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  • America 2.0 Looks To Be Worth Around Twenty Five Cents on the Dollar

    Posted by Dan from Madison on February 19th, 2014 (All posts by )

    A while back I dissected the debt of Detroit, the classic America 2.0 case. By this, I mean a gigantic government presence, working with manufacturing and unions to push off obligations into the future with no clear plan of really what to do. In the end, of course, it all came crumbling down and yesterday we got a slight glimpse into just how bad it can get.

    To review, here is the diagram I had to make after reading several sources on the subject, to help wrap my head around the calamity that was the city of Detroit’s books:

    This looks crude, and it is, but it really helped me get my brain around the nightmare.

    From everything I have been reading, Kevyn Orr is getting ready to propose that the general obligation and pensions get settled out at .25 on the dollar. That sounds a bit expensive to me, and as Lex Green said to me in an email certainly isn’t “fire sale” prices yet, but that is what the consensus seems to be saying.

    In an odd bit of news, many private foundations have been trying to gather enough money to offset an auction of Detroit’s art collection, estimated by some to be worth up to a billion dollars. If I were Orr, that would have been the first thing I would have done is liquidate that stuff, but I am quite a bit less sensitive than I would need to be to ever consider a career being a politician.

    All of this is subject to the whims of the BK judge, but if I were a retired Detroit fireman, I would certainly begin tightening the belt stat, if that wasn’t done already.

    This may affect municipal investments, but honestly I imagine any fallout from it is already baked into the pie.

    Is Chicago next? We shall soon see.

    From a political standpoint, the Republilcans should make the Democrats own this just like they should own Zerocare ™ and the nightmare in Illinois/Chicago that is coming down the tracks. How easy can it get for a Republican? All they have to say is “look at that” and they should get easily elected in any of a number of districts in 2014.

    (Disclosure – I have many different municipal investment vehicles in my portfolio).

    Cross posted at LITGM.

     

    6 Responses to “America 2.0 Looks To Be Worth Around Twenty Five Cents on the Dollar”

    1. dearieme Says:

      In the bigger picture (ahem) it makes sense for the Detroit collection to be moved to cities where there are more people who might enjoy it.

    2. Subotai Bahadur Says:

      From a political standpoint, the Republilcans should make the Democrats own this just like they should own Zerocare ™ and the nightmare in Illinois/Chicago that is coming down the tracks. How easy can it get for a Republican? All they have to say is “look at that” and they should get easily elected in any of a number of districts in 2014.

      That makes the assumption that the Institutional Republicans want to win, at least against Democrats. I’m betting that they will avoid mention of Detroit so that they “do not upset” the locals.

      Subotai Bahadur

    3. Michael Kennedy Says:

      The Institutional Republicans are mostly members of the “Ruling Class” and may not know what the difference is. They agree that they, the government, know better than the voters what the voters need. They see political differences as labels on identical products, which may even be true. I’m not sure Boehner, for example, can really identify why Obama is so dangerous to our future. He may even think that the GOP deserves its place at the trough and this is what the election is about. Trying too hard may upset the Washington Post editorial Board and dry up some party invitations. After all, he, like almost all politicians there, plan to live in that town after they have finished their political career. How many Congress members actually return to their “home” states after office, unless they are running for another office ?

    4. Kirk Parker Says:

      It’s not that I don’t appreciate art; really I do!

      What I don’t appreciate is that a bankrupt entity that’s going to short its creditors 75% of what they’re owed gets to keep its art collection, as if it were a homestead or something.

    5. Bill Brandt Says:

      I wonder what will happen to California. According to our Governor everything is fine because of the extra money flowing in from income taxes the electorate voted on raising – one of the highest in the country.

      Me being a contrarian believes that the higher you make the taxes the less people/companies want to come into th4e state and the more those with the most skin in the game want to leave – but what do I know.

      Our pension obligation to the public labor unions is gigantic.

      Time will tell.

    6. Dan from Madison Says:

      Those pension obligations will never be paid. They all need to get ready for a haircut.