Friday, August 16, 2013
Pensioners Stand To Lose 90% Of Benefits In Detroit Bankruptcy
The Wall Street banks will take a 25% discount on interest rate swaps that they sold to naive Detroit officials. They have already made money on the swaps since Detroit has been paying them $60 million per year for making the wrong bet on interest rates. Pensioners are another story. The way the deal stands now they stand to lose 90% of their pensions. The derivatives that banks sell to less knowledgeable municipalities are protected in bankruptcy by rules set by the banks in the era of bank deregulation. The officials who represent Detroit were appointed by the Republican governor of Michigan. We will have to wait to see what the bankruptcy judge decides but the deck is stacked against the pensioners. Meanwhile, the federal regulatory agencies have done nothing to prevent the Wall Street sharks from preying on less sophisticated municipal officials. Casino banking is alive and well and the referees in the game favor the sharks.