The Detroit bankruptcy is likely to mean a big hit for people’s pensions. Think about that: people have worked all their lives and now you tell them the terms just changed, and at precisely the part of their lives when they will find it hard to replace the lost income.
There are two issues involved in the bankruptcy. One is the outrageous fact that wages and pensions are not treated as secured so they take second place to banks and others whose only skin in the game is money, not the sweat of their brows over lifetimes of work. That’s the legal rule but I’ve never liked it. It creates maximum hardship. Cities and companies go bankrupt for the very reason that they can dishonor their pension obligations. Federal laws require companies to do some things to protect us. But if they don’t do well enough, well, there’s always bankruptcy. That, in my view, is a travesty. Read the rest of this entry »