11 June 2013

Motown Vibrations

Detroit emergency city manager Kevyn Orr has delivered a one-two punch so far this week. Only time will tell if he will continue his marketing blitz tomorrow.

You can read here and here for some earlier posts about Detroit's dire financial situation. Yesterday Orr was quoted in the Detroit Free Press as saying that creditors (including retirees and bondholders) could expect to get about 10 cents for every dollar they are owed even if the city does not file Chapter 9 bankruptcy. Today according to Reuters Orr says that there's a 50/50 chance Detroit will file bankruptcy.

What are we to make of this sudden deluge of mere bits of information? (Or is it propaganda?) Just this: Orr is setting the plate for some major haircuts to all creditors. By suggesting that under the best-case scenario Detroit may pay only 10% of what it owes, and then commenting that there's a good chance Detroit will file bankruptcy, which is a strong hint creditors may receive even less, Orr is trying to soften up his adversaries in what will be some hard-hitting negotiations.

This is all the more important when we realize that Orr was not elected by the people of Detroit (who overwhelmingly vote Democrat) but appointed by Michigan's Republican governor. Orr needs to set the bar of public expectations exceedingly low so that the final deal, which will certainly pay more than 10%, will seems like a godsend to all involved. The insiders should know what Orr is up to but Detroit's citizenry may not.

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