Detroit Bankruptcy Judge Halts Proceedings, Challenges Banks’ Shady Deal

You mean the judge overseeing the bankruptcy process that has pretty much taken away the voting rights of Detroit citizens isn’t going to be a rubber stamp for the banksters? This case has suddenly gotten very interesting…

The federal judge overseeing Detroit’s historic bankruptcy abruptly halted a trial Wednesday, ordering the city to renegotiate a proposed settlement with its creditors — major banks owed hundreds of millions of dollars who are among the first in line to be repaid. The settlement would put to rest a swaps deal, a financial bet gone wrong, that’s been blamed by some experts for helping drive the city into bankruptcy.

Following Judge Steven Rhodes’ decision to officially declare Detroit bankrupt earlier this month, city attorneys and creditors met Wednesday in court, attempting to finalize an end to the swaps deal, along with a new $350 million loan from London’s Barclays Bank, the Detroit Free Press reports. The loan money would be used to pay two more banks, UBS AG and Merrill Lynch (now part of Bank of America), $230 million total that the city owes after the swaps deal, which was originated by former Mayor Kwame Kilpatrick in 2005. The remaining $120 million would be used to improve services to residents.

But the judge questioned why Detroit agreed to pay 75 to 82 cents on the dollar to these banks — all the while reportedly offering 16 cents on the dollar to pensioners.

The city, currently controlled by state-appointed Emergency Manager Kevyn Orr, has treated the banks as secured creditors. Challenging these debts could mean Detroit could save hundreds of millions of dollars — crucial savings for a city contemplating shortchanging the pensions of retirees.

What Judge Rhodes said during the course of the proceedings probably made a few banksters’ heads explode:

“Every transaction — including this one — that the city has entered into in connection with these swaps … has been with a gun to its head[.] That has to stop[.] And I think it’s part of a bankruptcy judge’s role to carefully scrutinize a debtor’s request to approve a settlement when that settlement was made with a gun to the debtor’s head.”

You’d almost think the good judge is saying that the banks, facilitated by a constitutionally questionable “emergency manager”, are extorting Detroit.

By: dave-dr-gonzo

David Hirsch, a.k.a. Dave "Doctor" Gonzo*, is a renegade record producer, video producer, writer, reformed corporate shill, and still-registered lobbyist for non-one-percenter performing artists and musicians. He lives in a heavily fortified compound in one of Manhattan's less trendy neighborhoods.

* Hirsch is the third person to use the pseudonym, a not-so-veiled tribute to journalist and author Hunter S. Thompson, with the permission of his predecessors Gene Gaudette of American Politics Journal (currently webmaster and chief bottlewasher at Liberaland) and Stephen Meese at Smashmouth Politics.