Detroit to pay millions to banks that swindled city

[Octafish]

What's wrong with this story? The Arsenal of Democracy, the Birthplace of the Middle Class is getting picked clean by the Vulture Class. For some reason, the tee vee didn't mention this part of the story.



Detroit to pay millions to banks that swindled city

By Shannon Jones
World Socialist Web Site, 12 April 2014

US Bankruptcy Judge Steven Rhodes approved a settlement Thursday handing $85 million to the banks that swindled the city of Detroit out of hundreds of millions of dollars in an interest rate swap deal. UBS Bank and Bank of America will receive a flat sum to unwind the agreements entered into by the city in 2005-06.

The agreement was the third attempt by the banks to extract millions of dollars from the city from financial arrangements negotiated by the administration of former Detroit Mayor Kwame Kilpatrick. Judge Rhodes rejected two earlier proposals involving higher payouts, evidently concerned that they were too nakedly one-sided.

The judge called the deal an example of “the very spirit of negotiation and compromise.” In reality the agreement represents the continued looting of Detroit by financial institutions that enticed the city into complex and highly risky deals in violation of state statutes. Both Judge Rhodes and Detroit Emergency Manager Kevyn Orr have acknowledged that the two banks likely broke the law when they negotiated the swaps, which were a bet that interest rates would rise, when in fact they fell to nearly zero following the financial crisis of 2008.

SNIP...

Kevin Brown, a spokesman for New York-based NPFG told Bloomberg News that bondholders “are going to get every nickel that they were originally entitled to.”

By way of contrast, Detroit pensioners face a staggering cut of 50 percent or more when cuts to dental, health and vision insurance and the elimination of cost of living raises are taken into account. Such a reduction in income will drive thousands into poverty and destitution at the same time that the banks responsible for plundering the cities resources are paid off.

CONTINUED...

http://www.wsws.org/en/articles/2014/04/12/detr-a12.html

Anyone notice a pattern here? AIG gets 100-cents on the dollar; We the People pick up the tab for the $16 Trillion Bankster Control Fraud tab.

[Gidney N Cloyd]

1. Bastards. nt

[Octafish]

3. It's like we live in an Oligarchy or something.

Once it seemed to be a Kakistocracy, govenment by the worst -- but it's fused with the thieves, more of a Kleptocracy. Must be a management issue. Definitely Buy Partisan:

A who’s who of the conspirators behind the Detroit bankruptcy

By Thomas Gaist
13 November 2013

EXCERPT...

Michigan State Treasurer Andy Dillon

Andrew or “Andy” Dillon is a leading Democratic politician in the state of Michigan, who was speaker of the Michigan House of Representatives before being appointed state treasurer by Snyder. Dillon was elected to the House in 2004, and ran for the Democratic nomination for governor unsuccessfully in 2010, at which point he hitched his chariot to Snyder’s campaign. He was rewarded with the second most powerful post in the state.

Dillon earned his fortune as a venture capitalist, serving as vice president of commercial finance for General Electric Capital Corporation. He become president of Detroit Steel Company in 1996, and later was managing director of the Chicago-based private equity firm Wynnchurch Capital.

Dillon has been a chief conspirator in the plans for the “restructuring” of Detroit. He worked with Jones Day attorneys to draft the April 2012 consent agreement, which forced major concessions on municipal workers, and has overseen restructuring operations against municipalities and school districts throughout the state using powers of the authoritarian emergency manager law.

An email sent by Dillon on July 10, 2013 to Orr on the wording he should use to justify the bankruptcy filing exposed the conspiratorial character of the operation. Dillon told Orr he didn’t think, “we are making the case why we are giving up so soon to reach an out of court settlement. Looks premeditated.” He advised Orr to “say facts got worse as we dug into the numbers… We don’t even say they rejected the city’s proposal. I think we may want a take it or leave it demand before we pull this trigger. I agree with the recommendation but I don’t think we made the case. After the letter is revised, let’s work on the Gov’s response.”

Dillon resigned his post as state treasurer on November 1—the day after giving a deposition for the bankruptcy trial—saying publicity over his acrimonious divorce was becoming a distraction. Snyder, stating regret, immediately heaped praise on the state Democrat.

“He has been instrumental in many of the comprehensive reforms that are contributing to Michigan’s comeback. He has worked tirelessly on behalf of the people of Michigan, and we’re a stronger state because of his dedication, expertise and leadership.” Dillon’s “partnership with Detroit to assist in the city’s turnaround,” Snyder wrote, “is just one example of Andy’s positive impact on Michigan.”

SOURCE: https://www.wsws.org/en/articles/2013/11/13/whow-n13.html

Dillon lost out on the nomination for the Democratic nominee for Governor in 2010. So, instead of helping the eventual nominee, Lansing Mayor Virg Bernero, he laid low. After Rick "Gateway Pinkslip" Snyder won the job, Dillon joined the Republican administration as Michigan State Treasurer, a reat job for a vulture capitalist -- think "Boardwalk Empire" and Nucky Thompson with UMC features. Dillon recently left public service to return, again, to the pirate sector.

[derby378]

2. Tell these bankers they can't get blood out of a stone...

...and they'll bring out some beefy guy wearing black sap gloves holding up a chunk of basalt. And then he starts to squeeze it.

The real tragedy is that the judge and the emergency manager know the banks broke the law, and the banks are getting paid anyway.

[Octafish]

4. It's like Justice these days takes the easy route.

"Too complicated" to prosecute. Bullfeathers.

Tim Geithner used America's homeowners to ''foam the runway'' for the bankster landing.

Neil Barofsky, the former special inspector general for the Troubled Asset Relief Program, has published a new book, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.” It presents a damning indictment of the Obama administration’s execution of the TARP program generally, and of HAMP in particular.
…
By delaying millions of foreclosures, HAMP gave bailed-out banks more time to absorb housing-related losses while other parts of Obama’s bailout plan repaired holes in the banks’ balance sheets. According to Barofsky, Treasury Secretary Tim Geithner even had a term for it. HAMP borrowers would “foam the runway” for the distressed banks looking for a safe landing. It is nice to know what Geithner really thinks of those Americans who were busy losing their homes in hard times.

CONTINUED w VIDEO and links and more letters...

http://washingtonexaminer.com/video-geithner-sacrificed-homeowners-to-foam-the-runway-for-the-banks/article/2502982

People in Detroit have foamed the runway for centuries, from volunteering to fight in the Civil War to striking for fair working conditions to busting their chops as the Arsenal of Democracy to showing the world people of all races, religions and creeds could live and work together.

[Gidney N Cloyd]

5. As Henry Hill said in Goodfellas, "Fuck you, pay me."

"Business bad? Fuck you, pay me. Oh, had a fire? Fuck you, pay me. The place got hit by lightning? Fuck you, pay me."

[Initech]

6. Stockholm syndrome?

[Octafish]

7. Breakthrough Moment.

Like the pupil who just got hit on the head by the master's cane and enlightened:

Judges obviously know where the power is.

On Vultures and Red Wings: Billionaire Gets New Sports Arena in Bankrupt Detroit

Dave Zirin
The Nation, July 29, 2013

The headline juxtaposition boggles the mind. You have, on one day, “Detroit Files Largest Municipal Bankruptcy in History.” Then on the next, you have “Detroit Plans to Pay For New Red Wings Hockey Arena Despite Bankruptcy.”

Yes, the very week Michigan Governor Rick Snyder granted a state-appointed emergency manager’s request to declare the Motor City bankrupt, the Tea Party governor gave a big thumbs-up to a plan for a new $650 million Detroit Red Wings hockey arena. Almost half of that $650 million will be paid with public funds.

This is actually happening. City services are being cut to the bone. Fighting fires, emergency medical care and trash collection are now precarious operations. Retired municipal workers will have their $19,000 in annual pensions dramatically slashed. Even the artwork in the city art museum will be sold off piece by piece. This will include a mural by the great radical artist Diego Rivera that’s a celebration of what the auto industry would look like in a socialist future. As Stephen Colbert said, the leading bidder will be “the museum of irony.”

They don’t have money to keep the art on the walls. They do have $283 million to subsidize a new arena for Red Wings owner and founder of America’s worst pizza-pizza chain, Little Caesar’s, Mike Ilitch, whose family is worth $2.7 billion dollars. (“Friends! Romans! Countrymen! Lend me your pensions!”)

SNIP...

There is a right-wing narrative about Detroit that the city is in peril because of some combination of the 1967 “race riots” and greedy unions. The reality is that black and brown residents of Detroit made Motown and those “greedy unions” built a stable working class that could realistically dream of a better life for their own children. The breaking of Detroit should be seen, in the words of David Sirota, as an indictment of right wing economic orthodoxy. Instead, the bankruptcy has been used as a warning to other cities that unions, pensions and a culture of resistance are roads to ruin.

CONTINUED...

http://www.thenation.com/blog/175467/vultures-and-red-wings-billionaire-gets-new-sports-arena-bankrupt-detroit#axzz2avgCW0Gd

I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. I like my job. I like my captor. I like my job. I like my captors. And, if I'm good, maybe they will like me, too.

[Initech]

28. Truly truly mind boggling.

[nationalize the fed]

32. I like my job. I like my captors. And, if I'm good, maybe they will like me, too.

That would be funny if it wasn't so sad.

K/R for an excellent thread- need to post this stuff non stop so maybe some of it will sink in.

The people have been shafted. And it's not even close to over.
And they really only have themselves to blame. Like V said:

And the truth is, there is something terribly wrong with this country, isn't there? Cruelty and injustice, intolerance and oppression. And where once you had the freedom to object, to think and speak as you saw fit, you now have censors and systems of surveillance coercing your conformity and soliciting your submission.



How did this happen? Who's to blame? Well certainly there are those more responsible than others, and they will be held accountable, but again truth be told, if you're looking for the guilty, you need only look into a mirror. I know why you did it. I know you were afraid. Who wouldn't be? War, terror, disease. There were a myriad of problems which conspired to corrupt your reason and rob you of your common sense. Fear got the best of you, and in your panic you turned to the now high chancellor, Adam Sutler. He promised you order, he promised you peace, and all he demanded in return was your silent, obedient consent.

[factsarenotfair]

8. Here's a link to a good source of info on the bankruptcy:

http://www.detroitnews.com/article/99999999/METRO01/130718001&template=theme&theme=DETROIT-BANKRUPTCY

Also, short audio about the Detroit bankruptcy from Michael Moore:
http://wdet.org/news/story/michael-moore-detroit-bankruptcy/

[Octafish]

12. Thank you, factsarenotfair. The Freep also has an excellent resource:

How Detroit went broke: The answers may surprise you - and don't blame Coleman Young

By Nathan Bomey and John Gallagher
Detroit Free Press Business Writers, Sep. 15, 2013

EXCERPT...

Instead, amid a huge exodus of residents, plummeting tax revenues and skyrocketing home abandonment, Detroit’s leaders engaged in a billion-dollar borrowing binge, created new taxes and failed to cut expenses when they needed to. Simultaneously, they gifted workers and retirees with generous bonuses. And under pressure from unions and, sometimes, arbitrators, they failed to cut health care benefits — saddling the city with staggering costs that today threaten the safety and quality of life of people who live here.

The numbers, most from records deeply buried in the public library, lay waste to misconceptions about the roots of Detroit’s economic crisis. For critics who want to blame Mayor Coleman Young for starting this mess, think again. The mayor’s sometimes fiery rhetoric may have contributed to metro Detroit’s racial divide, but he was an astute money manager who recognized, early on, the challenges the city faced and began slashing staff and spending to address them.

And Wall Street types who applauded Mayor Kwame Kilpatrick’s financial acumen following his 2005 deal to restructure city pension debt should consider this: The numbers prove that his plan devastated the city’s finances and was a key factor that drove Detroit to file for Chapter 9 bankruptcy in July.

The State of Michigan also bears some blame. Lansing politicians reduced Detroit’s state-shared revenue by 48% from 1998 to 2012, withholding $172 million from the city, according to state records.

CONTINUED...

http://www.freep.com/interactive/article/20130915/NEWS01/130801004/Detroit-Bankruptcy-history-1950-debt-pension-revenue

[factsarenotfair]

16. Thank you for that link, too, Octafish.

You're one my heroes, btw.

[Jefferson23]

9. Sigh, the agenda is so fucking blatant and no accountability. THIEVES! n/t

K&R

[Octafish]

13. Thanks, Jefferson23. How Wall Street-Not Pensioners-Wrecked Detroit

HOW WALL STREET — NOT PENSIONERS — WRECKED DETROIT

November 20, 2013 | Government & the Public Sector | Salon | David Sirota

In its house editorial yesterday, USA Today retold the now-accepted story of Detroit’s bankruptcy. Railing on “reckless public pensions,” the newspaper told its readers that the Motor City is “Exhibit A for municipal irresponsibility” because it allegedly “negotiated generous pensions” that were too lavish. In this fable, the average Detroit pensioner’s$19,000 a year stipend – which many get in lieu of Social Security – is somehow defined not only as excessive, but also as the primary cause of the city’s financial problems. Detroit, thus, becomes a weapon in the larger Plot Against Pensions, as the right holds it up as a cautionary tale supposedly showing that A) police officers, firefighters and sanitation workers are greedy and B) America cannot afford to fulfill negotiated agreements to pay public-sector workers a subsistence retirement benefit.

No doubt, there is a tiny grain of truth in this otherwise inaccurate story. Yes, it is true, Detroit is a cautionary tale for governments about financial management and legacy costs. However, it is not a cautionary tale about allegedly greedy employees living the MTV Cribs life off taxpayers. As an eye-opening new report from a former Goldman Sachs executive documents, it is instead yet another cautionary tale about Wall Street’s too-good-to-be-true schemes that end up being, well, too good to be true.

Commissioned by the think tank Demos, the new report out today from former investment banker Wallace Turbeville shows that contrary to the myths about a bloated municipal government overspending on lavish social services, Detroit’s “overall expenses have declined over the last five years” by $419 million thanks to the city “laying off more than 2,350 workers, cutting worker pay, and reducing future healthcare and future benefit accruals for workers.” Today, Turbeville notes that “Detroit has a significantly smaller workforce per capita than comparable cities.” Yet, those draconian cuts still left the city with an annual $198 million shortfall because of three big problems – none of which has anything to do with supposedly greedy public workers and their allegedly overly “generous” pension benefits.

As Turbeville shows, in the five years leading up to today’s crisis, the city’s pension contribution expenses were essentially flat. Yes, its health care contribution expenses increased, but they rose by less than the nationwide annual increase in health care expenses, meaning Detroit experienced nothing out of the ordinary on that score. So if benefits didn’t drive the legacy cost increases what did? As Turbeville documents, it was fees, financing costs and payments incurred by Wall Street’s swap scheme. Those expenses constitute more than 61 percent of the total legacy-cost jump.

In his report, Turbeville notes that “the banks are now demanding upwards of $250-350 million in swap termination payments” in order to let Detroit out of the apocalyptic swap scheme. In an actual bankruptcy, creditors might have to forego some of those fees – or in the industry lingo, they might have to “take a haircut.” But in the era of bailouts, ordinary Americans have to take haircuts, but Wall Streeters almost never do. Thus, the banks’ demand for termination payments has been turned into yet another opportunity for the financial industry to swindle Detroit taxpayers. Specifically, Detroit’s Republican-appointed emergency manager is pushing the city council to take on an additional $350 million in debt from a new loan with Barclays.

CONTINUED...

http://www.demos.org/news/how-wall-street-%E2%80%94-not-pensioners-%E2%80%94-wrecked-detroit

[Jefferson23]

15. No doubt the deception is well orchestrated but not impermeable..thank you for the links.

All the reasons for Americans to be in the streets is apparent, but we are not there yet and
we don't have many alternatives, imho.

It is disheartening because we do not always see how these losses impact innocent workers
in their daily lives....don't get me wrong, we know, but it is another aspect that receives
little if any attention in the corporate driven msm.

[joeglow3]

10. Some people don't understand how interest hedges work

Had rates done what Detroit expected, would people be on here heralding the banks for their generous behavior and saying the city should return some of the money they pocketed?

As to the legality, it appears there are differing positions. That said, there was nothing illegal about the swaps. The question is if the city had the authority to pledge the assets did - more of a commentary on the negligence of the city officials.

http://www.freep.com/article/20140103/NEWS01/301030067/Detroit-bankruptcy-Orr-SEC

[Octafish]

11. Some people don't understand how corrupt the SEC is.

Matt Taibbi on the Explosive Investigation Revealing the SEC's Cover-Up of Wall Street's Crimes

In an interview with Amy Goodman, Matt Taibbi explains how the SEC has let the Wall Street bankers who created the global economic crisis get away with it all.

EXCERPT...

AMY GOODMAN: How are they doing it, Matt?

MATT TAIBBI: Well, the SEC had a number of different levels of investigation. They had a thing called a MUI, which is a "Matter Under Inquiry," and this is basically any preliminary investigation, any tip that came in from a whistleblower or from a self-regulating organization like the Stock Exchange or FINRA, if they—suspicious trades, anything like that. If they investigated it and they did not get permission from the people up above in the SEC to proceed to a full-blown investigation, they then shredded all that evidence they gathered in the preliminary stage. So they destroyed all the evidence of all MUIs dating back to 1993, and that might be as many as 18,000 cases.

AMY GOODMAN: Under whose authority?

MATT TAIBBI: Under the authority of the enforcement division. Now, this—there’s no legal authority to do this. And, you know, apparently, according to my sources, this was illegal. You can’t just unilaterally shred any government document, no matter how insignificant. And these are significant law enforcement investigatory files that they were unilaterally destroying.

CONTINUED...

http://www.alternet.org/story/152144/matt_taibbi_on_the_explosive_investigation_revealing_the_sec%27s_cover-up_of_wall_street%27s_crimes

Don't know how it is where you're from, but here in Detroit, no matter how complicated the financial instrument, crime is crime.

[badtoworse]

20. So what was the crime here?

[Octafish]

22. I dunno. People who worked 35 years for the city losing most of their pensions?

Meanwhile, the Banksters that shafted Detroit getting most of their money.

Does that count?

[badtoworse]

25. The short answer is no. It's a shame that it's happening, but there was no crime.

[joeglow3]

21. what was the crime?

Everything I saw called into question the ability of the government officials to committ the assets they did to secure the hedge. Thus, based on that, it speaks much more about the competence of the state/city officials.

[Octafish]

23. Blame the dumb people of Detroit.

Got ya.

[joeglow3]

24. I am honestly asking

I am telling you what I have found and even linked it. I have seen the claims that they were illegal and have seen people say it was so because of what was used to secure the loans. What am I missing?

[Nye Bevan]

14. Yep, interest rate swaps are a legitimate technique for risk management.

And I would assume that the city of Detroit obtained expert advice and weighed all the alternatives before deciding to enter into these agreements. After all, they could have simply told the banks to take a hike and not listened to their proposals, let alone actually enter into these transactions.

Of course, it's always possible that the city decided to roll the dice and bet on interest rates with taxpayers' money. In which case this is like me blaming the casino when I lose a few thousand dollars playing roulette.

We're not talking about conning an old lady out of her $10,000 life savings here. We're talking about sophisticated financial professionals employed by one of the biggest cities in the US voluntarily entering into transactions with full information, expert financial advice and expert legal advice. Assuming that nobody working for Detroit benefited from any kind of kickback, how is this a "crime"?

[badtoworse]

19. These swaps undoubtedly looked prudent when they were executed.

Fixed rate debt is a lot easier to budget for and Detroit was protecting itself against higher rates. Who would have expected about 5 years of near zero rates?

[mstinamotorcity2]

17. This is just

a HOT damn mess!!!

[Octafish]

30. Economic Fascism, IMFO.

From the Chicago School:

Milton Friedman and the Rise of Monetary Fascism

The Dark Age of Money

by JAMES C. KENNEDY
CounterPunch Oct. 24, 2012

EXCERPT...

Monetary Fascism was created and propagated through the Chicago School of Economics. Milton Friedman’s collective works constitute the foundation of Monetary Fascism. Knowing that the term ’Fascism’ was universally unpopular; Friedman and the Chicago School of Economics masquerade these works as ‘Capitalism’ and ’Free Market’ economics.

SNIP...

The fundamental difference between Adam Smith’s free market capitalism and Friedman’s ‘free market capitalism’ is that Friedman’s is a hyper extractive model, the kind that creates and maintains Third-World-Countries and Banana-Republics, without geo-political borders.

If you say that this is nothing new, you miss the point. Friedman does not differentiate between some third world country and his own. The ultimate difference is that Friedman has created a model that sanctions and promotes the exploitation of his own country, in fact every country, for the benefit of the investor, money the uber-wealthy. He dressed up this noxious ideology as ‘free market capitalism’ and then convinced most of the world to embrace it as their economic salvation.

SNIP...

Monetary Fascism, as conceived by Friedman, uses the powers of the state to put the interest of money and the financial class above and beyond all other forms of industry (and other stake holders) and the state itself.

SNIP...

Money has become the state and the traditional state is forced to serve money’s interests. Everywhere the Financial Class is openly lording over sovereign nations. Ireland, Greece and Spain are subject to ultimatums and remember Hank Paulson’s $700 billion extortion from the U.S. Congress. The $700 billion was just the wedge. Thanks to unlimited access to the Discount Window, Quantitative Easing and other taxpayer funded debt-swap bailouts the total transfers to the financial industry exceeded $16 trillion as of July 2010 according to a Federal Reserve Audit. All of this was dumped on the taxpayer and it is still growing.

CONTINUED...

http://www.counterpunch.org/2012/10/24/the-dark-age-of-money/

In a word, Racism.

[badtoworse]

18. Detroit was not swindled. They got exactly what they bargained for.

They borrowed money at a variable interest rate, but wanted fixed rate debt to limit their exposure to higher interest rates. They enetered into an interest rate swap with banks in which Detroit and the banks agreed upon a fixed, notional rate that should apply to the variable rate debt. In simple terms, if the variable rate rose above the notional rate, the banks paid Detroit so that its net interest expense was fixed at the notional rate. If interest rates dropped, Detroit would pay the banks based on the difference between the notional rate and the lower variable rate. The variable rate is usually well publicized rate such as 10 year Treasuries, LIBOR, etc. The big problem for Detroit was the swaps that were executed prior to about 2009. At the time, the notional rate undoubtedly looked good, but when central banks like the Fed and the ECB dropped interest rates sharply to counter the deep recession, Detroit was exposed in a major way and had to make swap substantial payments to the banks for the last 5 years or so. Had rates risen, the banks would have been making payments to Detroit.

They key point here is that in an interest rate swap, BOTH parties are at risk. If Detroit's financial manager's didn't understand that, they were grossly incompetent. Personally, I can't believe that the finance people managing Detroit's debt didn't understand such an elementary concept. In any case, they had a fiduciary responsibility to understand what they were doing and in the unlikely event they didn't understand the transaction, they should have sought expert advice.

The bottom line is that these swaps probably looked prudent when they were executed, but no one had any way to know how low rates would drop and how long they would stay at near zero levels. The bottom line is that interest rate swaps are legitimate risk management tools and nobody got swindled.

[Octafish]

26. That is an undemocratic perspective.

"Both parties are at risk."

Nuh uh. Not in municipal bonds. The People's monies are expected, in writing to be invested in AAA instruments. It's a sad day when even the freaking lawyers don't understand what the Wall Street fellahs whip up.

FYI: What Kevin Orr said he wants:

Detroit manager sought SEC probe of banks over interest rate swaps

BY JOSEPH LICHTERMAN
DETROIT Fri Jan 3, 2014 5:05pm EST

(Reuters) - Detroit asked a U.S. regulator to consider bringing charges against two banks for costly interest-rate swaps that factored in the city's record-setting municipal bankruptcy case, Detroit Emergency Manager Kevyn Orr testified on Friday.

Orr said Detroit asked the U.S. Securities and Exchange Commission to investigate its deals with UBS AG and Merrill Lynch Capital Services, a unit of Bank of America, for interest rate swaps to hedge risk on some of the $1.4 billion of pension debt Detroit sold in 2005 and 2006.

The city thought there were "serious questions" about whether it owed the banks anything at all, Orr testified, and Detroit weighed trying to invalidate the swaps. But officials decided chances of prevailing in court were only "more or less 50/50," so it decided to bargain with the banks instead.

Orr testified before U.S. Bankruptcy Judge Steven Rhodes at a hearing about a Christmas Eve deal to end the swap agreements for $165 million plus fees. That represents a 43 percent discount for Detroit, steeper than one initially proposed.

CONTINUED...

http://www.reuters.com/article/2014/01/03/us-usa-detroit-bankruptcy-swaps-idUSBREA020P920140103

Probably just blowing smoke up a judge's robe, as they're going to need a Special Prosecutor. It's not just a few banksters who swindled Detroit and its lawyers who really understand real-estate law, it's some of the world's most powerful banksters who control the regulatory agencies who swindled Detroit and its lawyers who really understand real-estate law.

[badtoworse]

27. You really should educate yourself about a few things before you post nonsense

A swap agreement is a hedge, not an investment and if you're concenrned about credit quality, the banks likely had a much better rating than Detroit did. As for both parties being at risk in an interest rate swap, that is a fact whether you like it or not. Even if Detroit had not executed the swaps, they would still have been at risk: Detroit had borrowed a very large amount of money at a floating interest rate and were at significant risk if interest rates rose. They believed at the time that it was more prudent to cap their risk of rising interest rates and accept the risk that rates would go down - that is the essence of the swap. Having no risk was never an option for Detroit.

I read the Reuters piece and there is nothing there to support any criminal allegations. The SEC said they looked at the swaps previously and did nothing. As far as Orr's allegations go, he cited nothing specific and it looks to me like he was just posturing in the negotiation hoping to gain a little leverage with the banks. Interest rate swaps are very common and there is nothing illegal about them.

The real problem here is the amount of money Detroit borrowed. With a declining tax base, Detroit should have cut services and shrunk itself to manageable size. Instead, it just kept borrowing top pay current expenses until it became insolvent. That is the fault of the idiots that were running the city, not the banks.

As for my perspective being "undemocratic", facts are apolitical.

[Octafish]

29. Right you are. The condescension shows I do not know much about finance.

I do know the investment banks screwed the people of Detroit, just as "legally" as Wall Street needed a bailout because the poor people bought a home and bonuses.

I do know the governor told the voters in Detroit to buzz off and stripped the mayor and city council of their legal authority, appointing a lackey for the banks to lead the bankruptcy proceedings.

I do know there won't be justice as long as Wall Street pays for those who go to Washington.

Something else I know: I side with the people of Detroit, not the banks, not the emergency manager, and not the stooge governor.

Unlike those who swim with the sharks on Wall Street, most of us weren't born with the security of a trust fund or a lifeguard lawyer who can understand interest rate swaps or any other derivative the deranged banksters can imagine.

[badtoworse]

31. I apologize for the condescension. Sometimes I get carried away.

There are things the banks have to answer for, but the mess in Detroit is not one of them. The city was grossly mismanaged for a very long time, but you and many others on DU lay all the blame on the banks. You need to recognize the role the city managers had in it - they were the ones who spent all the money that Detroit did not have. They ran up the $15+ billion in debt, not the banks. You posted that Detroit had been swindled, but you don't understand how an interest rate swap works. At best, this kind of posting does not enhance the credibility of the people who do it and people who do understand finance may not react well.

It's easy to side with the people of Detroit and say just screw the banks, but you need to think about unintended consequences. There is a well established structure in the credit markets that is based on the seniority of secured debt. Putting that aside and screwing the banks in Detroit (who are secured creditors) would turn that structure upside down. Before you say "That's a good thing", consider that every city in America borrows money. The services cities provide and capital projects cities undertake depend greatly on access to the credit markets. Screwing the banks in Detroit would make it much harder and more expensive for other cities to borrow. Money that might have provided services for the needy would get spent on higher interest payments and many cities would be shut out of the market completely. That would be a very bad thing for a great many people.

Detroit is a rotten situation and a lot of people are being hurt. Unfortunately, there is no painless way out.