The ruling on April 11 in the Detroit municipal bankruptcy by Federal Bankruptcy Court Judge Steven Rhodes awarded an $85 million payment to two banks that are heavily implicated in the financial ruin of Detroit and other cities throughout the United States.
Rhodes ruled that the third negotiated attempt to terminate an interest-rate swap agreement involving Bank of America and United Bank of Switzerland arrived at a “reasonable” plan. The judge said that it was legal to hand over more money to these financial institutions despite the fact that they have been paid over $300 million by the city since 2006. Barclay’s Bank, of Libor scandal infamy, will broker the deal.
Two earlier negotiated agreements between state-imposed Emergency Manager Kevyn Orr and the two banks were so outrageous that they were rejected by the court. Another ruling late last year forced Orr to disclose the $4.4 million in fees associated with crafting the deal.
Objections to the deal were presented from other capitalist interests, such as Syncora, a bond insurer which traps Detroit casino tax revenue to pay for the usurious debt. Other financial and bond-related firms only opposed the deal because it placed a higher priority on pleasing the larger banks, such as UBS and BOA.
The only real opposition to the deal came from people’s attorney Jerry Goldberg, representing Detroit resident and city retiree David Sole, who argued not just for his client but for the people of Detroit. Goldberg had argued successfully in December and January hearings that the proposed initial settlement of $230 million and later $165 million were not only excessive but ignored the potential for regaining hundreds of millions in damages which are rightfully owed to the city of Detroit.
Judge Rhodes, in his Jan. 16 ruling rejecting the second proposed settlement, clearly stated that the city should not engage in financial arrangements that were disadvantageous and that there was a possibility of suing the banks to regain resources needed for the city. Rhodes’ current decision overturned his own words and moved 180 degrees in the opposite direction.
After reading his ruling awarding BOA and UBS the $85 million, Rhodes went on to “commend” EM Orr and the banks for reaching the agreement.
Critical struggle against banks’ austerity
On April 1, retirees, workers, union representatives and community people took over the street in front of the downtown federal court. They were demanding the preservation of their pensions and the reinstatement of their health care plans, which were terminated March 1 by the EM.
Pensioners, city residents, activists and other interested parties have filed over 500 legal objections to the so-called “Plan of Adjustment” presented by Orr in late February. The document presents a series of draconian austerity measures as a method for “restructuring” the city’s finances, mostly on the backs of the retirees, workers and residents.
Retirees, who have sacrificed decades of service and deferred wages, face cuts up to one-third of their monthly checks on the surface. But when the loss of their annuities and health care benefits are calculated into the scheme, the reductions amount to well over 60 percent. The banks and bondholders are to be asked to take up to an 80 percent cut. However, a deal reached with “unsecured” creditors, involving insurers and other corporate interests, provides between 70 percent to 80 percent of payments which they claim are owed to them by the working people of the city.
These attacks on unions, pensioners and residents in this majority African-American city are setting the stage for a national assault on the deferred wages and benefits of all workers. Corporate media editorials and news stories daily publish reports claiming that public pension funds are grossly underfunded and mismanaged.
Wall Street bankers, bondholders, insurers and rating agencies are attempting not only to eliminate legal protections for public pensions, but also to destroy their structures through the dissolution of their boards of directors and trustees, which include representation from union officials and politicians. In Detroit at least $5 billion to $6 billion in pension funds are up for grabs, and the EM is attempting to replace the pension board of the General Retirement System and the separate board established for police and firefighters.
On April 10, representatives of the police and firefighters unions held a press conference stating that if the bankers’ “Plan of Adjustment” put forward by Orr was approved by the federal bankruptcy court it would mean “destitution” for their membership.
Judge Rhodes in his ruling the next day took a swipe at the massive public opposition to the attacks on workers and retirees, saying that now was the time to negotiate. However, such an assertion does not acknowledge the massive cuts that workers have already endured in Detroit.
On July 16, the hearing in bankruptcy court on approving the bankers’ “Plan of Adjustment” will begin. The Moratorium NOW! Coalition is calling for a national demonstration that day in front of the bankruptcy court to demand the preservation and restoration of pensions, health care, jobs, services, public assets and democratic rights.