Detroit Bailout: Why the “Grand Bargain” is actually a Faustian Bargain.

Not actually Gov. Rick Snyder


Like most Conservatives here, I was disappointed, but honestly not surprised in the least, by last weeks vote in the Michigan House on the “Grand Bargain”.

I say this because leading up to the vote, when my sources go dark, or when they do finally return my calls and begin to waffle, that is almost always an indication that things are going bad rather quickly.

I’m not going to mince words here. Aside from absolutely hating that misleading term “Grand Bargain”, I still can’t see why people in Lansing can’t/won’t do their homework on what is really going on here and why they are reticent on calling a bailout what it actually is: a bailout.

You’re probably asking yourselves; what causes people like that to lose their way?

Limited government and fiscal responsibility were once hallmarks of the Republican Party platform a long time ago.

Let’s take a look as to what happened, shall we?


{Continued after the fold}



About two weeks ago, Detroit EM Kevyn Orr along with the Detroit Mayor and City Council made repeated trips up to Lansing to testify before committee and lobby legislators for the Detroit Bailout.

Much like a poker player holding absolutely nothing, visibly sweating and to top things off having no more chips, they didn’t really bring anything to the game.

But that was all for show.

Their appearances were nothing more than a distraction to divert everyone’s attention from what was happening from behind the scenes: Saving the DIA from the auction block.

One of the argument that Legislators will try to argue (trust me, this is the ONE thing in common that I’ve heard from all my sources on the bailout) is that its for the pensioners.

If only that were really true.

When filing for bankruptcy last year, Judge Rhodes wasn’t very keen on the idea of selling off Detroit-owned artwork to pay off Detroit-incurred debts and pretty much said so in no uncertain terms in his decision. However, despite his opposition to that idea, if Judge Rhodes does not sign off on the process proposed by Kevyn Orr for Detroit to exit bankruptcy, known as a plan of adjustment, EM Orr will have no choice but to slap on the “For Sale” signs on all of Detroit’s assets (the entire DIA included..not just 5%) to pay Detroit’s debts as best as he can.

The irony here is that until about a few month ago, a fact reported in the Detroit Free Press, the pensioners were ready to sign up with other creditors in order to force a DIA sale. They were looking at a better chance of seeing more from their pensions with it, than what Orr’s cramdown would provide. It was only because of the actions of federal bankruptcy mediator Gerald Rosen that convinced them to go along with this “Grand Bargain”.

Another problem with Orr’s Plan for Adjustment, is that it flat-out ignores bankruptcy law. In bankruptcy, you cannot discriminate unfairly against creditors, nor can you treat creditors in a way that is not in their best interests. I’m fairly certain that taking assets off of the table and making creditors a lower offer than what they would’ve received from the sale from those assets violates that concept. I’m also pretty sure that paying one group of creditors a higher percentage of what they are owed over another is also illegal.

Syncoria and FGIC, two of the creditors owed money by Detroit will certainly use those arguments if this bill is passed in the Michigan Senate and signed by Gov. Snyder, tying up Detroit’s bankruptcy in court for years and adding million of dollars to the final cost.

Why prolong any litigation by providing them that argument?

One more thing that you will hear in support of Detroit’s Bailout are that these bills will provide some oversight and stability which is necessary for Michigan’s economy. It’s a shame that those same people never bothered to read the actual language contained in the package.

In fairness, legislative oversight of Detroit’s future budgets, regional art authority (i.e. DIA tax), pension investment committee, 13th Checks, DB Pension Plans are included in the package of bills.

But they are missing one very important fact: None of these bills are tie-barred together.

Without that one very important detail, Michigan Senators can vote on these bills while simultaneously claiming to be looking out for the rest of Michigan. Sadly, Gov. Snyder can just as easily sign off giving state money to Detroit while refusing to sign off on any protections for Michigan Taxpayers on our “investment, thereby guaranteeing a repeat of the circumstances that got us here in the first place.

So much for fiscal responsibility.

Another argument that you will hear will deal with cost. Elected officials will argue that “We can either have Detroit pay a little now or we will all pay a lot later.”

What those same elected officials will fail to include is that Michigan Residents living outside of Detroit will ultimately pick up the tab for Detroit Fiscal recklessness.

I’m not talking about a city that deceived everyone by lowballing its estimate of city assets by only having less than 5% of one of them appraised.

No, I’m talking about other assets like the Detroit Water and Sewer Department which is looking at a cramdown of its own, this time on regional water & sewer customers by making those outside of the city liable for any infrastructure failures with the creation of a new water authority.

And those are just one of the plans that we are aware of.

So much for us not paying later.

Finally, they will argue that the bailout will help to bring Detroit back.

I’ve yet to hear one cogent argument about how a city with effectively no police department, no fire department and school system that would be under constant protest over its abysmal test scores were not ran by democrats, can be positively affected by a $195-million bailout to Detroit.

To be fair, there are people who are working to bring the city back. They aren’t well connected like those running the DIA. They certainly aren’t people like J.P. Morgan, Dan Gilbert, or anyone else you might have heard in the news recently.

People like the Mower Gang, Detroit 300 and others who rarely (if ever) make it on the pages of The Detroit News, Free Press, or even the Michigan Chronicle who do more to achieve those goals that anyone I’ve mentioned in the previous paragraph. And do so without going to Lansing hat in hand, looking for money.

I can respect them.

So let me bottom line what all of this ultimately means before next week’s vote:

  • Do you want to support a package of bills that will guarantee the bankruptcy process gets bogged down in court for years?
  • Do you want to support a package of bills that does not guarantee any oversight of fiscal responsibility from a city that has shown no indication of actual responsibility for decades?
  • Do you want to support a package of bills that will ultimately shift the costs of decades of fiscal irresponsibility to those living outside of Detroit?

And finally,

  • Do you want to support a package of bills that was written solely to benefit the well-connected few (i.e. crony capitalists)?


If I’m one of the few who feels that the answers to the above are obvious, then so be it.

But I’m willing to bet that I’m not.



You Betcha! (7)Nuh Uh.(2)

  4 comments for “Detroit Bailout: Why the “Grand Bargain” is actually a Faustian Bargain.

  1. May 27, 2014 at 8:22 am

    There was some good sharing action throughout FB this weekend... People are talking.

    You Betcha! (1)Nuh Uh.(0)

Leave a Reply

Your email address will not be published. Required fields are marked *