18 July 2013

Detroit Vs. Stockton

There are substantial differences between the cities of Detroit and Stockton. Major league baseball and Motown music come immediately to mind. But there is at least one point of similarity: both are in Chapter 9 bankruptcy. Yet even here there seems to be a substantial difference. According to the Wall Street Journal here, Detroit's "municipal-worker retirees are set to get less than 10% of what they are owed under a plan Mr. Orr disclosed last month." In a notable contrast Stockton is fighting to pay its retirees every cent of what Bankruptcy Judge Klein described as an "encrustation of a creeping multi-decade, opaque pattern of above-market compensation of employees."

Does the fact that Republicans control Michigan's governorship and state legislature and Democrats those of California have something to do with this? Or is it due to Kevyn Orr's appointment as emergency manger of Detroit and Stockton's election of its city council? (Agency costs, anyone?) Or is it simply that Orr realizes that fairness requires treatment of similarly-situated creditors similarly?

I think the latter but in any event bankruptcy lawyers are lovin' the chance to do some serious billing.

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