Detroit has filed for Bankruptcy. Among the opposition’s arguments against an organized restructuring of the city’s debt, are constitutional worries, pension concerns, and President Barack Obama’s reputation. (Or, “street cred” if you prefer.) A Michigan judge, in a stunning display of impartiality and balance, said the bankruptcy should be withdrawn in part because it failed to honor “the (United States) president, who took (Detroit’s auto companies) out of bankruptcy.” I’ll give you a moment to catch your breath and re-read that last sentence.
Most lawyers that have involved themselves in any number of bankruptcy cases would be quick to tell you that stroking the ego of the US President is rarely a prerequisite for filing. But, Judge Rosemary Aquilina ordered the bankruptcy be withdrawn because it failed to do just that. Oh, she also mentioned that the Michigan constitution disallowed any sort of pension fund restructuring. More on that in a minute.
Making the claim that President Obama saved the Auto Industry is like saying Neville Chamberlin saved Britain. At last check, the Treasury Department would have to sell roughly 190 million shares at nearly $90 per share for taxpayers to break even on Obama’s attempt at venture capitalism. GM is trading around $36 a share. Additionally, President Obama’s unprecedented insertion of the Executive Branch into bankruptcy proceedings for the auto giant came with a rarely reported $45 billion in write offs. (The book value was roughly $18 billion.) All of this says nothing to the fact that senior investors and preferred stock holders were pushed aside so that the United Auto Workers union could bear as little loss as possible. The President’s first attempt at running anything within the private sector cost the US taxpaying public a great handful of money.
Judge Aquilina’s argument, aside from her concern for our President’s reputation, is rooted in a provision in the Michigan Constitution that limits changes to pension plans. The Michigan constitution does, in fact, place restrictions on when, or if, pension plans can be resolved. However, Governor Rick Snyder has indicated that to the extent pension plans are funded, they will not be touched. Pension plans that are underfunded, however, will be examined in public by the bankruptcy court so that the city’s obligations can be resolved.