Idiocy vs. Common Sense in Detroit; Judge Rules Bankruptcy Invalid; What's Next?

On Friday, a Michigan Circuit Judge Rosemarie Aquilina ruled Detroit bankruptcy is unconstitutional.

On Friday, a circuit court judge in Ingham County ruled that Detroit's federal bankruptcy filing violated a part of Michigan's constitution that protects union pensions. She ordered it withdrawn, a day after Detroit became the largest U.S. city in history to file for chapter nine bankruptcy.

Judge Rosemary Aquilina also said the filing did not honor President Barack Obama's work for the city, who she said "took [Detroit's auto companies] out of bankruptcy." Aquilina said she would send a copy of her order to Obama.

“It’s cheating, sir, and it’s cheating good people who work,” the judge told assistant Attorney General Brian Devlin. “It’s also not honoring the (United States) president, who took (Detroit’s auto companies) out of bankruptcy.”

The Detroit News reported "attorneys representing the pension boards hurried into Aquilina’s court to ask for a restraining order" on July 18, but Michigan Gov. Rick Snyder (R) and Detroit's emergency manager Kevin Orr "beat them by a few minutes" in filing for bankruptcy. The filing did not deter lawyers for union pension boards, who can use "court maneuvers to slow down federal bankruptcy proceedings."

Idiocy

The whole point of bankruptcy court is to resolve debt issues that cannot be paid. It is impossible for Detroit to meet its pension obligations and the only way to resolve the issue is in bankruptcy court.

Common Sense

In a common sense position, Michigan Governor Says Detroit’s Bondholders Part of Bankruptcy

Governor Rick Snyder of Michigan said today that the bondholders of the city of Detroit should expect to be “part of the process” of the largest municipal bankruptcy in U.S. history

“Realistically, if you step back, if you were lending to the city of Detroit in the last few years, didn’t you understand there were major issues and problems?” Snyder, a Republican, said on the CBS’s “Face the Nation” today. “Look at the yields they’re obtaining compared to other bonds. They were getting a premium.”

The plight of city pensioners is “one of the other tragic situations” in the Detroit bankruptcy, Snyder said on CBS. He said that during discussions with creditors, “no one” wanted to represent retirees, so he has asked the federal judge in the case to assemble a group of retirees to speak for them.

Pension Funding

“Short-term through the end of the year, there won’t be any change,” Snyder said. “Beyond that, the real question also is, to the degree those pension plans are funded, that they’re our assets, that they are not part of this process.”

“It’s the unfunded piece, and there’s a terrible history there of mismanagement and poor investment that should get aired out in public and should be part of this discussion,” Snyder said on CBS.

In contrast to the idiotic circuit court ruling, the statements by governor Snyder represent a fresh breath of common sense.

1. Bondholders knowing took risks so they must take a haircut.
2. The funded assets of the pension plan cannot be touched
3. Bankruptcy court will resolve the unfunded portion

What's not to like about that?

And in regards to point number three, I would hope the burden falls on the highest pension beneficiaries (most likely city officials, police, firefighters) but also taking into account length of service, rather than something like 50% haircuts across the board.

Drones are a Major U.S. Export and they Perpetuate War

Tired of perpetual war? So am I but US drone policy ensures perpetual war is her to stay. Blatant military waste is here to stay as well, and the all but useless F-35 project is a prime example.

Those are my opinions, but they also the opinions of guest writer Robert Taylor.

What follows is a well-stated guest-post courtesy of Robert Taylor and PolicyMic. I dispense with my normal indented block-quote style for this post.

Drones Are Becoming a Major U.S. Export, and They Kill Democracy in Every Nation They're Shipped To

President Obama's drone warfare policy is thankfully finally being discussed in the mainstream media. While the president's claimed authority to suspend the Fifth Amendment and order assassinations with no judicial oversight, even on American soil, is a disturbing outrage, the sale and spread of drone technology by the U.S. around the world also deserves attention.
According to the Los Angeles Times, the United Arab Emirates plans to purchase $179 million worth of drones from General Atomics. The purchase still needs approval from Congress and it is yet unclear whether they will buy surveillance drones or if it will also include the weaponized Reaper drones. What is clear, however, is that this development highlights the continuing growth of the influence of defense contractors, the spread of weapons that help governments tyrannize their citizens, and the dangers of America's permanent warfare state that has made the military-industrial-complex perhaps the most pervasive aspect of American society.

In President Dwight Eisenhower's famous farewell address, he warned the public about the threats that a large armaments industry posed to democratic process, constitutional liberties, and peace. Since then, the U.S. economy has been largely dominated by the perpetuation and exportation of weapons technology and a state of virtual perpetual war all over the globe.

Fifty years later, the U.S. is by far the world's largest weapons dealer in the world and spends more money on "defense" than nearly the rest of the world combined. All around the world, many of the most cruel and vicious states receive their means of maintaining their iron fists from the U.S. government.

American tanks and tear gas help quell protests in Bahrain, Tunisia, Saudi Arabia and all throughout the Middle East. U.S. fighter jets are a staple of many militaries in countries where a large majority of their populations live in unbelievable poverty. The cluster bombs used to flatten southern Lebanon and the white phosphorous mercilessly dropped on the Gaza Strip by Israel might as well be draped in the stars and stripes. Even the much-maligned Iranian government received nuclear technology from the CIA.

It is only natural and predictable that the U.S. government's latest militarized technology is beginning to be exported.

The problem stems from America's foolish embrace of a foreign policy based on empire and global dominance, perpetual war, and the corporatist economics of "defense contractors."

The Pentagon's new F-35 program is the perfect example. While DC politicians play politics over a "sequester," the F-35 project will cost $1.5 trillion yet has performed so poorly in recent tests that the Pentagon has simply lowered the standards. It is big, bulky, and would be great against the Imperial Japanese Air Force, but it is completely useless in a world where enemies are increasingly stateless, decentralized and fighting fourth-generation warfare. Over-promising and under-delivering are staples of Pentagon contractors.

The reason that these programs are so popular in Washington is simple corporatism and politics. As even Lockheed-Martin notes, the F-35 would provide over 100,000 jobs in 47 states, spread out to hit nearly every congressional district. The incentive for perpetuating these monstrosities is enormous.

Unfortunately, the F-35 program is the rule not the exception. The bipartisan ideology of an interventionist foreign policy dominates DC, and weapons contractors spend millions lobbying for more weapons sales and wars that bring billions in returns; a self-licking ice cream cone of rent-seeking corporations and political power.

The military-industrial-complex is the perfect example of Frederic Bastiat's "broken window fallacy" and the problems with government intervention into the economy. What is seen are the engineering wonders of massive military hardware and millions of jobs hitched to the Pentagon and its contractors. What is unseen, however, is the wealth that could've been created serving people's actual wants and needs in the free marketplace that was instead forcibly extracted from the people by the state and handed out to politically-favored corporations.

For example, 85%-90% of large military contractors' profits come from government contracts. Each U.S. household pays over $1,000 per year in taxes to pay for the military-industrial-complex. The "shock and awe" 2003 carpet bombing of Baghdad might as well have been a Lockheed promotional video.

While the defenders of this military Keynesianism claim that this policy helps create inventions and technologies, there is actually very little useful spillover into the private sector. If people really wanted this national security state and weaponry, they wouldn't need to be forced to pay for it.
Unfortunately, from my libertarian perspective, it is very easy to highlight the horrors that unchecked state power unleashes but, very difficult to come up with answers and solutions. We can't un-invent drone technology, nuclear weapons and stealth fighters. But taking Lockheed-Martin, Northrop Grumman and General Atomics off of welfare would be a good start.

What we can do is make it loud and clear as frequently as possible that we are sick and tired of a policy of empire, perpetual war, and corporatism that allows this system to exist. Our liberties, prosperity and peace depend upon it.

End Taylor

I don't know about you, but I sick and tired of a policy of empire, perpetual war, and corporatism.

I also agree with Taylor that "taking Lockheed-Martin, Northrop Grumman and General Atomics off of welfare would be a good start".

If you are a supporter of drones, the F-35 program, or US defense policies in general, hopefully the guest post by Taylor changes your mind.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Japan Tells Firms "Stop Sitting on Cash", Ignore the Lack of Customers

If you are looking for idiotic policies in action, the theories of Japanese Prime Minister Shinzo Abe should be right in your spotlight.

Abe now tells Japanese firms "Stop Sitting on Cash"

Okuma, a Japanese machine-tool maker, has seen its stock price rise around 30% this year. Its customers have outdated machinery that needs replacing. But, for now, the company isn't investing. Instead, it is sitting on a pile of cash worth about $280 million—50% higher than its pile a decade ago, equivalent to one-fifth its annual sales, and more than twice the level required for the firm to be deemed loan-worthy by a bank.

Why? Senior director Chikashi Horie says the answer is simple. Okuma's clients "are not investing, not even to raise efficiency, so we are not investing either," he says.

Okuma's thinking embodies one of the key challenges for Prime Minister Shinzo Abe's ambitious growth plan: persuading Japan's famously stingy companies to stop stashing their earnings in the bank, and putting the money to more productive use, helping complete—rather than short-circuit—the virtuous economic cycle.

Blatantly Obvious Idiocy

What is with these central planning fools anyway?

Not only do they think they know better than the free markets, they want companies to produce what their customers clearly do not want.

The irony in this situation is that Abe is hell bent on producing inflation in Japan.

Here's a simple question: What happens to prices when more products are produced in the face of falling or static demand?

Abe is a fool in the first place for his inflation targets, but he is even more of a fool to think producing merchandise no one wants is the way to achieve that goal.

 Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com