18 Jul Flash: Detroit Files for Bankruptcy

Just minutes ago the City of Detroit said it is filing for bankruptcy. Yep. It’s the largest city bankruptcy ever. Pensioners could be hurt along with anyone who has bought Detroit city bonds. So much for the safety of municipal bonds! According to CNN they were trying for the last five weeks to work with creditors to avoid this, but to no avail.

Car sales have come back but I guess that was not enough for the Motor City, especially since the car companies really operate outside the city. While creditors are certainly going to be upset, the plan to cut pension benefits to retired city workers is pretty stinky.  The further concern is that this could hurt all municipal bonds out there and also proposed. If Detroit can go, who’s next?

Apparently the unemployment rate in the city is still at around 16%, way down from 28% in 2009, but still way higher than the rest of Michigan. So while the economy is slowly chugging ahead, there clearly remain these pockets of continued challenge and turmoil.