up interest and penalties where the banks can now claim all tax revenues that should be utilized to pay for municipal services and education.”
Banks’ racism in action
Slavemaster Snyder goes after Black cities in Michigan.
The emergency manager imposition is also the denial of voting rights to nearly half of the African-American residents of Michigan, who live in cities under emergency management. The emergency manager, referred to by many as the “dictator law,” harkens back to the Jim Crow era. So too does the use of banks in targeting African-American households and communities as sources of avaricious profitmaking and usury.
The existing political structures in Detroit and other cities with majority African-American populations in Michigan are being strangled by the banks and corporations. The threat of bankruptcy by Orr and Snyder is designed to force even greater austerity measures upon the people of Detroit.
Protest against banks in downtown Detroit May 9, 2012.
The Moratorium NOW! Coalition calls for “an immediate halt to all debt-service payments to the banks which would immediately provide enough revenue to operate the city. The banks must then be held accountable for their robbery and consequent destruction of Detroit.”
The coalition also calls for “mass demonstrations, rallies, press conferences to protest and denounce the actions of Snyder and his collaborators. These protests should expose the criminal nature of the banks and the corporations who are at the root of the financial crisis in Detroit and throughout the state of Michigan.”
Meanwhile, the first batch of some 2,700 documents has been released by the city of Detroit as part of the Freedom of Information Act lawsuit filed by Moratorium NOW! in February. The organization is setting up a people’s review board to analyze the documents and expose that the existing crisis is the direct result of the banks’ usurious policies. |
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Sat Mar 23, 2013 7:40 am |
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untanglingwebs
El Supremo
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Only Wall Street Wins in Detroit Crisis Reaping $474 Million Fee Only Wall Street Wins in Detroit Crisis Reaping $474 Million Fee Jeff Kowalsky/Bloomberg
The city started borrowing to plug budget holes in 2005 under former Mayor Kwame Kilpatrick, who was convicted this week on corruption charges. That year, it issued $1.4 billion in securities to fund pension payments. Last year, it added $129.5 million in debt, 9.3 percent of its general-fund budget, in part to repay loans taken to service other bonds.
The only winners in the financial crisis that brought Detroit (9845MF) to the brink of state takeover are Wall Street bankers who reaped more than $474 million from a city too poor to keep street lights working.
The downtown skyline stands in Detroit, Michigan. The city has struggled to provide public services as a result of austerity brought by declining revenue.
The city started borrowing to plug budget holes in 2005 under former Mayor Kwame Kilpatrick, who was convicted this week on corruption charges. That year, it issued $1.4 billion in securities to fund pension payments. Last year, it added $129.5 million in debt, 9.3 percent of its general-fund budget, in part to repay loans taken to service other bonds.
Detroit, which is trying to avoid becoming the largest U.S. municipal bankruptcy, struggles to serve residents after revenue declined when the auto industry collapsed and the city began to empty. Michigan (BEESMI)’s Republican governor, Rick Snyder, is preparing to name an emergency manager, who will have to address debt and derivatives taken on in the last eight years.
“We have no lights, no buses, poor streets and now we’re paying millions of dollars a year on our debt,” said David Sole, a retired municipal worker and advocate for Moratorium Now Coalition, a Detroit group that fights foreclosures and evictions. “The banks said they need to be paid first. But there is no money.”
The city, which peaked at 1.85 million residents in 1950, has lost more than a quarter of its population since 2000. The 700,000 inhabitants who remain endure unreliable buses, inadequate police and fire protection and broken street lights that have darkened entire blocks.
Covering Shortfalls
Banks including UBS AG (UBS), Bank of America Corp.’s Merrill Lynch and JPMorgan Chase & Co (JPM). have enabled about $3.7 billion of bond issues to cover deficits, pension shortfalls and debt payments since 2005, according to data compiled by Bloomberg. Liabilities rose to almost $15 billion, including money owed retirees, according to a state treasurer’s review.
The debt sales cost Detroit $474 million, including underwriting expenses, bond-insurance premiums and fees for wrong-way bets on swaps, according to data compiled by Bloomberg. That almost equals the city’s 2013 budget for police and fire protection.
The largest part is $350 million owed for derivatives meant to lower borrowing costs on variable-rate debt.
Municipal borrowers from the Metropolitan Water District of Southern California to Harvard University in Cambridge, Massachusetts, have paid billions to banks to end interest-rate swaps that didn’t protect them. In the bets, a municipal issuer and another party exchange payments tied to interest-rate indexes.
‘Pay Later’
“The banks promise to get you the money and say you can pay later,” said Greg Bowens, spokesman for Stand Up For Democracy, a Lansing group that campaigned last year to repeal the law allowing appointment of a financial manager. “They get their fees off the top, and you trust that they’re doing what’s in your taxpayers’ best interest.”
As banks were collecting fees from bonds, some targeted city homeowners with subprime loans that led to foreclosures, depressing real-estate values and tax revenue, Sole said. About one-quarter of Detroit’s housing units are vacant, according to Detroit Future City, a 50-year blueprint for recovery. In some areas, entire blocks are deserted. Properties have been stripped of plumbing, wiring and whatever can be sold.
The home town of General Motors Co. (GM) has been running general-fund deficits of $155.4 million to $331.9 million since 2005, when Kilpatrick was mayor, and has been firing workers to save money.
Killing Fields
Last year, it cut police staffing by 11.6 percent to 2,836, according to budget documents. Killings spiked. Detroit had 411 homicides last year, up 9 percent from 2011.
On March 11, Kilpatrick, a Democrat, was convicted on corruption and fraud charges. He and co-conspirators executed a “wide-ranging racketeering conspiracy involving extortion, bribery and fraud,” U.S. Attorney Barbara McQuade said in a statement.
Kilpatrick’s attorney, James Thomas of Detroit, declined to comment.
While his client ran Detroit, the city embarked on two of its most expensive bond issues, first paying $46.4 million in fees to UBS and others to borrow $1.4 billion for pension obligations.
A year later, the city paid $61.8 million, including insurance costs, for UBS to sell $948.5 million in bonds, replacing two-thirds of the debt sold the previous year.
Some pension debt traded at about 65 cents on the dollar in the most recent trade Feb. 12, according to data compiled by Bloomberg.
Wrong-Way Bets
Detroit also entered into swaps contracts with UBS and SBS Financial Products Co., which serves as a counterparty on swaps transactions.
The arrangements are a bet on the direction of interest rates and can raise costs if they move unexpectedly.
Rates fell, leaving a liability of $439 million on June 30, 2012, according to a city report. That has fallen to about $350 million as rates went back up, said Jack Martin, Detroit’s chief financial officer.
The borrowing “likely contributed to our current problems,” said Martin, who took his job in May, 2012. “It was the way people did business back then. We are where we are now and working hard to right the ship.”
The city makes periodic swap payments from money generated by casinos.
Public Interest
Wall Street firms could end the deals and call for full payment because Moody’s Investors Service last March cut unlimited general-obligation bond ratings to B2, five levels below investment grade, according to the city’s 2012 financial statement. In November, Moody’s cut the rating again, sending it down two levels to Caa1.
The cuts mean there is “significant risk in connection with the city’s ability to meet the cash demands” under the swap, according to Detroit’s financial report.
The city has been talking with holders of its swaps, the report said. Martin said no negotiations are occurring.
“I don’t think we’re going to have any problems with the counterparties wanting to get those dollars any time in the near future,” said Martin. “We believe, and they believe, it would not be in the city’s best interest, and wouldn’t be in their best interest either.”
Banks have been reluctant to negotiate lower termination payments for many municipal governments. Last year, Detroit’s water and sewer utility borrowed to pay more than $300 million to unwind swaps.
‘Liquidity Problems’
Karina Byrne, a spokeswoman for Zurich-based UBS, declined to comment on the deals. Elizabeth Seymour, a spokeswoman for New York-based JPMorgan, also declined to comment on them, as did Thomas Butler, an SBS spokesman who works for New York-based Butler Associates LLC.
After the pension bonds, the city continued to issue general-obligation bonds and short-term debt totaling about $1.3 billion, according to data compiled by Bloomberg.
The city ran into “liquidity problems,” according to the 2012 financial statement. Because of low ratings and deficits, it was unable to borrow and turned to the Michigan Finance Authority, which arranged a $129.5 million bond issue underwritten by a Bank of America unit.
Costing $1.6 million in fees, part of the proceeds went to repay the unit for an earlier $80 million loan -- and part of that loan had been used to service other debt, according to the financial statement.
William Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment on the deal.
Debt Hangover
An emergency financial manager will have to handle the legacy of Detroit’s borrowing. Snyder said March 1 that the official would try to restructure long-term debt and renegotiate payments.
Striking new terms would be difficult, said Rick Frimmer, a corporate and municipal restructuring specialist with Schiff Hardin LLP in Chicago who represents some of the debt holders. Temporary changes may be possible, he said, such as waiving payments or default terms.
The city has advisers working on a plan to deal with the debt, in part by reducing retiree health-care liabilities, said Martin. He declined to comment on fees negotiated before he joined the administration.
“I’m sure the fees and interest rate are what most other local units or school districts would have to pay,” Martin said.
To contact the reporters on this story: Darrell Preston in Dallas at dpreston@bloomberg.net; Chris Christoff in Lansing at cchristoff@bloomberg.net
To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net |
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Sat Mar 23, 2013 7:57 am |
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J HUNTINGWORTH TUNE
F L I N T O I D
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"A tale told by an idiot,full of sound and fury,signifying nothing",, The good people of Deeetroit have shown they are not capable of governing themselves.They elected Kilpatrick.. Their city is in ruins,crime is rampant.They clearly need an overseer.  |
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Sat Mar 23, 2013 8:39 am |
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Dave Starr
F L I N T O I D
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| The preferred "progressive" solution is to deliver large truckloads of cash with no strings attached to city hall. Then, all problems will be magically solved. |
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I used to care, but I take a pill for that now.
Pushing buttons sure can be fun.
When a lion wants to go somewhere, he doesn’t worry about how many hyenas are in the way.
Paddle faster, I hear banjos. |
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Sat Mar 23, 2013 9:13 am |
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untanglingwebs
El Supremo
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Detroit got into problems with loans because "other cities were doing it".
Thy did not look at the crisis created in other communities by bad money management. No one stepped in and curbed the predatory lending by the big banks that created this problem. |
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Sat Mar 23, 2013 2:09 pm |
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