Detroit Pensioners Face Miserable 16 Cent On The Dollar Recovery

Tyler Durden's picture




 

If there is ever a case study about people who built up their reputation and then squandered it for first being right for all the wrong reasons, and then being wrong for the right ones, then Meredith Whitney certainly heads the list of eligible candidates. After "predicting" the great financial crisis back in 2007 by looking at some deteriorating credit trends at Citigroup, a process that many had engaged beforehand and had come to a far more dire -and just as correct - conclusion, Whitney rose to stardom for merely regurgitating a well-known meme, however since her trumpeted call was the one closest to the Lehman-Day event when it all came crashing down, it afforded her a 5 year very lucrative stint as an advisor. Said stint has now been shuttered.

The main reason for the shuttering, of course, is that in 2010 she also called an imminent "muni" cataclysm, staking her reputation once again not only on what is fundamentally obvious, but locking in a time frame: 2011. Alas, this time her "timing" luck ran out and her call was dead wrong, leading people to question her abilities, and ultimately to give up on her "advisory" services altogether. Which in some ways is a shame because Whitney was and is quite correct about the municipal default tidal wave, as Detroit and ever more municipalities have shown, and the only question is the timing.

However, as Citi's Matt King recent showed, when it comes to stepwise, quantum leap repricings of widely held credits, the revelation is usually a very painful, sudden and very dramatic one. This can be seen nowhere better than in the default of Lehman brothers, where while the firm's equity was slow to admit defeat it was nothing in comparison to the abject case study in denial that the Lehman bonds put in. However, as can be seen in the chart below, when it finally came, and when bondholders realized they are screwed the morning of Monday, Septembr 15 when the Lehman bankruptcy filing was fact, the move from 80 cents on the dollar to under 10 cents took place in a heartbeat.

It is the same kind of violent and anguished repricing that all unsecrued creditors in the coming wave of heretofore "denialed" municipal bankruptcy filings will have to undergo. Starting with Detroit, where as Reuters reports, the recovery to pensioners, retirees and all other unsecured creditors will be.... 16 cents on the dollar!...  or less than what Greek bondholders got in the country's latest (and certainly not final) bankruptcy.

From Reuters:

On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city's retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion.

 

Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them.

 

"It was a function of the mathematics," said Buckfire, who said he did not think it was necessary for him or anyone else to recommend pension cuts to Orr.

 

"Are you saying it was so self-evident that no one had to say it?" asked Claude Montgomery, attorney for a committee of retirees that was created by Rhodes.

 

"Yes," Buckfire answered. 

 

Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city's pensioners, 16 cents on the dollar. There are about 23,500 city retirees.

One wonders by how many cents on the dollar the recovery to pensioners would increase if the New York-based Miller Buckfire were to cut their advisory fee, but that is not the point of this post (it will be of a subsequent).

What is the point, is that creditors across all products, aided and abetted by the greatest credit bubble of all time blown by Benny and the Inkjets, will find the kind of violent repricings that Lehman showed take place whenever hope dies, increasingly more prevalent. And since retirees and pensioners are ultimately creditors, this is perhaps the fastest, if certainly most brutal way, to make sure that the United Welfare States of America is finally on a path of sustainability.

The only question is how will those same retirees who have just undergone an 84 cent haircut, take it. One hopes: peacefully. Because among those whose incentive to work effectively has just been cut to zero, is also the local police force. In which case if hope once again fails, it is perhaps better not to contemplate the consequences. For both Meredith Whitney, who will eventually be proven right, and for everyone else.

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Sun, 10/27/2013 - 11:19 | 4095067 LetThemEatRand
LetThemEatRand's picture

This is the plan, for both public and private pensions.  Detroit is just the beginning.  It's how every Ponzi scheme ends.  At some point the operator of the Ponzi -- who enjoyed spending the money as it came in -- reaches the point where he/it just can't get enough new money in to pay the old investors, and then there's the "oh shit" moment where you hope to get 16 cents on the dollar back.  

Sun, 10/27/2013 - 11:22 | 4095074 fonzannoon
fonzannoon's picture

I speak to several NYC pensioner's. They have no reaction to this. It can't happen here. I find it so interesting. I told one of them that the rest of the pensioner's should be crashing the white house front door about this. The whole "first they came for" quote means nothing to these people. I would have thought the Unions would have come together bigtime. Fk em. Too fat and happy by me. 

Sun, 10/27/2013 - 11:27 | 4095079 kaiserhoff
kaiserhoff's picture

Federal employees should get less, much less.

Sun, 10/27/2013 - 11:34 | 4095098 philosophers bone
philosophers bone's picture

Plans and intentions don't matter.  This is cold, hard reality. 

Sun, 10/27/2013 - 12:13 | 4095184 CPL
CPL's picture

Lucky it's not zero, but 16% of the asset value and an inflation rate eating that ass up.

It's going to be pretty awful for people.  If anyone has family relying on those pensions, make some room, Mum and Dad are moving home.

Sun, 10/27/2013 - 12:37 | 4095218 Antifaschistische
Antifaschistische's picture

but, but, if you include the cost of living (including housing) in Detroit, where you can buy a home for 10k...perhaps 16% isn't too bad.   You can't buy a home in 77024 for 10k.

You can probably pick up the lot next to you for 5k....make a garden, and be completely self supporting.   boom.  problem fixed.

Sun, 10/27/2013 - 12:40 | 4095228 fourchan
fourchan's picture

lol the banks were done months ago and got a 75 cents on the dollar deal.lol those jews.

Sun, 10/27/2013 - 13:35 | 4095359 Paveway IV
Paveway IV's picture

I would be worried about Devil's Night this year, too. Except they buldozed most of empty crack houses. The large swaths of barren inner-city land provide an adequate firebreak. Millions of Detroit 'benefit refugees' have emigrated to more lucrative states.

Who needs drones and a state Stazi? Public financing weapons of mass destruction take a little longer than carpet bombing, but are even better at laying waste to an entire city. 

Mission: Accomplished

Sun, 10/27/2013 - 14:29 | 4095505 TheRedScourge
TheRedScourge's picture

The sad thing is that this will undoubtedly be spun as a consequence of capitalism, because it was people in finance who told them they'd only get 16 cents on the dollar back, and they'll try even more socialism, and get even worse results. Tens of millions of Chinese starved to death or were killed as a result of communism, do we really think we're so much smarter or faster learners than the Chinese? No, we've acquired boatloads of "can't happen here" mentality over the last 200 years of prosperity that people living 300 years ago were so kind to hand to us, along with the flawed idea that if they just chain down the government and then give every voter a key it will somehow stay in those chains.

Sun, 10/27/2013 - 14:40 | 4095532 James_Cole
James_Cole's picture

The only question is how will those same retirees who have just undergone an 84 cent haircut, take it. One hopes: peacefully.

Hopefully Detroit will eventually go the Richmond route and get people representing them who actually look out for the people, not the banks bribing them. 

The game is pretty clear all over the country, steal from retirement accounts and then have elected officials talk about 'hard choices.' It's also been the same game with social security since the 80s, I hear there's 'hard choices' needed for that too, go figure. 

Sun, 10/27/2013 - 15:39 | 4095649 gatorengineer
gatorengineer's picture

no one is taking an 84 percent hair cut.  Pension benefit guarantee corp.  Haircut will be on the order of 30%, and now guaranteed until the uSSA goes under.

Sun, 10/27/2013 - 15:52 | 4095674 0b1knob
0b1knob's picture

Doesn't the Pension benefit guarantee corp. cap pension payouts at something like $25000 per year?    The haircut will be proportional to the pension.   The people getting the biggest pensions get scalped.

Sun, 10/27/2013 - 18:05 | 4095948 gatorengineer
gatorengineer's picture

caps at roughly 170k a year....14k per month....  just google it

 

 

Thats an extreme case.  But do you really think the unions would put up with such a haircut.... Come on guys

 

Sun, 10/27/2013 - 18:14 | 4095970 SWRichmond
SWRichmond's picture

retirement and pensions are features of the middle class.  the working middle class is dead.  so does some part of this surprise us?

Sun, 10/27/2013 - 19:40 | 4096168 The Alarmist
The Alarmist's picture

Don't kid yourselves ... Detroit pensioners will take no haircut at all.  Nobody will lose in the new normal until the society as a whole collapses, at which point all bets are off.

Mon, 10/28/2013 - 01:32 | 4096793 patb
patb's picture

Detroit wasn't paying PBGC premiums.

Their guarantor is assumed to be the state of michigan, they will get very little help there.

 

i'd give more to the pensioners who agree to live full time in the city.

 

Sun, 10/27/2013 - 18:48 | 4096048 kaiserhoff
kaiserhoff's picture

Some of their benefits forced them to opt out of that long ago.

Big mistake in hind site.

 

Mon, 10/28/2013 - 00:17 | 4096743 TruthInSunshine
TruthInSunshine's picture

This is necessary because of a fractional reserve paper fiat economic system, where fiat debt is conjured from thin air at zero cost basis, and bankers not only control the ebb & flow of bubbles & busts of all things, including municipal pensions & the size of municipal debt, but intentionally induce said bubbles and busts, so that the fiat banker/lender class is able to Harvest the real wealth of any fiat indebted population or entity for itself.

There are 23,000,000 government employees at the federal, state & local levels (that we know of; this doesn't include "contractors," either), many of whom have worked one or more government jobs previously, and are "double stacked" (collecting pension from prior government job while drawing salary from current government job, which is more common than many "private citizen plebes" would believe).

At the federal level, the AVERAGE GOVERNMENT EMPLOYEE SALARY, NOT INCLUDING BENEFITS = $88,000.00

Average salaries for state & local government employees runs closer to $60,000, though the range is very wide.

Nearly all government employees are unionized and receive generous pre and post-retirement fringe benefits.

Does anyone know how many of these 23,000,000 workers, drawing a collective taxpayer derived salary of 2 trillion+ USD annually, are "essential?"

How about minimally "productive," or "useful?"

They're sucking the republic and all private sector productive members dry - like a massive parasite on a host, threatening to kill the host (literally).

Think about it: In USSA-Amerika .dot.gov (USSA), 1 out of every 5.6 Americans with a job is employed by a federal, state or local unit of government (not including enlisted military personnel or government contractors).

The republic is being bled to death by the fiat bankers/lenders & by the bureaucracy.

American taxpayers should firmly insist that government "rightsize" itself very quickly, which would mean 30% to 45% of government employees (mostly unionized) be let go, the remaining ones become as efficient/productive as private sector workers, and not only would government services ACTUALLY IMPROVE, but the American Taxpayers would save a minimum of 1 trillion USD annually.

Sun, 10/27/2013 - 20:33 | 4096292 mms
mms's picture

PBGC only covers private pensions, not government and not church pensions.  Look it up.  You have to pay annual premiums to be covered by PBGC as well. 

If true, this will be sad indeed.  I have studied the actuarial reports of the Detroit pension funds, and they have a lot more money in their trust funds than $0.16 on the dollar.  But if the pension funds are collapsed into general assets of the city, then indeed they have a big problem.

Sun, 10/27/2013 - 18:57 | 4096062 CrashisOptimistic
CrashisOptimistic's picture

What?  Doesn't the PBGC kick in on this?

If the PBGC kicks in, this isn't 84 cents of haircut.  The US taxpayer is going to pay a good part of these pensions.

Sun, 10/27/2013 - 13:07 | 4095288 Oldwood
Oldwood's picture

What makes anyone think that Obama will not try to federally backstop "union" employees. Wasn't the precedent set with GM? He must suport his base, besides their first goal HAS to be to conceal the damage their policies create.

Sun, 10/27/2013 - 13:41 | 4095377 JLee2027
JLee2027's picture

Sure. But the odds of that passing Congress are pretty low. 

Sun, 10/27/2013 - 13:47 | 4095392 Oldwood
Oldwood's picture

Sorry but I had fell under the illusion that congress no longer has control of the purse given the new expanded powers of the executive office. Do you think Obama cannot direct some signing order or even a fed intervention to supply extended credit of some type? I don't claim to be knowledgeable about such things other that to have witnessed many a thing I thought were illegal and unconstitutional.

Sun, 10/27/2013 - 17:16 | 4095820 Deo vindice
Deo vindice's picture

@Oldwood

If you can manipulate the voting machines at election time, who cares about maintaining their base?

Sun, 10/27/2013 - 13:29 | 4095342 CPL
CPL's picture

Naw it's Jews screwing Jews also.  So instead of Jew, why not just state Dirtbags.  Everyone is getting screwed and allows for the exclusion of any particular race, creed, culture, religion.  But it still leaves lots of room for calling them by their proper name;

Math Illiterate Useless Skinflint Smegma filled Dirtbag Pieces of Shit...and that's sugar coating it.

Sun, 10/27/2013 - 15:45 | 4095659 fourchan
fourchan's picture

well i love matzo ball soup and live in the city of detroit, but all i see is a fire sale driven by jewish bankers,

paid for by blacks, old people, and cops/firemen who risked their lives in this shit hole city for decades.

and there is plenty of stuff left here to burn like the 50,000 homes the city owns that are vacant.

Sun, 10/27/2013 - 16:00 | 4095686 CPL
CPL's picture

They might sing their 13th birthday, but they honor nothing of the culture, the history, the myths, the traditions.  They aren't anymore Jewish than Haggis.  They aren't Jews.  Just a name in namesake from a questionable part of history that involved some pretty shady crap.

I bet a revistation on their family tree and examination would illustrate something...lol...HAHAHHAHHAHA!!...questionable.  <jazz hands>

History has had many pretenders.  When they are found, their treatment is a fate done by Judges and dark holes.

Sun, 10/27/2013 - 18:00 | 4095937 fourchan
fourchan's picture

there are two systems of money in america.

one was developed by freemen and patriots, the other jews. 

guess which one we suffer under now as debt slaves, the the one corrupting the federal government, and

the one which pays obscene bonuses to its developers. they even call it the "system" because it is systematic.

Sun, 10/27/2013 - 16:44 | 4095763 tenpanhandle
tenpanhandle's picture

Sorry CPL but any description with "smegma" in it has not been sugar coated.

Sun, 10/27/2013 - 16:54 | 4095777 El Vaquero
El Vaquero's picture

IMO, dip-donk googley eyed pig-fucking multi-colored cunt scab eating strumpet strangling cocksnorts is worse.  He did sugar coat it. 

Sun, 10/27/2013 - 22:29 | 4096582 MisterMousePotato
MisterMousePotato's picture

Shit. And I just told my 13-year-old daughter to read a couple articles here at ZeroHedge every day so she'd get a good education.

Actually, she probably wouldn't learn to swear like that anywhere else.

Sun, 10/27/2013 - 13:04 | 4095279 Oquities
Oquities's picture

no!  did you see the comment about the police getting screwed on their pensions too?  the Detroit response times for police NOW average 1 hour to infinity for nasty-ass crimes even, and the solved crimes rate is lower than the literacy rate in the city.  you may buy the lot next door for a garden, but you need Mad Max to cover you while picking your veggies.  the end scene is total chaos in inner-cities or municipal bailouts that make Lehman look like chump change.  re-set either way.  happening now.

Sun, 10/27/2013 - 13:54 | 4095420 Cloud9.5
Cloud9.5's picture

We are in the age of contraction.  Neither the current state nor the current currency will survive.  Debt cannot be repaid.  Detroit is the model for the future.  The smart ones got out of the inner city.  The stupid ones and the trapped ones stayed.  As the dominos fall all of us are going to come to realize there is no place to run.

 

The next twenty or thirty years are going to be dominated by the salvage cult.  Save what you can. Preserve what you can and bring the ones that matter to you close to you.

Sun, 10/27/2013 - 15:47 | 4095663 fourchan
fourchan's picture

well said.

Sun, 10/27/2013 - 19:46 | 4096179 czardas
czardas's picture

No, the reality is that Detroit is not the rest of the country despite all the comparisons.   It is a failed municipality that was run by thugs, criminals and unions (redundant?) for decades.  They didn't educate, sanitize, police, innovate, build or plan.  They lost 2/3 of their population and those remaining lived a day to day existence enabled by federal welfare.

The real problem is not going to be city failure but state failure.   Frugal states (all those worthless flyover areas) will not consent to bailing out their wayward brothers and the fight will move to DC where we'll be told how damn heartless and racist we are for not forking over the money we've stashed to zombies.

 

Sun, 10/27/2013 - 17:53 | 4095909 Gohn Galt
Gohn Galt's picture

Real Detroiter's don't need Mad Max to cover them while they pick their veggies.  Inspectors and other revenue agents poking their nose in your garden do.  A lot of neighborhoods will ultimately be better off with no government services/intervention once they can take care of themselves.  The whole thing is horrible and is going to bad for everyone and surprising for those who drank the kool-aid, it never was sustainable.  I apologize if I offend anyone on this subject, as I feel will eventually bring some sort of pain to everyone, even those who prepared and knew.

Sun, 10/27/2013 - 18:19 | 4095978 Oldwood
Oldwood's picture

The police probably only respond to calls where someone is shot in self defense.

Sun, 10/27/2013 - 18:48 | 4096049 RafterManFMJ
RafterManFMJ's picture

Police response times? Who cares? Only an imbecile calls the police; and only an imbecile thinks da cops interested and capable of saving them.

Sun, 10/27/2013 - 21:30 | 4096418 Jani
Jani's picture

Good one rafter -

Ran a bar for almost 20 years here on Long Island, not once did I call the cops -- always settled things on our own.

Sun, 10/27/2013 - 13:23 | 4095327 CPL
CPL's picture

If you are young that's an awesome option.  We are talking pensions.  Not young couples.

Home ownership is a pain in the ass btw, it's the primary reason older folks go rent and if they do buy a home it's a small bungalow. 

Lawns, roofs, gutters, driveways, plumbing, electrical...all of it costs time, health and money.  Know what happens when a guy with a hip replacement goes up a ladder?  50/50 he's going to need a new hip.  I catch my Dad doing it all the time when he's feeling chipper.  He can get up the ladder.  But he gets stuck on the coming down part now.  Twice now this summer, can't blame him, he gets an idea in his head...

...There are limits on what can be expected.  So if this is the case, I'd make room and let the kids know Grandma and Grandpa are coming back for a stay to help out.

Sun, 10/27/2013 - 13:31 | 4095350 RSloane
RSloane's picture

There are more and more people in their 20's and 30's moving back in with Grandma and Grandpa rather than the reverse.

Sun, 10/27/2013 - 13:49 | 4095402 Paveway IV
Paveway IV's picture

The grandparents are going to be pissed when DHS commandos stun-grenade their wrinkly butts at 3 A.M. to arrest their grandchildren (student loan deafults, etc.). Who is going to fix the busted in front door or clean up the riot gas residue? 

Cops: "Cry me a damn river grandma, and keep your arthritic hands where I can see 'em.  Your grandkids didn't obey the law and pay their loans on time. They are Default Terrorists. They should have thought about the terms of that loan before blowing taxpayer money on fancy-scmancy post-high-school education. Now they can learn all about responsibility (and waterboarding) in our financial re-education camps. By the way, you're not illegally hiding any gold around here, are you? Mind if we check?"

Sun, 10/27/2013 - 14:43 | 4095506 CPL
CPL's picture

Who's skull fucking their parents?  Seriously.  If they are beating the crap out of someone's Mum, it's a matter of time before someone gets their Mother on a list.

So do you really think it'll ever get that bad?  Doubt it.  It's going to happen once then DHS will be at war with itself.  People don't drop murdering their parents that fast.  Especially when all those names are on a list in a computer and all the DHS employee names and contractor names are already known.  Just takes a little information management to put a name on a list and suddenly a director's mother has been processed under signed by another director.

It is a situation that leaves no doubt in my mind for abuse internally.  In fact I bet right now executives are putting each other's family member names on lists to camps out of their individual overview.  I'd put money on it in fact.

Put yourself in the mind's eye of someone willing to murder and attempting to justify their exsistance.  People outside your organisation aren't your problem to success, they are only a metric.  A number to reach.

It's the people working with you that are the direct threat to your position.  Path of least resistance is to elminate all those around you that question your method in the office.  Everyone lateral to your job posting is your real enemy.

So you pick them off quickly.

I would wipe the floor with every other director and use their families like pawns.  The biggest problem would be people building empires in the office I would want to take over.  So remove the problem to my professional success as a DHS director.  There could only be one rule in that department.  Eventually co-opting the department, then consume the order giver and that person's family.

It's what I would do if I were a director in that position. I would leave no other option but one option. 

Why?  Because I know eventually that someone else would do the same thing, so better me than them.  <--- this is why things are shitty all over now.  It's a rot.

Sun, 10/27/2013 - 17:09 | 4095806 El Vaquero
El Vaquero's picture

Not to mention that you'd get more freaky shit like this:

 

...

Carlos Correa, a tire technician at a shop near Broadway and Iron, said he saw a man washing his black Corvette around 11:30 a.m. The man was
approached by the suspect carrying a gun, which is described in varying accounts as an AK-47 and a semiautomatic rifle, and told him something to the effect of, “I’m not going to hurt you, but call APD and tell them I’m waiting at the bus stop.”

...

Witnesses north of the scene said they saw an officer arrive, step out of his car and begin firing at the suspect before running backward.

Then, they saw the shooter calmly get into the police officer’s empty car and drive away.

“He done it like real calm,” said witness Ernie Olguin. “I thought he was a cop.”

http://www.abqjournal.com/289154/abqnewsseeker/witness-car-chase-shots-f...

 

Dude had a tattoo on his back that said "cop killer."

Sun, 10/27/2013 - 17:23 | 4095844 Deo vindice
Deo vindice's picture

If I have to give some site personal info and answer quizzes to read the story, the story will remain unread. I'll just take your word for it that it's true.

Sun, 10/27/2013 - 17:26 | 4095852 El Vaquero
El Vaquero's picture

You just have to take the quiz, no personal info.  If you want to see the press confrence that the police gave on this, you can go here:

 

http://www.kob.com/article/stories/S3201619.shtml#.Um2AFvE0IXc

 

Sun, 10/27/2013 - 19:43 | 4096172 zhandax
zhandax's picture

No quizzes for me.  NoScript 2.2.4

Sun, 10/27/2013 - 20:49 | 4096333 401K of Dooom
401K of Dooom's picture

Hooray, someone else who uses NoScript just like meeee!!!

Sun, 10/27/2013 - 18:28 | 4095999 Oldwood
Oldwood's picture

Check out police actions regarding this womoen who failed topay her traffic ticket.

http://dfw.cbslocal.com/2013/10/24/woman-endures-strip-search-jail-time-...

Arrested at her home with handcuffs, taken to jail and strip seached and imprisoned overnight. While I don't condone people not paying their tickets it seems a little over the top. There is little doubt they are doing this to get people's attention, like do as I command or else. I feel like we are living in a police state more every day.

Just last week the cops shot a man standing in the middle of the street with his hands at his side and they claimed he lunged at them with a knife. Unfortunately for the police there was a camera running. They feel like they can do what they want, just like everyone else in government.

http://rt.com/usa/dallas-police-shoot-mentally-ill-694/

Sun, 10/27/2013 - 20:14 | 4096238 Dr. Everett V. Scott
Dr. Everett V. Scott's picture

Check out what happens to a cop when the cop picks on a guy a little too much...

 

 http://www.youtube.com/watch?v=NF-BtESLEsU

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