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"He Who Makes The Rules Never Goes To Jail For Breaking Them"

Tyler Durden's picture


Submitted by Martin Armstrong via Armstrong Economics,

Detroit Bankruptcy Unions

Working for the government was always pitched as somehow being better guaranteed than risky corporations. However, he who makes the laws never goes to jail for breaking them - a plain fact of life. The problem with government pensions has been they promised whatever sounded nice, with zero accountability. The presumption that tax revenue was an endless pit is one of those fallacies that nobody ever investigates.


It was the city of Mainz where the Gutenberg printing press was invented. This created an economic boom and everyone wanted to be in Mainz. The politicians saw the boom and presumed the potential tax revenue was linear and would be endless – judging tomorrow by today’s trend. They began to borrow against what they anticipated would be there forever. As they needed interest to pay for borrowing and they became addicted to debt, they raised taxes. The taxes kept rising so they killed the economic boom and people began to leave. Mainz followed the typical path as we are doing today. They were no longer paying off debt, they entered the Ponzi scheme – issued new debt to pay off the old in a revolving bond auction. Taxes kept rising and people migrated. The printing press was no longer unique to Mainz. The rich left town taking their capital and entrepreneurship with them. When Mainz lost confidence of the bond buyers and could no longer sell new debt to pay for the old, the collapse unfolded. Mainz, like Detroit, defaulted. The creditors sacked the city and it was burned to the ground.

The same precise pattern unfolds every time - WITHOUT EXCEPTION. Why? Human nature never changes. Create career politicians and they will always seek to expand government for that is their power-base. I do not know who is more brain-dead be it the government workers who believed this pensions were endless, or the really insane insurance companies who insured any government debt. For now, the companies that insure Detroit bonds and stand to lose millions will have to pay out on insurance to bond-holders who will get less as government tried to pay its workers over the pension crisis that will not possibly work anyhow.

Syncora and Financial Guaranty Insurance company are now poised to challenge the city’s bankruptcy plan, after retirees endorsed pension cuts and qualified for a bailout led by the state, another group of taxpayers going to be screwed. The deal agreed upon by the Detroit pensioners gives them special treatment that’s unfair to other creditors in a court of law if law really mattered. In general retirees would get a 4.5 percent pension cut and lose annual inflation adjustments. Some also have to repay a portion of generous annuity earnings from the last decade – the minority oppressed by the majority of union retired pensioners. Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise. The state of Michigan is chipping in $816 million in aid from the foundations and the Detroit Institute of Arts. Money from the so-called grand bargain would prevent the sale of city-owned art and avoid deeper pension reductions.

Thrasymachus Quote


The legal problem comes from the fact that no other creditors qualify for the money. Judge Steven Rhodes presides over this issue and we will see how law really works – the self-interest of always the stronger as Thraymachus warned Socrates. In bankruptcy, ALL creditors are legally supposed to be treated fairly. This is obviously not the case here. We have the illegal diversion of highly valuable assets going to the very creditors who voted yes, and are part of the entire reason Detroit has collapsed. We will see how law survives or is Thrasymachus simply always correct.

Either the court distributes the assets fairly, or the court cannot legally confirm this plan under such discrimination against all other financial creditors. The point is that other creditors are getting zero recovery at the benefit and unfair advantage of Detroit’s pensioners. It is not a question of make the bankers pay. The bond holders are not bankers – they sold it to guess who – other pension funds.

The ramifications of what happens in Detroit will ripple through the entire debt structure nationally for if this will be the new game plan to follow, WHY SHOULD PEOPLE BUY any government debt whatsoever if not even bankruptcy laws apply? Insurers will stop insuring municipal debt without a rule of law and the entire debt structure will be undermined. This of course is a good thing, but the state workers who thought they were getting guaranteed pensions – sorry, its called fraud. As I said – he who makes the laws never goes to jail for breaking them.

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Thu, 07/24/2014 - 16:34 | 5000289 PSEUDOLOGOI

Ah! The Golden rule...

Thu, 07/24/2014 - 16:50 | 5000375 lordylord
lordylord's picture

Careful, you can get booed for invoking the golden rule.  Just ask Ron Paul. 

Thu, 07/24/2014 - 16:56 | 5000405 max2205
max2205's picture

Burn to the ground.....sounds like a great idea and attention getter

Thu, 07/24/2014 - 17:11 | 5000469 hidingfromhelis
hidingfromhelis's picture

PSEUDOLOGOI, are you sure you didn't mean to say, "...the Goldman Rule?"

Thu, 07/24/2014 - 18:31 | 5001032 Buck Johnson
Buck Johnson's picture

Yes the golden rule, but they should flip the saying.  Instead of he who has the gold makes the rules to He who makes the rules get the GOLD.  And you see that happening all over the planet.  The govt. are getting bail ins and confiscation etc. etc., in order to delay the day of reckoning.

Thu, 07/24/2014 - 20:52 | 5001701 Freddie
Freddie's picture

The Golden State where California taxpayers get a golden shower by the Democrat politicians who run the state.

Fri, 07/25/2014 - 03:53 | 5002523 SF beatnik
SF beatnik's picture

Either the court distributes the assets fairly, or the court cannot legally confirm this plan under such discrimination against all other financial creditors. 


Man, this is some shitty writing. Get some editing help! 

Thu, 07/24/2014 - 16:33 | 5000292 NoDebt
NoDebt's picture

"When Mainz lost confidence of the bond buyers and could no longer sell new debt to pay for the old, the collapse unfolded. Mainz, like Detroit, defaulted.The creditors sacked the city and it was burned to the ground."

Oh, stop it now.  You're just teasing me.

Thu, 07/24/2014 - 16:44 | 5000333 Pool Shark
Pool Shark's picture



The difference with Detroit is that it will be the debtors who sack the city and burn it to the ground...


Thu, 07/24/2014 - 18:14 | 5000395 toady
toady's picture

Close, but it'll probably be more like this in Detroit; The creditors sacked the city and the remaining destitute population burned it, peice by peice, to stay warm through the harsh winter.

Thu, 07/24/2014 - 17:27 | 5000589 Fix-ItSilly
Fix-ItSilly's picture

Detroit is already burnt to the ground by those that received Govt payments to not work.

Thu, 07/24/2014 - 16:34 | 5000294 DoChenRollingBearing
DoChenRollingBearing's picture

Armstrong writes:

"The creditors sacked the city and it was burned to the ground."


Can we do that to DC too?



Thu, 07/24/2014 - 16:37 | 5000302 NoDebt
NoDebt's picture

I'm not sure Marty Armstrong meant this article to be in inspirational piece or a how-to guide, but it's sure turning out that way!

Thu, 07/24/2014 - 18:08 | 5000903 Urban Redneck
Urban Redneck's picture

Curious that the Ministry of Truth's texts don't highlight this event, as they cannot be afraid of those Rinse, Repeat nutters whose logic they deny and defame.

Thu, 07/24/2014 - 16:38 | 5000303 Rainman
Rainman's picture

People still buy government debt because bankruptcy laws do not apply. I thought everybody knew that < see Chrysler please >

Thu, 07/24/2014 - 17:18 | 5000509 Zero Govt
Zero Govt's picture

if the Govt, or its debt, goes bankrupt you can't take them to court

now France has invented a new sleight of hand.. they make their Govt debt 'illegal' before they go bankrupt


Thu, 07/24/2014 - 16:43 | 5000312 One And Only
One And Only's picture

"Working for the government was always pitched as somehow being better guaranteed than risky corporations."

It is better if you're a low life and can't be  held accountable for performance. The government has become an entity that does nothing but take from those who push society forward and give to those who pull society backwards. It's really as simply as that. The larger this edifice becomes the more people it needs to employ and those jobs are secure because you're almost guaranteed to not get fired.

If you're a fuck up all you have to do is work for the government and you're golden. In fact the more you fuck up and do your job wrong the higher the probability that you get promoted and paid more.

Thu, 07/24/2014 - 16:51 | 5000384 NotApplicable
NotApplicable's picture

There is no such thing as "working" for the government, as work creates value that others freely pay to possess (as they value it more than the price paid).

Thu, 07/24/2014 - 17:01 | 5000430 Bastiat
Bastiat's picture

It depends.  There a very functional segments in most local governments; there have to be or you'd be very dissappointed when you turn the tap, flush the toilet or catch a subway.  These utility and transportation systems are extremely complex.   There are also dysfuntional units and dysfunctional workers scattered about; and public safety unions have truly put it to the taxpayers.

There are usually plenty of good people, good enough to get things done around and with the dysfunctional . . .  or nothing would work.

Thu, 07/24/2014 - 16:41 | 5000316 TrustWho
TrustWho's picture

This is exactly the saying of a Russian friend who grew up in the Soviet Union, joined the communist party and led the Pioneers.

"he who makes the laws never goes to jail for breaking them"

Thu, 07/24/2014 - 16:46 | 5000352 Joebloinvestor
Joebloinvestor's picture

No one should be offered a pension that isn't funded.

Like assuming property values are never going to stop rising.

That is why GM bought HUGHES.

They were led to believe they could raid HUGHES pension fund. 

Thu, 07/24/2014 - 17:15 | 5000496 world_debt_slave
world_debt_slave's picture

paybacks a bitch

Thu, 07/24/2014 - 17:15 | 5000497 Zero Govt
Zero Govt's picture

well America already has the biggest prison population on the planet.. ever!

if politicians allowed politicians to go to jail it would be an epidemic with all the shit they get up to!

do we have enough bricks? ..i don't think so

Thu, 07/24/2014 - 18:06 | 5000878 icanhasbailout
icanhasbailout's picture

we make the present prison population into the prison guards for these people

Thu, 07/24/2014 - 17:22 | 5000543 Fix-ItSilly
Fix-ItSilly's picture

How can one write an article on this topic and not discuss/refer to the GM bankruptcy?

Thu, 07/24/2014 - 17:38 | 5000682 p00k1e
p00k1e's picture

Detroit doesn’t have to pay its bills.  

We should be able to protect/shelter our assets, like Detroit protects the “art”, and then skip out on the bill collectors. 

Finance a house and car, just don’t pay but keep the loot as a parting prize.

Thu, 07/24/2014 - 18:03 | 5000860 RaceToTheBottom
RaceToTheBottom's picture

Wait I thought the Chinese were buying up the city and everything would be fine?

Thu, 07/24/2014 - 18:08 | 5000907 Reaper
Reaper's picture

The Bankruptcy judge is just a crony lawyer appointed by a US District Judge, who then rules on any appeals. There is no law nor justice, just political and crony corruption in bankruptcy. Black robes never improve the nature of a lawyer.

Thu, 07/24/2014 - 18:42 | 5001107 yellowsub
yellowsub's picture

Those who have not collected a pension yet of course will make it unbreakable...

Fri, 07/25/2014 - 14:04 | 5004331 auntiesocial
auntiesocial's picture

feel really sorry for those baby boomers. I had to start over at 38. so starting over at 65 must really fucking blow. shame on the system. 

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