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Detroit Pensioners Face Miserable 16 Cent On The Dollar Recovery | Zero Hedge

Detroit Pensioners Face Miserable 16 Cent On The Dollar Recovery | Zero Hedge. (source)

If there is ever a case study about people who built up their reputation and then squandered it for first being right for all the wrong reasons, and then being wrong for the right ones, then Meredith Whitney certainly heads the list of eligible candidates. After “predicting” the great financial crisis back in 2007 by looking at some deteriorating credit trends at Citigroup, a process that many had engaged beforehand and had come to a far more dire -and just as correct – conclusion, Whitney rose to stardom for merely regurgitating a well-known meme, however since her trumpeted call was the one closest to the Lehman-Day event when it all came crashing down, it afforded her a 5 year very lucrative stint as an advisor. Said stint has now been shuttered.

The main reason for the shuttering, of course, is that in 2010 she also called an imminent “muni” cataclysm, staking her reputation once again not only on what is fundamentally obvious, but locking in a time frame: 2011. Alas, this time her “timing” luck ran out and her call was dead wrong, leading people to question her abilities, and ultimately to give up on her “advisory” services altogether. Which in some ways is a shame because Whitney was and is quite correct about the municipal default tidal wave, as Detroit and ever more municipalities have shown, and the only question is the timing.

However, as Citi’s Matt King recent showed, when it comes to stepwise, quantum leap repricings of widely held credits, the revelation is usually a very painful, sudden and very dramatic one. This can be seen nowhere better than in the default of Lehman brothers, where while the firm’s equity was slow to admit defeat it was nothing in comparison to the abject case study in denial that the Lehman bonds put in. However, as can be seen in the chart below, when it finally came, and when bondholders realized they are screwed the morning of Monday, Septembr 15 when the Lehman bankruptcy filing was fact, the move from 80 cents on the dollar to under 10 cents took place in a heartbeat.

It is the same kind of violent and anguished repricing that all unsecrued creditors in the coming wave of heretofore “denialed” municipal bankruptcy filings will have to undergo.Starting with Detroit, where as Reuters reports, the recovery to pensioners, retirees and all other unsecured creditors will be…. 16 cents on the dollar!…  or less than what Greek bondholders got in the country’s latest (and certainly not final) bankruptcy.

From Reuters:

On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city’s retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion.

 

Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them.

 

“It was a function of the mathematics,” said Buckfire, who said he did not think it was necessary for him or anyone else to recommend pension cuts to Orr.

 

“Are you saying it was so self-evident that no one had to say it?” asked Claude Montgomery, attorney for a committee of retirees that was created by Rhodes.

 

“Yes,” Buckfire answered. 

 

Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city’s pensioners, 16 cents on the dollar. There are about 23,500 city retirees.

One wonders by how many cents on the dollar the recovery to pensioners would increase if the New York-based Miller Buckfire were to cut their advisory fee, but that is not the point of this post (it will be of a subsequent).

What is the point, is that creditors across all products, aided and abetted by the greatest credit bubble of all time blown by Benny and the Inkjets, will find the kind of violent repricings that Lehman showed take place whenever hope dies, increasingly more prevalent. And since retirees and pensioners are ultimately creditors, this is perhaps the fastest, if certainly most brutal way, to make sure that the United Welfare States of America is finally on a path of sustainability.

The only question is how will those same retirees who have just undergone an 84 cent haircut, take it. One hopes: peacefully. Because among those whose incentive to work effectively has just been cut to zero, is also the local police force. In which case if hope once again fails, it is perhaps better not to contemplate the consequences. For both Meredith Whitney, who will eventually be proven right, and for everyone else.

 

QE Is “At Best An Unfair And At Worst An Evil Policy” | Zero Hedge

QE Is “At Best An Unfair And At Worst An Evil Policy” | Zero Hedge. (FULL ARTICLE)

Five years ago, when QE first started, we blasted the Fed’s “Plan Z” systemic rescue “policy” – which was merely a tried and true dilutive fallback plan used by every collapsing monetary regime starting with the Romans – stating it does absolutely nothing to resolve the biggest underlying threat to the economy and the western way of life, namely the epic accumulation of debt (most of it bad), courtesy of a Fed which has now unleashed a perpetual “buyer of only resort” QE (as we predicted months before QEternity was revealed), which instead only redistributes wealth from the middle class to the wealthiest 0.01%, while providing scraps to the poorest to keep them occupied and away from very violent thoughts.

We were quickly branded as conspiracy theorists, with the confused legacy media promptly resorting to ad hominem attacks: after all, that is what it really knows how to do when all else fails.

Five years, and 20 million Americans on foodstamps later, such conspiratorial thinking has permeated such bastions of the status quo as Citigroup, whose Matt King in a recent expose about the biggest debt bubble ever, showed that not only does record-er debt not fix a record debt problem, but that the “slate has not been wiped clean.” At least not yet: it will eventually, in a monetary supernova that has been only delayed, following which the Fed will, finally, be forever out of the picture. A welcome development.

So it is with great amusement that we watch how one after another vehicles of legacy, conventional thought turn, and confirm that Zero Hedge was hardly conspiratorial with our assessment back in 2009. We were just about 5 years ahead of the curve.

Enter the FT, which in an Op-Ed today titled “QE has stigmatised the well-off” says that “despite it being entirely justified as a save-the-world policy in its first round, it is still at best an unfair and at worst an evil policy. Why? Because of the way in which it redistributes wealth. Very low interest rates and the ongoing purchase of government bonds were supposed to lead to a huge investment boom as people put money into capital projects and new business that would yield a better return than they could get on cash or sovereign bonds.”

Some more amusing, if very overdue revelations:…

 

The Life And Death Of A Massive Debt Bubble In Seven Charts | Zero Hedge

The Life And Death Of A Massive Debt Bubble In Seven Charts | Zero Hedge. (FULL ARTICLE)

On September 5, 2008, Citi’s Matt King wrote a report titled “Are the brokers broken?” which in its rhetorical question (the answer was and still is yes), implicitly explained why ten days later the world would experience the largest bankruptcy in the history of western civilization, crushing confidence in the financial system to this day, and forcing the Fed for five consecutive years to be the marginal source of credit money in a “not without training wheels” world in which the longer the central bank is the only backstop of anything and everything, and where failure and risk are prohibited through artificial means, the less faith there is in any and every financial counterparty. So when Matt King sat down to pen his latest warning in which he showed how the world is now “positioning for the wrong sort of recovery”, we naturally listened. Below are the key charts which not only show the lifecycle of the source of every modern Keynesian empire’s boom and best, namely debt, but why 5 years later, “the slate has still not been wiped clean.”…

 

All Dress Rehearsals Are Over – CollapseNet Blogs | CollapseNet

All Dress Rehearsals Are Over – CollapseNet Blogs | CollapseNet.

 

Peak Season | Peak Resources -Wise Resource Investments

Peak Season | Peak Resources -Wise Resource Investments.

 

Peak oil notes – May 2

Peak oil notes – May 2.

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