Skip to comments.Detroit's Bankruptcy Should Be A Warning To Every Worker Expecting A Pension, Or Social Security
Posted on 07/27/2013 6:06:29 AM PDT by SeekAndFind
The City of Detroit tried to file for bankruptcy last week. A state judge initially blocked the filing, but a federal judge ruled Wednesday this week that the bankruptcy case can move forward. More legal maneuvering is ahead and Detroit may well succeed in the end. After all, Detroit owes somewhere in the neighborhood of $18 to $20 billion to over 100,000 creditors. One group of creditors particularly wary of a municipal bankruptcy is Detroits public sector labor unions. They fear a bankruptcy judge might allow the city to cancel or reduce their pension or retiree health benefits. The unions have a lot of law on their side, but they are still right to be worried.
More importantly, this situation should serve as a warning to every person expecting to retire one day and collect a pension or other retirement benefits: do not trust other people with your future.
Detroits city workers have two significant legal advantages compared to many workers. First, Michigans state constitution specifically protects workers pensions from being reduced. Second, Michigan state law requires public pension obligations to be fully funded every year. That means the only reason Detroit may owe money in pension obligations is because the emergency manager thinks the city used favorable actuarial math in the past to save some money. In general, Detroits city workers have pension funds that are better funded than most workers. Yet, by some estimates, Detroits pension fund is as much as $3.5 billion short of what is needed to pay promised benefits.
For many reasons, Detroits bankruptcy, if a judge eventually allows them go through that process, will not set much of a precedent for other cities. As mentioned, Michigan law protects public sector workers more than the law in most states.
(Excerpt) Read more at forbes.com ...
Also, it is highly unlikely another city of Detroits size will go bankrupt any time soon.
Detroit has something others don’t - Howdy Doody. Sell him, and a bunch of other assets from DIA, and there’s the extra money for the union goons. La la la.
What’s Social Security have to do with Detroit? SS is a federal entitlement and when the Feds run out of money, unlike Detroit ,they can just print more.
The author doesn't understand the meaning of that amendment.
All it means is a city or the state government can't vote to reduce an already earned pension.
Once bankrupt it is under federal control and that amendment is meaningless. The city then is controlled by a fed judge who can and will reduce those pensions to a manageable level.
Exactly right. Whether through grants or fed bailouts the money has to come from somewhere. In the end it’s from the sucker taxpayer. True the fed can print more money but eventually the Chinese and Europeans will figure out it’s just worthless confetti , then the excrement will really impact the air movement device.
Laws don't create money.
The author is an idiot.
Math has no mercy.
I remember reading this after the Enron scandal when those retirees were wiped out:
“As sad as the situation is, let Enron be a lesson to us all: Do Not Put All of Your (so-called) Eggs Into One Basket.”
IOW, make sure that by your retirement years you have more than one source of income to rely on — diversify, diversify, diversify — IRAs, 403bs, 401ks — along with non-dollar assets like gold and silver
I fear for those solely reliant on SS — I also fear that the government is going to come in and confiscate private retirement accounts to prop up SS in return for a “guaranteed income.”
SS is a federal entitlement and when the Feds run out of money, unlike Detroit ,they can just print more.
Printing money has been working just fine quite some while. As long as the dollar is devalued fairly slowly, most people don't notice the gradually rising cost of everything. Altering the way the cost of living is calculated makes it easier for the feral government to disguise the effects of devaluation. Stupid? No. Malicious? Yes.
“After the GM precedent those folks are screwed.”
I’m of the age where the common wisdom is to get out of stocks and invest in bonds. After GM I told my investment manager I didn’t want anything that even held a fraction in bonds.
Obama has dramatically changed the ability of cities to borrow. (Which, I think, is a good thing.)
Its also foolish to declare that other cities wont go bankrupt. Other cities are already seeking and getting bailouts through other means. Chicago is already dumping their union health care costs in to Obamacare so we the taxpayer can pick up the tab. Gary Indiana is seeking state police help to police their city so the taxpayers of Indiana can pick up that tab.
RE: Laws don’t create money.
Ahh... but the Fed does... out of thin air.
Go ahead - trust your political representative.
stop it, he’s on a roll
Go ahead - trust your political representative.
I believe we can trust our elected misrepresentatives to cheat us, lie to us, live high on the hog at our expense, and keep "paying" for their spree by devaluing our dollar.
when I was growing up, no one wnated a government job, it was viewed as dull boring and low paying. Now government jobs are the plums
just one little problema
we can’t afford to pay people to sit on their ass, bully us and collect huge pensions
He is saying Detroit is symptomatic of many entities. If you rely on someone else for your retirement, including the Federal Government, you may end up losing your anticipated nest egg.
The “3 legged stool” retirement planning approach is rapidly leaving us. I have never counted on Social Security as part of my planning. I will have a modest pension but the majority of it is up to ME.
I committed years ago to learn about investing in the stock market, options, etc. Have I made mistakes along the way? Sure. But I feel more comfortable controlling my own destiny than relying on promises that are wobbly at best and can evaporate when I become frail. Investing like that is not for everybody..but I don’t want to have to depend on government or my former company’s continued business fortunes to secure my own future.
“Whats Social Security have to do with Detroit? SS is a federal entitlement and when the Feds run out of money, unlike Detroit ,they can just print more.”
It’s the exact same funding model. Promise today what workers of tomorrow will be willing to pay, what property owners will be willing to pay, what business owners will be willing to pay.
With each bond issue that solves a political problem of today, the burdens on future Americans are squandered. Eventually, you affect whether future taxpayers will even exist - because it’s too expensive to raise children in a socialist paradise as a producer.
Financially speaking, we are Detroit. Federal obligation will no more be paid than Detroit’s.
Thanks!! Good news!
I have been telling people this for 5 years. I thought it was pretty common sense, when Obama “bailed out” the automakers.
In discussion about politics and money, I have told people to do everything they can to be independent of all government handouts, including public education , pensions and tax breaks. It is all going to be up for grabs.
I told people to watch what happens in Detroit as an indicator of what is going to happen to the country- and of course I have been mocked and laughed at and called names... and vilified. I have been harassed, stalked and even attacked for pointing out that people who live on the government are going to be the worst hit.
They get hysterical, as if THAT is going to stop the collapse.
Because I was talking to progressives. They really are like crack addicts. Take away their drug and they are incapable of dealing with reality.
I have talked about the struggle I have with how much compassion to show these people,. when their lives are turned upside down, and they are very, very wanting for comfort and security. Many of them are not going to make it. They will kill each other.
What happens in Detroit is going to happen all over the place- because a balance has to be found.
The author goes on to say:
Also, it is highly unlikely another city of Detroits size will go bankrupt any time soon.”””
Who here on FR wants to bet on that statement?
Vallejo—already in some sort of bankruptcy
Kansas City, Missouri
I am pretty sure others here can add to this list.
... and what actually happened at Enron is that employees had Enron stock worth huge amounts of money ... but in which they had only a fraction of that worth actually invested ... and when the bubble burst, they lost it all. They lost millions in inflated, paper profits ... but only a fraction of that in actualy money out of their pockets.
The sob stories at the time were totally overblown.
It IS disgusting, that a lot of people who will get hurt here are not “fat cats” pulling down a 100K pension at the age of 50, they are 70 years old, getting 20K a year. And, many of those workers do NOT get Social Security.
I don’t feel like paying for the shortfall either; the city has a lot of physical resources and they should be sold.
Doesn’t the Detroit Museum or the City of Detroit have a massive art collection it could sell? I read somewhere that it could sell off art assets for a billion dollars, but they’d rather declare bankruptcy.
The likelihood of other cities going bankrupt is actually quite high. A study from a couple of years ago indicated that Detroit was only 9th on the worst-case list, below Baltimore, NYC, Philadelphia, Cincinnati, etc.
Public pensions are Ponzi schemes dependent upon an ever expanding population and commercial base to pay the future benefits. So one way to predict which cities are at risk is to look at those with declining populations. There are 59 cities in the US that are loosing population:
The top 10 in terms of percentage loss are:
1) St. Louis
8) Niagara Falls
So there are dozens of cities that are at risk including major ones such as Chicago, Philly, Baltimore, Cincinnati, and Los Angeles that won’t be able to fulfill their commitments.
As Herb Stein once said, “if something can’t go on forever, it won’t.”
Just add the entire state of Cal to the list
"Slowly I turned....step...by...step....inch...by....inch....
What you don't know Ms P, is that the Art itself is in a seperate trust that is not owned by the city. And quite frankly, the people that did that were brilliant and must have seen this or the results of 40 years of Commie rule in the city coming. I got this from one of my gnomes here in SE Michigan where we are living this nightmare....
“Its also foolish to declare that other cities wont go bankrupt.”
That is actually not true at all! Vallejo, CA has already gone bankrupt once and will ultimately go bankrupt again because the bankruptcy failed to resolve the financial problems satisfactorily. Then there’s Stockton, CA and San Bernardino, CA. And these are only here in CA today. Los Angeles will ultimately go down, and most probably Oakland and maybe SF. Fed bailouts won’t work because the default numbers are astronomical. Everyone is going to take a haircut, including the PE unions because they ARE the problem, not these cities vendors!
“I committed years ago to learn about investing in the stock market, options, etc. Have I made mistakes along the way? Sure. But I feel more comfortable controlling my own destiny than relying on promises that are wobbly at best and can evaporate when I become frail. Investing like that is not for everybody..but I dont want to have to depend on government or my former companys continued business fortunes to secure my own future.
Here is the truth! Each of us needs to be personally responsible for our own financial security. Excellent Post!
I agree with you - I wrote this on another thread, but it is true across the board!
Its all going to crash. We are all Detroit. Detroit is a window into our future.
The Fed government is borrowing almost half of every dollar it spends. When necessary the Fed prints money to keep it going. They cant afford to stop printing money and that creates inflation - its a killer for everyone. The democrats lead the charge and the republicrats - in the name of bipartisanship and compassionate conservatism go along with it at a slower pace, but they still do it too.
We wont stop spending money we dont have and instead of sharing the pain we created with our children we are dumping the whole mess on them. Read a social security thread on this forum (a bastion of conservatism) and read the remarks - they were promised something and they are going to get it no matter what! This is why we will print/borrow our nation into oblivion. The checks will keep coming until they dont buy a bag of groceries. What then?
We will all be Detroit soon! Most folks do not recognize that much of our nation is doing the same thing as Detroit albeit on a smaller scale. Most folks ignore that our Fed government is doing the same thing as Detroit on an unprecedented scale. A scale that will impact the purchasing power of every dollar and impact the entire world economy in ways we cannot imagine. Detroit was the maximum application of progressive policies. Detroit lost revenue and increased spending. They borrowed to make up for lost revenue until they could borrow no more. They would have printed money to maintain the lie if they were allowed. They ran industry out of their city by making industry unaffordable. Sound familiar?
People will demand they get what they were promised and our children and future generations will have to pay for it!
well, that’s pretty clever.
Yes- so look for states now, who are rejecting the allure of the federal government .
Last Nov, I was deeply depressed about the fate of the country. I was going to give up on the GOP all together. I was going to quit all my Republican groups.
I decided at the last min, to leave open my ears to the GOP here in North Carolina. That was a good choice for me.
I started to attend many more local and state government discussions, and I found out that the GOP in NC is pretty conservative, and had decided that after a sweeping victory for the Republicans (see conservatives) here, that the first thing we had to do was give everything back to the feds and take no more money.
That is why the NCGA just took control of the Charlotte Airport. That is a big deal. Just to button up the possibility that the feds will come in and “bail us out” and put us into bondage.
The Democrats want that bondage. They do not care that it leads to bankruptcy. They do not care, and yes, they believe that they can take you with them, and that pleases them.
They really do not believe that you are entitled a choice about it, and that is why they call us hateful things when we separate from them.
No. We need to go lean before we take anything more from the feds.
So that is the game plan here in NC. Watch closely to what we are doing here. Some very thoughtful people are leading this state.
We hope we lead the way for other states.
I applaud what you are doing in North Carolina and you are doing the right thing. The GOP here in Washington State has the same platform, but it does not translate to a state that seems to become more blue each year. The demographics seem inevitable and too many have bought into the lies that have become mainstream.
I am not without optimism, but my optimism comes from my faith - not the direction of our nation and world. With that said, the right thing to do is continue to fight for what is right and true and pray that we wake up. We are in dangerous territory and few seem to notice.
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