Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Detroit Bankruptcy, the Law, and Leonard Garment

Politics / US Debt Jul 25, 2013 - 02:55 PM GMT

By: Fred_Sheehan

Politics

The City of Detroit, Michigan's petition for "bankruptcy protection and the adjustment of debts under chapter 9 of the United States Bankruptcy Code" (case number 13-53846 United States Bankruptcy Court for the Eastern District of Michigan, Southern Division), offers plenty of opportunity. Among the potential windfalls are to those who buy contracts at a discount, the clarity of bondholder claims, and the clarity of retiree benefit claims.


For claimants, it is now a roll of the dice. When a municipality enters bankruptcy, the court can exert enormous control over mayors, city councils, and legislative bodies.

The judge is a wildcard. In this case, the nitwit-end-of-the-spectrum has already revealed itself. Ingham County Circuit Judge Rosemary Aquilina ruled - if that's what this is called - that Michigan Governor Rick Snyder should read "certain sections of the [state] constitution and [reconsider] his actions." According to the Detroit News, Her Honor hectored the Michigan attorney general: "It's cheating, sir, and it's cheating good people who work." Presumably, she is addressing city workers' negotiated benefits, which is not a reason to banish the bankruptcy petition, but, if she believes what she claims, for the court to rule. This "unconstitutional" prerogative is bunk, stated by the public-union representatives and some untutored legal scholars.

On the other end of the spectrum, public unions are "unconstitutional," and should have been dismantled as such 80 years ago. Public workers already had Civil Service protection, which was specifically authored for the protection of state and municipal workers against the turmoil of party politics and Tammany Hall job favors. If the Civil Service protection was inadequate, the lawful response was to strengthen the hand of the Civil Service. Politicians, of course, would be the last to favor such resolve.

School children are taught the three branches of government balance and adjourn interests in a republic. The judicial branch has let us down (as have the others.) It has reinterpreted the Constitution to avoid unpopular decisions.

The judicial branch is in decline. Its capricious disposition has sown doubts among the people. What is this "secret FISA court," authorizing the National Security Agency's petitions to spy on every American because each might be a foreign menace?

Ingham County Circuit Judge Rosemary Aquilina claimed a second reason Governor Snyder should be required to deny Detroit's bankruptcy petition: "It's also not honoring the [United States] president, who took [Detroit's auto companies] out of bankruptcy." Aquilina is a reason The Onion must create ever more improbable inventions of the absurd to stay in business. (If Aquilina has a say, recall what happened to bondholders in the General Motors and Chrysler bankruptcies.)

AT A HEARING OF THE HOUSE JUDICIARY COMMITTEE ON TUESDAY, JULY 16, 2013, The NSA (National Security Agency) came under attack. Rep. Bob Goodlatte (R-Va.), chairman of the committee, said he was surprised that the programs had been kept secret for so long.

REPRESENTATIVE BOB GOODLATTE: "Do you think a program of this magnitude gathering information involving a large number of people involved with telephone companies could be indefinitely kept secret from the American people?" Goodlatte asked.

GENERAL COUNSEL FOR ODNI [OFFICE OF NATIONAL INTELIGENCE] ROBERT S. LITT: "Well, we tried." - Washington Post, July 17, 2013

Federal Reserve Chairman Ben S. Bernanke or his successor may be asked a similar question.

For those old enough to remember, does the current atmosphere remind you of the early days of the Watergate hubbub? That is, the odd sensation of keeping one eye on TV hearings (during the daytime, an oddity) not knowing if the legal to-and-fro would develop, but with a sense this was an important, historic moment.

THE CITY OF DETROIT FILED FOR BANKRUPCY 80 YEARS AGO, IN 1933. THE FOLLOWING IS QUOTED FROM "The Coming Collapse of the Municipal Bond Market":

February 1933 - City of Detroit defaulted on interest payments. The 1933-1934 Detroit budget dedicated 50% of estimated tax revenue to interest payments. Tax delinquencies rose from 36% in 1932-1933 to 80% in 1933-1934. Detroit issued scrip (rather than money) to pay city employees. Scrip was refused by local stores. (Many other cities issued scrip for wages in the Depression.) Detroit was able to negotiate much lower interest payments and longer debt maturities with bondholders. It was able to do so because bondholders knew Detroit was out of money with no ability to borrow.

Please note the parties compromised and did not rely on a court decision. It was approved by bondholders because they knew Detroit had no means to pay its bills, other than a reduction of interest payments. (After the negotiation succeeded, City of Detroit bonds rose $25.)

May 1933 - Yields on some issues became meaningless. All City of Miami bonds (yields ranged from 4-3/4% to 5-1/2%, maturities from 1935 to 1955) were quoted at $26. It was nearly impossible to get price quotes for a wide range of municipal bonds. Arkansas and Detroit were in default.

Some other developments during the 1930s, trends which may or may not be mirrored as more cities go to court:

By 1933 - across the U.S., every form of municipal expenditure had been cut since 1930 with the exception of relief payments. Welfare had risen from $100 million in 1929 to almost $500 million. Grants-in-aid from federal government to municipalities rose from $500 million in 1933 to $1.6 billion in 1934.

1933 - General sales taxes were introduced on a significant scale in Illinois, Michigan, New York and North Carolina. (Ability to raise taxes at this time was concentrated in the states rather than cities.)

April 1933 - House of Representatives bill that would have given the courts the power to delay municipal debt payments up to 10 years. This cleared the House Judiciary Committee. Municipal bond prices fell. Bill was defeated on a House vote.

May 1934 - Municipal Bankruptcy Bill became law. Set a formula under which insolvent municipalities could refinance themselves - at the expense of current creditors - in "[f]ederal courts under their constitutional powers to deal with bankrupts." In May 1936, the U.S. Supreme Court ruled the Municipal Bankruptcy Bill was unconstitutional.

Some differences between then and now: municipal workers' benefits were insignificant; the sense today there is always more money to solve a problem; the arbitrary dismissal in courts of legal contracts.

LEONARD GARMENT, AN ADVISER TO PRESIDENT NIXON, DIED ON JULY 15, 2013. According to the Los Angeles Times, he was "born in Brooklyn in May 1924... the son of a Lithuanian father and Polish mother, both immigrants." Alan Greenspan was born in Manhattan in March 1926, the son of a Romanian father and a Hungarian mother, both immigrants.

During World War II, Garment played the saxophone and Greenspan the bass clarinet in the Henry Jerome Orchestra. Middle Europe was well represented. By the 1960s, Garment had risen to partnership at the Wall Street law firm Nixon, Mudge, Rose, Guthrie, Alexander, and Mitchell. According to Garment, Alan Greenspan happened to bump into the prospering and influential attorney in 1967. The economist invited the lawyer to lunch at the Banker's Club. Knowing the (mis)calculating economist has planned every opportunistic step in his life, chances are Greenspan hid in a trashcan at the corner of Wall and Broad, saw Garment approaching through his periscope, and offered him front-row tickets to the World Series.

Garment mentioned his introduction of the future Federal Reserve chairman to Presidential candidate Richard Nixon in his autobiography (Crazy Rhythm). Greenspan's verbal meanderings were "pretty technical stuff" and "Nepal Katmandu language." But Nixon loved it: "That's a very intelligent man." Of Richard Nixon's misjudgments, this remains the most destructive to the American people.

There are rumors Greenspan is writing another book, this one chastising us for always being wrong and explaining why he has always been right. As if we didn't know.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules