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Detroit: Pensions or Derivatives? Glass-Steagall Would Have Made the Choice
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[link to larouchepac.com]
Detroit: Pensions or Derivatives? Glass-Steagall Would Have Made the Choice
The 250-year-old "arsenal" city of Detroit was brought into extreme impoverishment by the collapse of the auto/machine-tool industry in size and wage levels, and the national refusal to reverse that collapse, under the Bush and Obama presidencies. Lyndon LaRouche first put forward the policy to revive that industrial base in November 2004; Bush and Felix Rohatyn blocked it; Obama fixed the wage collapse in stone in the 2009 auto bankruptcy/bailout.
But now the most immediate choice in Detroit involves the impact of the repeal of the Glass-Steagall Act in 1998.
That choice is as follows: The city emergency manager, bankruptcy lawyer Kevyn Orr, has made an agreement to pay three banks — UBS, Bank of America, and SBS — approximately $$225 million by Nov. 1. This amount equals 15% of Detroit's total annual all-source revenues estimated at $1.49 billion this year, and Orr agreed to do it while defaulting on pension bonds. This $225 million is not a debt; rather it represents 75% of the "current negative value" (to Detroit) of swaps agreements with those banks on $1.4 billion in 2005 city borrowing. That is, it is a payoff on a LIBOR-rigged derivatives bet that Detroit was conned into making in 2005 by those banks, after borrowing from them. And if the payment is delayed beyond Nov. 1 to a second payment deadline of Mar. 1, 2014, under Orr's agreement it will be 85% of the "current negative value" of the bet, or likely $250 million.
Orr agreed to this derivatives payoff two days before declaring bankruptcy against pensions, retiree health funds, and other general creditors, giving it first priority outside the bankruptcy court.
Will Congress and the White House allow this to happen, directly sacrificing pensions and health benefits for derivatives bets? Detroit already, in 2008, had its Water and Sewerage Department pay $536 million to the same banks to settle a rigged derivatives bet. A
more at link
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