"You Can't Eat Principles" - Detroit's Grand Bargain Moves Another Step Forward

A little like the ship that Fitzcarraldo (and Werner Herzog) pushed, hoisted, and willed up up up and over a mountain, Detroit's Grand Bargain continues to defy expectations and make forward progress. A significant step today: A big press conference as Governor Snyder signed the necessary bills. Watch here.

The Detroit Retired City Employees Association produced the button in the picture (photo courtesy of Matt Helms of the Detroit Free Press). Shirley Lightsey, President of the association, produced the slogans: You Can't Eat Principles, and Uncertainty Doesn't Pay the Bills. Of the speakers at the press conference today who advocated for the Grand Bargain, Ms Lightsey was the most persuasive.

And practical too. Some retirees are skeptical, but it is hard to imagine retirees will do financially better by voting no or abstaining and hoping for an appellate court victory on the Michigan Constitution questions.

Voting is not, though, the last hurdle for the Grand Bargain - a point lost in the shuffle of the bill-signing press conference.

Regular readers of Detroit's major newspapers know the facts: Detroit's plan cannot go into effect until the bankruptcy court finds that it satisfies all federal law requirements. Some requirements have been featured in prior posts (e.g., here & here & here). Federal court approval is the ticket to get extraordinary relief: binding holdouts to a different deal. The State of Michigan and other Grand Bargain participants and advocates need the bankruptcy court to hoist the ship over the mountain, as  much as they need the vote of retirees.

And so, solid as Detroit's plan of adjustment may or may not be, Judge Rhodes will face enormous pressure, implicitly and perhaps explicitly, to okay the plan  -  reminiscent, perhaps, of the pressure to approve lightening quick sales in GM, Chrysler, and Lehman Brothers.  Indeed, the mediator whom Judge Rhodes appointed - Chief District Judge Gerald Rosen - attended and spoke at the Governor's press conference, leaving no doubt that he wants the Grand Bargain to be implemented, even as other aspects of the plan remain highly contested by several types of creditors.

Backbones are not lacking here. Earlier this year, Judge Rhodes rejected the interest rate swap settlement that the mediators endorsed. (A revised deal was ultimately approved). Judge Rhodes also has emphasized his independent duty to assess the plan's feasibility even if creditors do not object - a position consistent with language in several U.S. Supreme court decisions. 

None of this means the bankruptcy court should or will reject the plan, or condition approval on amendments. Evidence must be presented, legal issues argued persuasively and resolved. Maybe more settlements will roll in, easing the path to confirmation. But the ship has to hang out on the mountain for a while longer.