Welcome to Bankruptcy, Detroit!

Sorry, Detroit lovers. The ruin porn shall continue.Credit: Demodragon / Foter.com / CC BY-NC-NDAs of 11:30 a.m. Eastern time today, Federal Judge Steven W. Rhodes made official what has been obvious for a long time: Detroit is bankrupt. After a lengthy hearing this morning detailing the many, many ways Detroit is an utterly failed city, Rhodes gave the city permission to seek bankruptcy protection. From the Detroit Free Press:

The city of Detroit today officially became the largest municipality in U.S. history to enter Chapter 9 bankruptcy after U.S. Bankruptcy Judge Steven Rhodes declared it met the specific legal criteria required to receive protection from its creditors.

The landmark ruling ends more than four months of uncertainty over the fate of the case and sets the stage for a fierce clash over how to slash an estimated $18 billion in debt and long-term liabilities that have hampered Detroit from attacking pervasive blight and violent crime.

Rhodes — in a surprise decision this morning — also said he’ll allow pension cuts in Detroit's bankruptcy. Rhodes emphasized that he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable.

“Resolving this issue now will likely expedite the resolution of this bankruptcy case,” he said.

Rhodes' comments on pension cuts may well prove to be extremely important not just for Detroit, but for any city currently in bankruptcy or considering bankruptcy. Chad Livengood of The Detroit News tweeted quotes from the judge as he delivered the ruling. The judge said that pensions are no different from other contracts under federal bankruptcy laws and "not entitled to any heightened protection in bankruptcy."

That’s a big deal. Pension protectors have been trying to argue that public employee pension benefits can’t be cut back and are protected by state laws or within state constitutions. Federal bankruptcy courts don’t have to care. Cities like Stockton and Vallejo, Calif., have resisted trying to change their pension plans even while in bankruptcy. Maybe this ruling will give city leaders the political courage to address one of their biggest sources of budget debt.

The American Federation of State, County and Municipal Employees have already filed notice that they plan to appeal.

Reason’s Shikha Dalmia highlighted Detroit’s terrible economic state and how it got there in our November Reason magazine feature, “How to Break an American City.” Read it here, along with tales of other failing cities, like San Bernardino, Calif., Harrisburg, Pa., Trenton, N.J., and Chicago.

Below: ReasonTV reports how Detroit's oppressive regulatory structure drives out small businesses:

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  • Hugh Akston||

    Does this mean the Tigers will make it to the ALCS next season?

  • Restoras||

    No Fielder and no Fister? Hmmm...

  • Brian D||

    This is no surprise after all the right wing policies of the BOOOOSH administration!

    /progtard

  • Certified Public Asskicker||

    I thought Obama saved Detroit and Romney was going to destroy it?

  • ||

    I saw an interview with a Detroit pensioner this morning. He was outraged and went on about how "this is a moral issue!".

    No, buddy, this is a math issue.

  • wareagle||

    nothing says liberal morality quite like demanding that someone else give you their money.

  • sarcasmic||

    Not giving is taking and not taking is giving. So cutting a pension is taking money from the pensioner and giving it to a rich person who doesn't need it.
    /Tony

  • Restoras||

    Ugh. That is Tony in a nutshell.

  • Swiss Servator, referendiffic!||

    Oh that Tony could be bound in a nutshell, and counted King of Infinite Derp, were it not that Warty invaded all our dreams...

  • ||

    Corporate fatcats took off and ran as soon as their businesses became unprofitable! It's all their fault, wanting to make money and shit!

  • Certified Public Asskicker||

    This is what happens in a free market economy! Winners and losers! This is what you free marketers like to see!

  • Sevo||

    "This is what you free marketers like to see!"
    There's more than a little truth right there; the losers ought to be a lesson.
    In this case, however, the lesson is Detroit votes D anyhow, so there's no point in Obo using up political capital to bail it out.

  • Bean Counter||

    Milton Friedman once said that the genius of capitalism isn't that it's a profit based system, but that it'a a profit & LOSS based system. When a private company introduces a program or product that loses money, they end the program or discontinue the product. When government introduces a program that fails to work, they INCREASE its budget.

  • Hugh Akston||

    Detroit can start saving money by contracting their police services out to a private company.

  • Rasilio||

    I hear Omni Consumer Products might be interested in bidding on that project.

  • ChrisO||

    Detroit. I'm not sure I'd buy that for a dollar.

  • Geoff Nathan||

    As I've mentioned in earlier postings, some part of the city police service is already outsourced to Wayne State University Police, and it's the safest place in town.

  • ||

    "estimated $18 billion in debt and long-term liabilities that have hampered Detroit from attacking caused pervasive blight and violent crime"

    FTFY

  • Acosmist||

    Oh please. That didn't cause crime.

  • Drake||

    Maybe when this is all over, government unions won't object so much to defined contribution plans.

  • ||

    Oh, Drake, that was funny!

  • Raston Bot||

    I fully expect the Senate will propose changes to Federal bankruptcy law making pensions inviolate.

    And those changes to die in the House.

  • The Late P Brooks||

    This morning, the Bloombergers were talking about poor, poor Detroit, and somebody pointed out the "thirteenth month" pension payments which are so vital to keeping those poor municipal retirees out of the poorhouse. Apparently, Detroit for who-knows-how-long has been, instead of rolling it over and reinvesting it, distributing "excess" pension funds as an additional bonus. Defined benefit PLUS!

    Everybody involved should be flayed alive and then burned at the stake.

    Those retirees can go be Walmart greeters, and subsist on cat food.

  • Sevo||

    ..."Maybe this ruling will give city leaders the political courage to address one of their biggest sources of budget debt."...
    The politicos will cut their boss' incomes?
    Ha and ha.

  • The Late P Brooks||

    The judge said that pensions are no different from other contracts under federal bankruptcy laws and "not entitled to any heightened protection in bankruptcy."

    Thereby proving the need for the President to be able to appoint judges by decree, without those pesky meddlers in the Senate forcing Americans into slavery!

  • Mr. Soul||

    but that was Judge Steven Rhodes. Im sure they will appeal to Judge Jefferson Darcy.

  • The Late P Brooks||

    Detroit can start saving money by contracting their police services out to a private company.

    Oh noes teh LYNCH MOBZ!

    What next, tear up all teh ROADZ?

  • Ken Shultz||

    "Rhodes emphasized that he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable."

    Fair and equitable?

    Fair and equitable?!

    Since when have the government employee unions treated the people of Detroit fairly and equitably?

    Won't approve a final reorganization plan unless the blood sucking parasites--that turned Detroit into a moldering corpse--are treated fairly and equitably?

    That's pathetic.

  • Swiss Servator, referendiffic!||

    Fairly and equitably can be that they take a massive haircut on their drawing of lucre. I am reserving judgment until the final plan is approved (and survives the inevitable union appeals).

  • Ken Shultz||

    What he's saying is that he won't approve a plan that treats the pensions--specifically the pensions--fairly and equitably.

    There's no way to make that statement mean anything else.

    It's like saying that you won't cure anybody of HIV/AIDS unless it's fair and equitable to the virus. How can you cure the disease without...

    Seriously, the pensions aren't just a little part of the reason Detroit is in bankruptcy. The pensions are kinda why they're there.

  • Swiss Servator, referendiffic!||

    Of course the overgenerous govt benefits and pay and pensions are a big part of why they are there - but the judge is building a careful record, to survive appeal - he can't take a vengeful tack, he has to follow the BK Code.
    I will wait and see what they come up with.

  • Invisible Finger||

    Pension protectors have been trying to argue that public employee pension benefits can’t be cut back and are protected by state laws or within state constitutions

    It's like the states want to establish a caste system.

  • Swiss Servator, referendiffic!||

    Already happened in Illinois. coming to head here, and the GEUs are already standing their, lawsuits in hand.

    CUT NOT ONE DIME - IF THE REST OF YOU HAVE TO BE SOLD INTO CHATTEL SLAVERY OR BROKEN UP FOR SPARE PARTS, SO BE IT!

    /AFSCME

  • Emmerson Biggins||

    I was sort of hoping that it would be ruled that they must, in fact, go ahead and squeeze blood from that stone. Just to enjoy the chaos.

  • Rasilio||

    Yeah this.

    I'd actually kinda love to see a Bankruptcy settlement where employee pay the pensions are untouched and the private sector debtors eat 100% of the losses then watch as the city spirals back into Bankruptcy within 5 years with no one left to blame

  • Sevo||

    ..."with no one left to blame."

    You trust the left for more logic than do I. They'll be screaming that 'the market' caused the failure!

  • FreedomFighter75||

    This is what you get when you allow progressives to take control of a city (cities). They over regulate and run it into the ground. This is why Free Markets and Limited Government is the key. Vote Libertarian/Classical Liberal.

  • Gozer the Gozerian||

    Knowledge is good!

  • Response||

    Hopefully Detroit will become the poster child for bankruptcy and then better management. We certainly will need one as other cities, states, and the nation go bankrupt. Of course, the nation can just print more money to reduce the significance of the burden of debt. We will all be millionaires in no time.

  • Geoff Nathan||

    Already they're talking on the radio about how pensioners earn $20,000 a year and they'll be eating cat food. I imagine some of them do earn that much, but it would be very interesting to see the actual distribution of pension levels.

  • Big Chief||

    Golf clap for the Alt-text!

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