OBAMANOMICS: Unions Trump Bondholders, Again

Guest post by Tyler Durden

First, the Obama administration showed during the course of the GM and Chrysler bankruptcy proceedings, that when it comes to Most Preferred Voter classes, some unsecured creditors – namely labor unions, and the millions of votes they bring – are more equal than other unsecured creditors – namely bondholders, and the zero votes they bring. Five years later we are about to get a stark reminder that under the superpriority rule of a community organizer for whom “fairness” trumps contract law any day, it is now Detroit’s turn to make a mockery of the recovery waterfall. As it turns out, bankrupt Detroit is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $ 18 billion in long-term obligations, according to a draft of a debt-cutting plan reviewed by The Wall Street Journal.

The breakdown to unsecured stakeholders would be as follows: 40% recovery for pension funds, 20% for unsecured bondholders – all this to the same pari class of unsecured creditors. Because just like in Europe when cashing out on CDS in insolvent nations is prohibited as it would suggest that the entire Eurozone experiment is one epic farce, regardless of how much “political capital” Goldman Sachs has invested in it, so in the US municipal creditors are realizing that in the worst case scenario, they will be layered first and foremost by all those whose votes are critical in keeping this crony administration in power.

According to the WSJ the plan calls for recovery to be divided among the unsecureds amounting to $ 4.2 billion, more than the originally planned $ 2 billion to settle claims which included about $ 11 billion in unsecured debt, including $ 6 billion in health and other benefits for retirees; $ 3.5 billion for retiree pensions; and about $ 530 million in general-obligation bonds.

There is a possibility that final “math” in the Plan of Reorg is changed before the final draft.

It was unclear from the plan reviewed by the Journal whether the city is using all of the same estimates for the money owed to unsecured creditors in its draft plan. A person familiar with the draft plan said the recovery rate for the pension funds could end lower than the balance sheet shows.

Details of the plan sent to creditors on Wednesday have been kept under wraps as the city and its debtholders continue to talk in closed-door mediation. The city sent its working draft to creditors in the hopes that the plan with a richer payout might spur some of them to settle with the city individually or, in the least, offer their own suggestions toward modifying the overall proposal, according to another person familiar with the matter.

The formal plan is expected to be filed in federal court in Detroit within two weeks, officials said. Creditors will vote on the plan, but the final decision rests with the court.

Still, the probability is that Kevyn Orr has finally gotten cold feet on playing hard ball with the unions. “The proposed plan provides the road map for all parties to resolve all outstanding issues and facilitate the city’s efforts to achieve long-term financial health,” Detroit Emergency Manager Kevyn Orr said in a statement Wednesday. Mr. Orr’s spokesman declined Thursday to comment on the plan’s details. Several creditors, who were opposed to the city’s early plans to offer creditors, including bondholders and pension funds, less than 20 cents on the dollars owed to them, also declined to comment.”

One can only imagine the amount of “Steve Rattnering” that must have gone on behind the scenes, and how much more is still set to happen, for such a skewed plan to pass the bankruptcy judge over creditor objections. Which it will once the president makes a phone call.

Then again, with contract law abrogated as was made very clear with this administration’s first steps into the “Fairness Doctrine” back in 2009 and the bankruptcy of GM and Chrysler, nothing can, or should, surprise one any more.

Read more at Zero Hedge

Doug Ross @ Journal

Chicago Teachers Union President Karen Lewis: “Rich White People” to Blame for My Union’s Catastrophic Failures

Guest post by Investors Business Daily

Education: The president of the Chicago Teachers Union charges that racism and “rich white people” are to blame for the immense financial and educational crisis facing the Chicago Public Schools.

The Chicago Public Schools (CPS) represent everything that is wrong with public education in America. They are in thrall to the unions that run the system and bankrupt it through bloated salaries and pensions while too many of the students trapped inside graduate as functional illiterates, if they graduate at all.

Poor academic performance generally, a huge budget shortfall and poorly attended schools in declining neighborhoods recently forced CPS to close 49 schools in an attempt to close a $ 1 billion budget gap. But according to CTU President Karen Lewis, the root cause is not the lack of educational competition or the inability to fire or reward teachers on the basis of student academic performance.

In a speech Wednesday before the upscale City Club of Chicago, Lewis asked, “When will we address the fact that rich, white people think they know what’s in the best interest of children of African-Americans and Latinos — no matter what the parent’s income or education level.”

She decried members of the “status quo, the people who are running the schools and advising the mayor on how to best run our district, know what good education looks like because they have secured it for their own children in well-resourced, public and private institutions.”

As we have noted, the unions run Chicago schools and seek to preserve the status quo of a virtual education monopoly. Lewis has fought the use of any objective analysis of teacher performance despite the fact that just 15% are proficient in reading and that four of 10 CPS students do not graduate from high school.

Lewis is also no fan of charter schools, despite the fact Chicago’s charters regularly outperform their public school cousins. In 2012, nine of the top 10 performers were charter schools based on the ACT scores of their students.

Of course when you mention things like charter schools, liberals like Lewis say they get to cherry-pick their students. Yet some 60% of Chicago charter-school students are minorities and 35% are Hispanic.

Ninety-one percent qualify for free or reduced-price lunch. Doesn’t sound like cherry-picking to us.

School choice and vouchers would seem to be the answer to Lewis’ lament that “rich white people” call the shots while sending their kids out of the system to well-endowed, private schools, like President Obama did.

Obama, who is rich but only half-white, closed the Washington Scholarship Fund that for 17 years had allowed students trapped in D.C. public schools, even worse than Chicago’s, to attend the same private schools as the Washington elites.
Lewis opposes the idea of giving all students vouchers and letting them attend the schools of their choice. In every other area of human endeavor, competition reduces costs and breeds excellence. Parents and students, like other consumers, should be free to reject poor service and take their business elsewhere.

Lewis prefers the statist solution of “investing” through higher taxes on the rich and new taxes on consumers plus financial transfers that would be redistributed to the public schools and the teacher’s unions from those who can afford to leave the city with their kids.

This is not surprising since she is a socialist who has marched with Occupy Wall Street and thinks and “the whole concept of the 99 percent” (vs. the richest one percent) is “an important movement.”

She has earned praise as a “fist-in-the air, crowd-rousing, dynamic union leader” from former Communist Party revolutionary-turned-school-reformer Michael Kronsky Lewis should embrace school choice. If it saves only one child, wouldn’t it be worth it?

Via: Investors Business Daily.

Doug Ross @ Journal

A Brief, Illustrated History of the Public Sector Unions That, Together With The Democrat Party, Are Waging War on the Taxpayer

Throughout American history — and as recently as the 1950s — there were no unions for government workers. Public-sector employees were expected to earn a bit less than their private-sector equivalents. The reasons they did so included an interest in public service, job security and reasonable benefits.

But that changed in the late fifties with New York City Mayor Robert Wagner’s cynical appeal to the votes of city workers. He signed an executive order authorizing them to unionize, and soon other local and state Democrat legislators around the country followed his lead.

These efforts culminated in 1962, when President John F. Kennedy granted federal employees the right to collectively bargain. Since then, public sector union membership has skyrocketed while, in the private sector, unions have fallen out of favor.

In 2009, private sector union members were outnumbered for the first time by their public sector counterparts.

The historical basis of unions revolved around workers receiving a reasonable share of a company’s profits. But that tenet is nonsensical when applied to public service. Governments don’t make profits; they simply assess taxes.

The aims of public sector unions conflict directly with the interests of taxpayers.

And because it has been exceedingly hard to fight public sector unions, the salaries and benefits of public employees have skyrocketed in recent years. Since the election of Barack Obama, the number of federal employees making over $ 150,000 a year has more than doubled to over 10,000.

In 2009 government salaries jumped 2.4%, approximately twice the increase earned by private sector employees. In fact, the average salary of a federal worker is now $ 71,000, about $ 22,000 more than the average private sector employee.

Worst of all, public sector unions have negotiated pension plans that are proving financially untenable. Many allow workers to retire at age 55 at around their full salary in their final years of employment. These pensions often include inflation adjustments as well as lifetime free health care.

These plans are so outrageous that state retirement systems, for example, are currently underfunded by about a trillion dollars.

So how have public sector unions achieved these amazing results? The answer is the hundreds of millions of dollars that unions have donated to federal campaigns since 1990. Almost every single dollar went to Democrats or Democrat causes. In the 2008 election alone, some estimates put public sector union contributions to Democrats at $ 60 million.

These unions are also astroturfing for Democrats, providing slush funds to help liberal causes. An example is ThePartyIsOver.org, a faux populist website designed to discredit TEA Party activists.

The Democrats’ health care bill, the ‘Employee Free Choice Act’ and the $ 800+ billion stimulus bill all contained payoffs to public sector unions. In fact, while the private sector has shed 8,000,000 jobs since the recession began, the number of public sector jobs has risen nearly every month — led by President Obama’s various spending programs at the federal level.

Public sector unions are killing our economic system and the American taxpayer. The debt unleashed by their outrageous benefits plans simply cannot be paid. The union bosses have lied to their members about lifetime benefits and they have betrayed the American people. Public sector unions must be disbanded and outlawed before more of our country begins to resemble Greece, Spain and other European countries.

Those countries are teetering on the brink of economic calamity, thanks to unions just like ours. And please observe that the union bosses and the Democrat Party could give a rat’s behind about American taxpayers — 20 percent of whom are currently unemployed or underemployed. They still want theirs.

Based upon: Amy H. Laff, StateBrief. Linked by: Mark Levin, The Washington Examiner, Ace o’ Spades and TigerHawk. Thanks!


Doug Ross @ Journal