Judge again rejects compromise between Detroit, banks in key step in bankruptcy


LANSING, Mich. – A judge overseeing Detroit’s bankruptcy again rejected a deal Thursday to get the city out of a disastrous financial agreement with major banks.

Judge Steven Rhodes turned down a more than $165 million compromise, saying “it’s just too much money,” about 67 cents on every dollar owed to the banks as of Dec. 31. He had rejected a $230 million deal in December.

He encouraged the city and banks to keep negotiating. After making his decision, he cleared the courtroom to talk privately to lawyers.

Reaching an agreement is considered a key step as the city comes up with a sweeping plan to exit bankruptcy.

Two judges who acted as mediators in the deal, Detroit Chief U.S. District Judge Gerald Rosen and Oregon U.S. Bankruptcy Judge Elizabeth Perris, had endorsed it last month.

“This settlement … can best be captured and characterized by the admonition, ‘Do not allow the perfect to become the enemy of the good,'” they wrote on Dec. 30.

In 2009, Detroit pledged a critical revenue source, casino taxes, as collateral to avoid defaulting on pension debt payments. That agreement allowed the city to get fixed interest rates on bonds with UBS and Bank of America. But it backfired when rates dropped during the recession.

Detroit had lined up a loan to pay for the settlement.

Earlier Thursday, Gov. Rick Snyder met with Michigan lawmakers to discuss the possibility of contributing state money to shore up Detroit’s pension plans and prevent the sale of city-owned art, days after foundations committed $330 million to the effort.

The Republican governor spoke with the senators behind closed doors and may soon ask the GOP-controlled Legislature to match the foundations’ contribution over a number of years, possibly in his February budget proposal but not during his State of the State speech Thursday night. Senate Majority Leader Randy Richardville confirmed the talks about state involvement but said no final plan or request has been made to legislators, nor have they made any commitments.

He said he was “cautiously optimistic,” however, that a solution “will come forth sometime in the near future.”

“Detroit is hugely important to everybody in this state,” Richardville said.

National and local foundations are committed to providing $330 million to prevent the sale of city-owned art at the Detroit Institute of Arts and soften cuts to pensions of Detroit retirees.

Emergency manager Kevyn Orr, who runs Detroit, says two pension funds are underfunded by $3.5 billion. A deal involving the state and foundations would help retirees but probably wouldn’t alleviate all their pain in the final plan to fix $18 billion in long-term debt.

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Judge again rejects compromise between Detroit, banks in key step in bankruptcy

  1. How many years of Democrat rule in Detroit did it take for this to happen?

    Demagogue politician makes highly paid speeches to groups wanting taxpayer money in the future.

    Demagogue gets elected because aforementioned groups support him.

    Makes huge promises in pensions to aforementioned groups.

    That is how this sort of thing happens.

    Sound familiar to something that could happen in Canada?

    • Is happening in Canada. Several cities are in full motion towards this state, and some have even had billion dollar bailouts.

      We wonder why we don’t have jobs when money for nothing transfers, bank, auto and buddy bailouts, inflated contracts, a billion for Toronto and 10s of billions for welfare provinces and crown corps, union pension bailouts all suck money out of our wallets leaving us less money to spend on other peoples jobs.

      Canada is actually in worse shape than the USA when you consider city/prov/fed debts, hidden debts in places like CBC, Air Canada (bankrupt), CHMC and others, including CPP and other pension shortfalls.

      Add in we are already hyper-taxed leaving less upside tax room…..

      We in Canada are in worse shape. We just don’t realize it (yet).

      • I hate to agree but your right

  2. Liberal spending, liberal debt, lots of union wage and benefits greed….

    Reality is there isn’t the money for a viable city any more as productive people moved out to escape debt-tax slavery.

    Yet money is owed. But no money to pay. Reality is that people who lent money to governemtn were stupid. I have being saying for 10 years, lending money to government is stupid for lots of reasons. Bankruptcy is only one, others including returns below inflation+taxes and liquidity.

    Doesn’t mater be it Ottawa, provinces, states or US Treasury, I wouldn’t lend them a dime to get returns below inflation with their risks in inflation and payback. They all guarantee you will get a lower value return after inflation no mater what happens.

    Want Deroit better? Tell the unions and politicians their pensions will be set to the funds in the plan and shortfalls to berate their fat pensions. Then do the same with banks, cut their debts to average levels. Next, is a 10 year order, wages are set to market values and not union/politicial corruption values, all focus is on basics of fire, water, police, sewer, electric, garbage, tax collections and not much else. Liberal pandering is banned. Even ban political contributions of over $2000. And no more debt expansion, its pay as you go.

    Back to basics, and maybe productive people and business might move back. As you can’t run a city on junkies, drugs, vagrants, prostitution and union greed with political stupidity.

  3. If any Canadians want to see what NDP-like policies will produce……just visit Detroit.
    When you rob Peter to pay Paul……you will always get Paul’s vote.
    Of course, in the case of Detroit…everyone named Peter moved out, and now no one productive is left to pay the bills.
    Democrats, and Democratic policy made this mess……not surprised they need a Republican to bail them out.

    And Obama is on the way to do the same thing to the rest of the country. Those silly American “progressives”
    Thought they elected the first Black JFK…..and instead, they got stuck with the first half-white Al Sharpton.
    They shoulda gone Romney.