After Detroit Bankruptcy: Optimism, but 'Challenges Are Real'

Five years after Detroit's historic bankruptcy filing, the city has risen from financial ruin to a promising future few could have predicted, the Detroit News reported. Officials say the city now has its financial house in order, posting four consecutive years of balanced budgets while crafting a plan to stave off another collapse by addressing looming pension obligations. That upswing has allowed the city to regain full control of government operations after it emerged this spring from strict state oversight put in place as a provision of its restructuring plan. City officials have touted improved services, including the installation of 65,000 new LED streetlights and better trash pickup, public safety response and bus service. "There’s a sense of optimism in Detroit like I’ve never seen before in my life," said retired U.S. District Chief Judge Gerald Rosen, who is credited with pulling together a funding plan that helped speed Detroit's bankruptcy exit. "The challenges are real, though. Nobody is minimizing the challenges." The funding plan that was key to Detroit’s bankruptcy exit — known as the “grand bargain” — relieved the city of much of its financial obligations to the city's two pension funds through 2023. The deal, designed in part to lessen retiree pension cuts, pumps the equivalent of $816 million into the city's pension funds over 20 years through contributions made by private foundations, state taxpayers and private donors to the Detroit Institute of Arts. But in 2024, Detroit will have to start funding a substantial portion of its pension obligations from the city's general fund.

Commentary: How Ruling Could Shake Up Puerto Rico's Debt Restructuring*

Congress may soon be under pressure to revise or repeal the Puerto Rico Oversight, Management, and Economic Stability Act, after a federal Judge suggested the the U.S. government could be liable for cuts to bond values mandated by the Oversight Board, according to a commentary in The Bond Buyer. U.S. Court of Federal Claims Chief Judge Susan Braden issued the opinion on Friday in the case filed by investment funds against the U.S. government concerning defaulted employment retirement system bonds. Judge Braden's signal that she was inclined to rule in favor on the claims drew reactions from members of the Puerto Rico Task Force of the Congressional Hispanic Caucus. “This ruling exposes additional problems with the PROMESA act,” said U.S. Rep. Darren Soto (D-Fla.). “It may also be a catalyst to support a reform or repeal to provide Puerto Rico full bankruptcy rights.” U.S. Rep. José Serrano (D-N.Y.) agreed that the opinion may have an impact on Puerto Rico, but he wasn’t sure it would be for the better. “By making the U.S. government liable for Puerto Rico’s debt, the court has essentially determined that bondholders can have priority over the needs of the Puerto Rican people," Serrano said. "This would force the federal government to make the hedge funds whole, rather than focusing on the true intent of PROMESA — helping Puerto Rico get on a sustainable economic and fiscal path. We have to make sure the people of Puerto Rico come first.”


*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Read further analysis of this ruling in today’s edition of Rochelle’s Daily Wire.

Latest ABI Video Podcast Examines Landlord/Tenant Issues in Retail Bankruptcy

ABI's latest video podcast features ABI Deputy Executive Director Amy Quackenboss talking with David R. Kuney of Whiteford Taylor Preston (Washington, D.C.). Kuney, author of ABI's Retail and Office Bankruptcy: Landlord/Tenant Rights, talks about the rapidly shifting landscape of the retail world and issues for practitioners to be aware of in handling landlord or tenant rights. To watch the discussion, please click below:



To order your copy of Retail and Office Bankruptcy: Landlord/Tenant Rights, please click here.

Commentary: The Dark Side to Rising Consumer Spending

In a healthy economy, consumers’ increased use of debt won’t cause any immediate problems, but it does call into question how long the spending gains are likely to persist, according to a Wall Street Journal commentary. Last week, the Federal Reserve reported that consumer credit outstanding rose by $24.6 billion in May from a month earlier, nearly double the $12.8 billion economists expected to see. There are two possible explanations for the borrowing, according to the commentary: With job growth strong and unemployment low, many people are pulling spending forward with the expectation that their paychecks will get bigger and they will be able to pay off the loans. The other is that consumers who haven’t yet seen big pay increases are borrowing to maintain their standards of living as inflation picks up. If wages do pick up, then the borrowing will be paid off, though consumers may still have to slow spending. If wage gains don’t pick up, or if inflation keeps outpacing pay, the eventual slowdown in spending could be more pronounced.

New CFPB Advisory Board to Have Far Fewer Members

Just as Mick Mulvaney fired members of a board that advises the Consumer Financial Protection Bureau on consumer issues last month, the agency's acting director was also taking steps to re-form the panel with less than a quarter of its sitting members, American Banker reported. On June 5, Mulvaney signed an amended charter to reconstitute the consumer advisory board with only six members, according to a copy of the charter obtained by American Banker. A day later, the board's 25 volunteer members were fired, along with roughly 35 members of two other advisory boards. The board's new amended charter states that the board "will have no formal decision-making role and no access to confidential supervisory or other confidential information." The document also indicates that the amended charter was filed on June 20 with the Senate Banking Committee, the House Financial Services Committee, the General Services Administration and the Library of Congress. The advisory board was originally created under the Dodd-Frank Act.

Commentary: The Most Important Number in Finance Is Going Away, and Wall Street Isn’t Prepared*

In the world of finance, there is one number that arguably matters more than any other. You can find it in the small print on adjustable-rate mortgages and private student loans, it is the basis for enormous corporate loans, and it underpins nearly $200 trillion of derivatives contracts. But it is on the way out, and Wall Street has not worked out how to replace it, according to a New York Times commentary. The number in question is the London interbank offered rate (Libor). Libor is an interest rate benchmark that has been at the center of a market-manipulation scandal that resulted in jail time for some traders and billions of dollars in fines for many banks. There are other important financial benchmarks, of course — the Federal Reserve’s fed funds rate and the yield on the 10-year Treasury note among them — but Libor has emerged over time as the dominant rate for determining interest payments on almost all adjustable-rate financial products. Now, regulators are stressing that the benchmark could be gone by 2021. As traders speculate about what will happen to financial markets when Libor disappears, regulators appear to be worried that banks are not taking the coming change seriously enough.


*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and Twitter!