VOICE OF DETROIT: The city's independent newspaper, unbossed and unbought

Esther Harding, 91, has lived in this spacious apartment at the Griswold for 30 years, the longest of any tenant. She thought she would be one of the ten tenants allowed to remain due to her seniority, but now must pack and move with the rest. All of the apartments VOD saw in a visit Jan. 25 had huge rooms, modern kitchens and bathrooms, and spectacular views of downtown Detroit.

MSHDA says all tenants must go, will not pay enhanced vouchers for ten to remain 

Senior, disabled tenants still waiting for regular HUD vouchers; alternate placements in jeopardy 

Building conditions deteriorate as contractors rip out interior 

By Diane Bukowski 

January 27, 2013 

DETROIT – A “deal with the devil” involving a hefty 10-year tax abatement for downtown Capitol Park developers who are evicting senior and disabled tenants from the formerly federally-subsidized Griswold Apartments has evidently gone back to hell with its sponsor.

Griswold Apartments at left on Capitol Park in downtown Detroit.

The City Council unanimously approved the “Commercial Rehabilitation Act” tax abatement  Nov. 19, with the understanding that ten of 127 tenants would be allowed to stay for at least a year, using “enhanced” HUD vouchers to pay rents starting at $1130. The others were to be given regular Section 8 vouchers to go elsewhere, and receive a  total of $157,000 for moving expenses from the developers.

But the Michigan State Housing Development Authority (MSHDA) told tenants in meetings last week it will not approve the enhanced vouchers and all must go. The remaining tenants have not yet received their regular vouchers, due in December, jeopardizing their placements.

The developers, 1214 Griswold Apartments LLC, have told residents they still must leave by March 31. They are likely linked to mogul Dan Gilbert, who wants to turn the Capitol Park area into an upscale district for the affluent.

Griswold resident Willie Griffin shows the view out of his living room window.

“The senior citizens that helped build this country should be entitled to stay down here among the wealthy,” said Willie Griffin, a tenant who has been assisting his co-residents in the move. “This is nothing but financial discrimination. The tenants don’t want to move, they resent it with a passion. If all Blacks and poor whites would get together, like in the Million Man Marches I attended, we can shut them down.”

Griffin, a retired plumber/pipefitter and father of three adult children in professional occupations, belongs to two downtown churches, Second Baptist and St. Aloysius. He said he has spent his time for the last ten years feeding the homeless in the area through the churches’ programs.

“I guess I’ll have to move somewhere in Highland Park so I can at least take the bus downtown to continue,” Griffin told VOD. Most of the alternate placements are far from downtown. That venue which is now swarming with white working professionals not from Detroit, many of them with rents subsidized by their employers, and with whites using Campus Martius Park, new clubs, and the sports stadiums as their playgrounds.

Ted Phillips of UCHC (r) testifies at Council hearing Nov. 19, 2013 as developers across the table smile approvingly.

United Community Housing Coalition director Ted Phillips said the delay in receipt of regular Section 8 vouchers has jeopardized placements at the Gardenview Estates (on the site of the former Herman Gardens public housing complex at Joy Road and Southfield), since HUD told the Estates it wanted all subsidized tenants in by the end of December. Griffin said about 45 tenants planned to move there. They are supposed to tour the complex this week.

Phillips earlier advocated for the tax abatement deal, reassuring the Council about the “enhanced” vouchers during two meetings. Under an agreement with the developers and the Neighborhood Service Organization (NSO), UCHC is charged with finding alternate placements for the tenants. HUD is financing their participation through a $415 million “Tenant Resource Network” grant involving a total of 18 properties in the region.

Isabella Butler has lived at the Griswold Apartments for 24 years.

“A lot of us don’t know anything but downtown,” Isabella Butler, a 24-year tenant of the building, told VOD. “I went to school here, I worked here. They told a lie to some that wanted to stay, that we didn’t have no hope. I’m a cancer patient and have had triple bypass surgery. I’ve had to stop going to my doctors to find a place that will accommodate my hopes and dreams.  This is not a color issue—we’re poor. There are quite a few whites, Arabs, and other people in here. They’ve already started working in the building, the developers don’t care. They are knocking the walls down. I have asthma and can’t sleep because of the noise. They reneged on the deal, but we pay our rents every month.”

Griffin demonstrated the deteriorating conditions in the building. Contractors are already ripping out asbestos-laden areas, leaving plumes of contaminated air to circulate into the hallways, he said. They have also taken over tenant elevators between 8 a.m. and 8 p.m., leaving them laden with debris and residue, although one elevator is supposed to be reserved for tenant use.

Area being torn out by developers shows suspicious evidence of asbestos and other harmful chemicals.

Esther Harding, 91, with six children and 28 grandchildren, has lived in the building for 30 years. She occupies one of its gorgeous 890-sq. ft. one-bedroom apartments, with huge, bright high-ceilinged rooms, modern kitchens and bathrooms, and gorgeous views of the downtown skyline through large windows.

“I thought since I had been here the longest, I would be one of the ten staying,” she told VOD. “Now I have to start looking for another place and putting in applications. I need help packing, but they don’t seem willing to do anything really.”

Sign on building owned by Dan Gilbert, across the park from the Griswold Apartments, arrogantly declares “Rebirth of Detroit.”

The Council’s Legislative Policy Division (LPD) and UCHC said they are considering their options.

In a statement dated Jan. 24, the LPD said, “The Legislative Policy Division is investigating this issue with the developer and MSHDA to determine the specific details. We should have an update for the Council in two weeks.”

Phillips told VOD, “MSHDA announced last week that the rents were not comparable, therefore they would not provide vouchers for [the ten tenants] to remain there. We’re not sure what rents they are comparing them with. MSHDA had a meeting with the residents at 3 p.m. last Wednesday to get people to fill out their [Section 8 voucher] applications and begin the process. The residents also got a list of properties.”

Renovated building on Capitol Park displays signs from Dan Gilbert’s real estate company, Bedrock.

He said a private individual had been recruiting tenants for the Gardenview Estates, but that all “tax-credit” tenants were supposed to have been moved in by Dec. 31. He said the Griswold tenants would have lost their Section 8 vouchers if they had moved there in December, and that the situation was unfair to the tenants.

Phillips was asked if UCHC ever considered mounting a fight for all the tenants to remain in the face of the gentrification that is taking place in downtown Detroit and elsewhere in the city.

“We consulted with the National Low-Income Housing Project and the Michigan Poverty Law Center,” Phillips said. “We’re trying to do what is in the best interests of the residents as they identified them. More than 10 wanted to stay. We recognize that it is a horrible, horrible effort to re-gentrify downtown, a very ugly situation.”

Gilbert’s vision of Capitol Park, replete with well-to-do young whites.

Earlier VOD stories:

http://voiceofdetroit.net/2013/11/18/developers-hud-non-profits-collude-to-move-detroit-seniors-disabled-out-of-downtown-griswold-apts/ 

http://voiceofdetroit.net/2013/12/15/city-council-state-feds-non-profits-in-bed-with-developers-destroying-black-detroit/

Jay Schlenkerman, now convicted of ten felonies, testifies against Charles Jones in 2012 preliminary exam, as Judge E. Lynise Bryant-Weekes listens. Photo: Diane Bukowski

Schlenkerman remanded to jail pending sentencing

Opening statements in Jones/Owens trial Tues. Jan. 28, 2014; prosecution still plans to use Schlenkerman as witness

Re-trial of cop Joseph Weekley, who shot Aiyana to death, canceled

By Diane Bukowski 

January 27, 2013 

Charles Jones with only daughter Aiyana, 7 when she was killed by Detroit police in 2010.

DETROIT – As the trial of Charles Jones and Chauncey Owens in the 2010 killing of Je’Rean Blake proceeds this week, VOD has learned that a jury found a chief informant against them, Jay Schlenkerman, guilty of three more felony counts on Jan. 17, adding to a long list of previous convictions. Wayne County Circuit Court Judge Michael Callahan revoked Schlenkerman’s bond and remanded him to the Wayne County Jail pending sentencing Feb. 6.

Schlenkerman was charged with “Operating while intoxicated,” “Police Officer—fleeing—Third Degree;” and “Operating-License Suspended, Revoked, Denied” related to an incident April 16 that involved a vehicular collision, according to the statute cited and court records. He initially pled guilty, but then withdrew the plea and was released on tether in September pending his trial.

“My son’s attorney Leon Weiss told us that the prosecution still plans to bring Schlenkerman to testify against Charles,” Aiyana’s grandmother Mertilla Jones said. She told VOD earlier, “How does he keep getting away with beating on women and fleeing from the police, when if he was Black, they would have whipped his a- – and locked him up?”

Detroit cop Joseph Weekley, on A & E website for “Detroit SWAT.”

Charles Jones is the father of Aiyana Jones, who was seven when an army of Detroit “Special Response Team” police spilled out of an assault vehicle and stormed her home on May 16, 2010. Officer Joseph Weekley shot the child in the head with a submachine gun, killing her as she lay sleeping on a couch in the front room with her grandmother.

Weekley was tried last year in June on charges of involuntary manslaughter and reckless use of a firearm, but the jury deadlocked. A jury trial was set for Dec. 4, 2013, but it was canceled and another in a series of pre-trial hearings is set for Feb. 7, 2014. Weekley has been free on bond since he was first charged, while Jones and Owens have been locked up without bond since their arrests in 2010 and 2011.

The judge in his case, Cynthia Gray Hathaway, said repeatedly during hearings that she, the prosecution, and the defense all agreed that the Owens/Jones trial should take place first.

Weiss called Schlenkerman a “jail-house snitch” during Jones’ preliminary exam in the Blake killing, which took place in a crowd of at least 40 people outside an east-side liquor store two days before police stormed the Jones home, a lower flat in a poor east-side Detroit neighborhood, looking for Owens, who lived in the upstairs flat.

Schlenkerman and Owens were incarcerated at the Wayne County Jail Dickerson facility in 2011, Schlenkerman for a brutal three-day-long “domestic violence” assault which resulted in permanent, severe physical and mental injuries to the victim.

It was one of numerous assaults involving other women as well, but all were reduced to misdemeanors. The victim in the 2011 assault has said she believes that the reduction of charges in her case, which originally included kidnapping, was related to Schlenkerman’s agreement to testify against Jones. She said she is hoping for a lengthy prison sentence for Schlenkerman, so that she can finally feel safe in public again.

At Jones’ preliminary exam, Schlenkerman falsely testified that he had been convicted of only one felony despite his actual record of six felonies involving drunk driving and fleeing and eluding charges, and a two-year stint in the Michigan Department of Corrections.  He then claimed that Owens told him in great detail that Jones had given him the gun to kill Blake.

Owens and Jones are being tried this week on first-degree murder charges in the Blake case, by separate juries, in front of Wayne County Circuit Court Judge Richard Skutt.

The trial began Jan. 21, with jury selection that day and the next. Opening statements, set for Jan. 27, were delayed for one day due to the illness of Wayne County Prosecutor Robert Moran. VOD will be reporting on their trial in upcoming stories. Owens has refused to testify, as Schlenkerman claimed, that Jones gave him the gun used to kill Blake. Owens’ attorney David Cripps said in published remarks that his client is not the man who killed Blake.

Charles Jones’ family during Oct. 21, 2013 protest against police state in Detroit.

By Roger Burbach

January 14, 2014

The elections in Venezuela and Chile in December provided new momentum for the left-leaning governments in Latin America and the ascent of post-neoliberal policies. Over the past decade and a half, the rise of the left has been inextricably tied to the electoral process.

In Venezuela, Bolivia, and Ecuador, under the governments of Hugo Chavez, Evo Morales, and Rafael Correa, the electorate has gone to the polls on an average of once a year, voting on referendums, constituent assemblies as well as elections for national offices.In late November, it appeared the right might be taking the initiative, as the oligarchy and the conservative political parties in Honduras backed by the United States used repression and the manipulation of balloting to keep control of the presidency.

Nicolas Maduro, President of Venezuela in the tradition of his deceased predecessor Hugo Chavez.

And in Venezuela, it was feared the right would come out on top in the December 8 municipal elections. After Maduro’s narrow victory margin of 1.5% in the presidential elections in April, the opposition went on the offensive, declaring fraud and waging economic war. If the opposition coalition had won in the municipal elections, or even come close in the popular vote, it was poised to mount militant demonstrations to destabilize and topple the Maduro government. But the decisive victory of the United Socialist Party of Venezuela (PSUV) in the municipal elections gave a boost to the presidency of Nicolas Maduro, enabling him to advance the twenty-first century socialism of his predecessor, Hugo Chavez. The PSUV and allied parties won control of 72% of the municipalities and bested the opposition in the popular vote by 54% to 44%.

A class war is going on that is focused on the economy, particularly over who will control the revenue coming from its large petroleum resources that account for over 95% of the country’s exports. With no new electoral challenge until the parliamentary elections in late 2015, Maduro now has the political space to take the initiative in dealing with the country’s economic problems and to pursue a socialist agenda. As Maduro said on the night of the elections, “we are going to deepen the economic offensive to help the working class and protect the middle class….We’re going in with guns blazing, keep an eye out.”

Michele Bachelet, President of Chile

At the other end of the continent, Michele Bachelet one week later won a resounding victory in the Chilean presidential race with 62% of the vote. She has put forth an ambitious package of proposals that would increase corporate taxes from 20% to 25%, dramatically expand access to higher education, improve public health care and overhaul the 1980 Constitution imposed by the dictatorship of Augusto Pinochet. Chile has the highest level of income inequality among the Organization for Economic Cooperation and Development’s 34 member countries.

Within her first hundred days, Bachelet has promised to draft legislation to increase tax revenues by about 3 percent of gross domestic product. On election night Bachelet proclaimed: “Chile has looked at itself, has looked at its path, its recent history, its wounds, its feats, its unfinished business and thus Chile has decided it is the time to start deep transformations,” Bachelet proclaimed on election night.” There is no question about it: profits can’t be the motor behind education because education isn’t merchandise and because dreams aren’t a consumer good.”

If these policies are implemented, they would shake the neoliberal paradigm that has been followed by every government since the Pinochet dictatorship, including Bachelet’s during her first presidential term from 2006 to 2010. Like most presidential candidates before they take office, the actual changes may fall far short of what she is promising. But the student uprising and the resurgence of the social movements over the past four years has led to a popular movement in the streets that is unprecedented since the days of Pinochet. Militants on the left have already made it clear they will challenge her from the first day she takes office. According to Reuters, right after the election, hackers posted a message on the education ministry’s website saying: “Ms. President we will take it upon ourselves to make things difficult for you. Next year will be a time of protests.”

The elections in Venezuela and Chile also set the stage for a challenge to the latest U.S.-backed trade initiative, the Trans-Pacific Partnership, which includes a dozen Pacific rim nations. Ever since Chavez became president, Venezuela has led the way in opposing U.S. efforts to dominate hemispheric trade starting with the Free Trade Area of the Americas that George W. Bush launched in April, 2001. The FTAA was dealt a fatal blow at the 4th Summit of the Americas in Argentina in 2005 under the leadership of Chavez, Luiz Inacio Lula da Silva of Brazil, and Nestor Kirchner of Argentina, who advocated Latin American integration without the United States.

With the victory in the municipal elections behind him, Maduro was in a position to play a central roll ten days later in the second summit of ALBA, the Bolivarian Alliance for Our America (ALBA) and PetroCaribe, a bloc of 18 nations receiving oil at concessionary prices. (Five of the members are overlapping.) ALBA, founded in 2004 by Venezuela and Cuba, is based on the principal of “Fair Trade, not Free Trade.”

Now including Bolivia, Ecuador, and Nicaragua as well as five more Caribbean nations, they met with the nations of PetroCaribe, a concessionary oil trading arrangement, to put forth a program to create a “special complementary economic zone” between the member countries of both groups to eradicate poverty in the region. Maduro proclaimed the economic zone “is a special plan…in order to continue advancing the food security and sovereignty of our peoples, and to share investments, experiences, and actions that promote [agricultural] development.” The action plan to implement the proposal includes cooperation with the UN Food and Agriculture Organization. An executive committee to coordinate the regional plan is being set up in Ecuador.

ALBA conference.

Maduro will take the document for the creation of a complementary economic zone to the January 31 meeting of Mercosur in Caracas “to advance in the great zone Mercosur-PetroCaribe-ALBA.” In all these economic and trade endeavors Venezuela plays a strategic geo-economic role. It is Latin America’s largest oil producer, and it is located on the southern flank of the Caribbean Basin and on the northern end of South American continent. Venezuela is already a member of MercoSur along with Brazil, Argentina, Uruguay, and Paraguay, while Chile, Bolivia, Colombia, Guyana, Ecuador, Peru, and Suriname are associate members. As Bolivian president Evo Morales said at the conclusion of the ALBA-PetroCaribe summit, “We should never stop strengthening our integration, the integration of anti-imperialist countries.”

A key question is around the role that Chile, led by Bachelet, will play in the growing movement for Latin American integration. Under Bachelet’s billionaire predecessor, Sebastian Pinera, Chile has been involved in setting up the U.S.-led Trans-Pacific Partnership (TPP), and is a founding member of the Pacific Alliance, a trade and investment group that includes Columbia, Peru, and Mexico. The United States has observer status.

Evo Morales, President of Bolivia

Bachelet has given signs that a pursuit of these trade groupings alone is not in Chile’s interest, and that she intends to breach the Pacific versus the Atlantic/Caribbean divide. Her campaign manifesto stated: “Chile has lost presence in the region, its relations with its neighbors are problematic, a commercial vision has been imposed on our Latin American links.” She is particularly interested in closer relations with Brazil, where she identities with Dilma Rousseff, who also fo­rged her political identity as a young clandestine activist jailed and tortured under a repressive dictatorship. It is notable that in 2008 during her last presidential term, Bachelet convened an emergency session of UNASUR (the Union of South American Nations), to support Evo Morales against a right wing “civic coup” attempt that received direct material support from the U.S. embassy.

It is of course impossible to predict where Bachelet will wind up in the growing continental divide. Her commitment to the Pacific Alliance and to TPP may undermine domestic and international challenges to neoliberalism. The militancy of internal mobilizations to pressure her at every turn is critical. In Venezuela, Maduro faces daunting economic problems as he tries to bring inflation and the black market under control, while dealing with serious corruption problems in and outside of the government. However, the December municipal elections have opened up a space for Maduro to deal with these issues in the coming year, while playing a leadership role in advancing Latin American integration in opposition to U.S. initiatives.

This article is posted on NACLA’s web site: https://nacla.org/news/2014/1/16/elections-venezuela-and-chile-advance-left-agenda-and-latin-american-economic-integra
Subscribe now to NACLA’s Report on the Americas.

Roger Burbach is the director of the Center for the Study of the Americas,http://globalalternatives.org, and co-author with Michael Fox and Federico Fuentes of Latin America’s Turbulent Transitions: The Future of Twenty-First Century Socialism. To order, see: www.futuresocialism.org

Questions legality of swaps, COPS deals; says city could be recover losses 

Allows $120 M of Barclay’s loan for “quality of life” purposes, encourages continued “negotiation” 

Objectors, retirees encouraged by delay in rush to cut pensions, assets 

Jones Day now attacking Puerto Rico

Detroit skyline in background under gloomy skies.

By Diane Bukowski

January 18, 2014

DETROIT – A ray of hope pierced the gloom gathering around the city of Detroit Jan. 16 when U.S. Bankruptcy Court Judge Steven W. Rhodes unexpectedly shot down a proposal to pay off UBS AG and Bank of America for interest swap deals tied to the notorious $1.5 billion Pension Obligation Certificates loan (known as COPS), foisted on the city in 2005 and 2oo6.

The proposal would have cut off avenues for litigation to recover the city’s losses due to what many objectors termed the banks’ predatory and fraudulent practices. The swap deals have already cost Detroit over $300 million, while the outstanding debt on the COPS has risen to $2.8 billion.

Atty. Jerome Goldberg addresses rally against swaps deal prior to City Council hearing Oct. 21, 2013. The City Council also rejected the Barclay’s loan. Judge Rhodes cited Goldberg’s argument along with that of AMBAC attorney Caroline English as partially instrumental in his decision.

Barclay’s bank was to have been the bagman in the deal, involving a $165 million loan backed by 20 percent of the city’s income taxes as well as its utility, and casino revenues. That amount is 67 percent of the original $247 million swaps termination fee.

“This Court stated earlier and states again that it will not participate in or permit the city to perpetuate the very kinds of hasty and imprudent financial decision making that led to the disastrous swaps and COPS transactions,” Rhodes said during a 45-minute oral ruling. “They have already caused great harm to city creditors and citizens. One goal [of this bankruptcy proceeding] is to end such practices so city can move forward.”

Rhodes’ brief written orders are at DB order denying assumption motion and DB Rhodes order denying motion to assume reject. The entire ruling can be heard by clicking on http://www.mieb.uscourts.gov/sites/default/files/detroit/docket2492.pdf.

Rhodes did allow the city to move forward with $120 million of the loan proposed for alleged “quality of life” issues allowed by the Gaming Control Act, but said he would monitor that spending with regard to the use of casino taxes. He said, however, that other revenue streams used, including city income taxes, would not be subject to monitoring.

He encouraged the parties to continue to “negotiate” on the matter, but said he would “closely scrutinize” any plan of adjustment produced to deal with the city’s debts. His ruling was widely taken to mean that further delays would be necessary in the rush to cut city pensions.

Rhodes addressed arguments by Detroit Emergency Financial Manager Kevyn Orr and the Jones Day law firm, made on behalf of the city under Public Act 436, known as “the Dictator Act,” that litigation would be too costly and lengthy and would have only a “50/50” chance of success.

“The Court has determined the city is reasonably likely to succeed on its challenges [to the swaps and POC] under the state Gaming Control Act and the Bankruptcy Code, and . . . . under Public Act 34,” Rhodes said. Although Jones Day is representing the city, Rhodes posited arguments that could be made by “the city” as if referring to an independent city government.

From the website Bankruptcy.com

Rhodes said he found it highly questionable whether the Gaming Act allowed the use of casino revenues to pay off Wall Street hedge bets such as the swap deals, as Detroit agreed to do after the global economy tanked in 2008 and it defaulted on the swaps and COPS. The gaming act says such revenues are to be used for items like public safety, street lighting, and other “quality of life” concerns.

PA 34 sets debt ceilings for municipalities. Rhodes said the swaps and COPS constituted an “end run” around Detroit’s debt ceiling through the use of separate “service corporations” set up to handle the loan. That contention was also made by Wallace Turbeville of Demos in a deposition submitted to Judge Rhodes, although Turbeville did not testify. (See Turbeville’s article on Orr’s ruling below this one.)

Judge Rhodes speaks at one-sided forum on Chapter 9 and EM’s Oct. 10, 2012. He refused to publish VOD editor Diane Bukowski’s request to recuse himself due to this forum, but did respond with a six-page brief.

“The issue of the delay, the cost of litigation, the validity of the trap of the city’s casino revenues can be promptly resolved by the court,” Rhodes said. “It is less clear how long appeals [might take.] . . . The legal expenses of filing a lawsuit challenging the . . .  . agreements, for filing a motion for a preliminary injunction, and for summary judgment would undoubtedly be substantial, but given the amount of money at stake, relatively insignificant.

Rhodes said he took into serious account arguments made by the objectors, citing specifically Caroline English of AMBAC and Jerome Goldberg, representing David Sole, a city retiree.

He referred to English’s citation of a Sixth Circuit Court of Appeals decision that the “bankruptcy court may not rubber stamp [a proposal], or rely on word that a settlement is reasonable. It has an affirmative obligation to apprise itself of the underlying facts and make an independent judgment as to whether the compromise is fair.”

Protest in Dublin Ireland against Anglo-Irish bank.

He said Goldberg raised “a potentially broader series of claims—whether [the deals] were induced by fraud, subject to equitable subordination, or unconscionable.” It was unclear if he thought the city could pursue litigation regarding these matters.

During closing arguments Jan. 16, Goldberg said, “Kevyn Orr testified that the city drew up a complaint raising what I would call equitable issues, fraud, unjust enrichment, breach of contract, which they said they were ready to file if no agreement was reached. This indicates they believe they had a substantive complaint.”

He said UBS AG had already admitted to fraud in its $1.5 billion settlement of a U.S. Department of Justice lawsuit related to global bankers’ manipulation of the London Interbank Offered Rate (LIBOR).

Former Detroit CFO Sean Werdlow, now COO of Siebert, Brandford and Shank.

Goldberg added, “Mr. Orr also testified that the counterparties had superior knowledge when they entered into the deal [and] misrepresented it as low risk. They did not explain to the city its potential dangers, that the city was a ticking time bomb for default based on lowering of its bond rating, and that the city’s CFO at the time, Sean Werdlow, took a job with a loan counterparty [Siebert, Brandford and Shank], five months later—raising a red flag.”

Goldberg argued further, “The U.S. Supreme Court has held that for many purposes, courts of bankruptcy are essentially courts of equity . . . .invoked to that end so that fraud will not prevail, substance will not give way to form—technical considerations will not prevent substantial justice from being done.”

He said the swaps proposal could not be looked at without putting it in the broader context that the banks involved were among those which caused the global financial collapse of 2008, largely through subprime predatory lending policies. The federal government paid $1.7 trillion to bail out the same banks, he noted.

Neighborhood on Detroit’s east side. Atty. Goldberg said plaintiff David Sole’s east side block, thriving 10 years ago, now has only five families left, with a pack of wild dogs living in an abandoned house next to Sole’s.

“Detroit almost any more than any other city was devastated by the subprime lending policies of major banks,” Goldberg argued. “If there was any question that fraud was involved, a Senate Subcommittee report showed that between 2004 and 2o06, 73 percent of new mortgages written in Detroit were subprime . . . This resulted from 2005 to 2007 alone in 67,o00 mortgage foreclosures, and two-thirds of those of homes have stayed vacant. . . .The idea that the same banks who participated in these lending practices are now to be paid $165 million, with a pledge of 20 percent of income tax revenues, is inequitable and unconscionable.”

One of a series of famed murals by Diego Rivera in the DIA. Rivera was a Communist who believed that working and poor people should take power from the rich.,

The next court hearing in the bankruptcy trial is scheduled for Wed. Jan. 22 at 10 a.m. in room 716 of the U.S. Federal Court at 231 W. Lafayette. It will consider a “Motion of Creditors for Entry of an Order Pursuant to Section 105(A) of the Bankruptcy Code Appointing and Directing the Debtor to Cooperate with a Committee of Creditors and Interested Persons to Assess the Art Collection of The Detroit Institute of Arts Based on Arms−Length Market Transactions to Establish a Benchmark Valuation Filed by Creditor Financial Guaranty Insurance Company (James, Mark).”

Much has been made of a proposal by private foundations to donate $330 million, allegedly to save both city pensions and art in the Detroit Institute of Arts. However, it appears that the real motivation here is to divest Detroit of its ownership of likely billions of dollars worth of world-class art, just as mediators are planning during meetings at Jones Days’ New York offices to divest the city of its ownership of the Detroit Water and Sewerage Department (DWSD).

What would Dr. Martin Luther King, Jr. say about the unequal situation in which Detroiters find themselves today. Here he is shown addressing 1963 rally in Detroit.

Suburban officials have already pointedly declined Orr’s proposal that Detroit be paid $9 billion for DWSD, just as they declined to finance the original construction of the six-county facility through the 2oth century. It was city of Detroit taxpayers who paid for billions in bonds to build DWSD. Union officers and city administrators have said it is highly likely that water and sewerage rates will increase under any privatized structure set up during the bankruptcy proceedings,

Detroit’s Chapter 9 proceedings are unique in that the city’s assets are being attacked. Chapter 9 does not allow such attacks unless the debtor, in this case the City of Detroit as represented by Kevyn Orr under PA 436, consents. A lawsuit challenging the constitutionality of PA 436, Detroit and Michigan NAACP et al,  was assigned to U.S. District Court Judge Bernard Friedman in December, but no hearings have yet been set. U.S. District Judge George Caram Steeh was set to proceed on that lawsuit, as well as another, filed by Phillips et al, early in 2013.

Rhodes blocked action on those lawsuits by extending bankruptcy protection not only to officials of the debtor, the City of Detroit, but also to state officials including Gov. Rick Snyder and others, in a unique ruling not duplicated elsewhere in the country. He agreed to hear the Phillips lawsuit because the plaintiffs voluntarily deleted Detroit from its subject matter, but the state of Michigan has appealed that order.

Shown above is a tribute to Lolita Lebron, one of the Puerto Rican heroes who stormed the U.S. Congress with guns to demand independence for their country. Jones Day had better remember this tradition.

Meanwhile, Jones Day has turned its attention to Puerto Rico as the next candidate for its devastating “restructuring plans,” according to the following story from Bloomberg.

Puerto Rico to Get Spotlight From Jones Day at Meeting 

By Michelle Kaske and Steven Church

Jan 16, 2014 11:58 AM ET 

Jones Day, the law firm shepherding Detroit through bankruptcy, is extending its restructuring skills to Puerto Rico with a seminar on the $70 billion market for commonwealth debt.

The firm plans to brief investors today in New York on Puerto Rico’s fiscal outlook and the “possible paths going forward,” according to an invitation to the event. The seminar follows similar meetings last year with investors to assess the benefits and risks of Puerto Rico securities.

The three major rating companies grade Puerto Rico one step above junk, with a negative outlook. Moody’s Investors Service Dec. 11 warned that it may cut the island to speculative grade within 90 days. Puerto Rico officials plan to sell bonds this month or in February.

San Juan Puerto Rico protest to protect public services from privatization.

“There are a number of clients and friends of the firm that are interested in the topic,” Bruce Bennett, a Jones Day attorney who is helping lead Detroit’s $18 billion bankruptcy, said in an interview. The briefing “is forward-looking and not in response to any near-term developments,” he said.

Puerto Rico’s fiscal health affects the $3.7 trillion municipal market because 70 percent of U.S. local-debt mutual funds held commonwealth securities as of Jan. 9, according to Morningstar Inc. The funds own about $14 billion of the debt sold by the U.S. territory and its agencies, according to Morningstar. The securities are tax-exempt nationwide.

Below Grade

Puerto Rico debt trades below its investment-grade ratings. Continue reading →

Detroit city retirees and their supporters protest outside bankruptcy hearing Aug. 19, 2013.

By Wallace Turbeville, Senior Fellow at Demos

 January 17, 2014 

Detroit

Wallace Turbeville

Just three days before Kevyn Orr, the Emergency Manger appointed by Michigan Governor Snyder to run the fiscally strapped City, filed the largest municipal bankruptcy case in history, he signed a Forbearance Agreement with UBS and Bank of America/Merrill Lynch establishing a process to settle possible claims on default of $800 million of interest rate swaps.

The potential claim would be very large, then estimated in the range of $350-400 million. Even worse for the City, the banks had inserted a provision in the swaps allowing them to grab all of Detroit’s tax revenue from casinos, 20% of its total revenue, until they were paid in full, a cash drain that would be a serious matter. The Emergency Manager used this to justify the rush to a settlement so generous to the banks, even as he was prioritizing draconian cuts to City worker pensions.

Children at union protest in downtown Detroit July 12, 2013 give THEIR opinion of EM Kevyn Orr.

Under the agreement, the claim would be reduced by 20-25% and the banks would forbear from terminating the swaps and claiming the revenues, but only if Detroit could pay off the banks within one year. The agreement had two other main terms: it had to be approved by the court in the imminent bankruptcy; and the City agreed not to challenge the validity of the swaps or the claim to gaming tax revenues in any court proceeding.

The Emergency Manager then negotiated a deal with Barclay’s to pay off the swap banks, granting Barclay’s a security interest in the gaming tax and other revenues. Unlike the claim under the swaps, the Barclay’s loan would be payable over time. Financing in hand, the Emergency Manager petitioned the bankruptcy court for approval of the whole package.

Former Mayor Kwame Kilpatrick and his CFO Sean Werdlow, who negotiated the COPS deal and then got a top management job with one of the lenders.

The validity of the swaps was no trivial matter under Michigan law. Neither was the validity of the claim to the gaming tax revenues. To an experienced municipal finance professional, these deals just looked wrong. Moreover, it remained a mystery why Detroit did the swaps in the first place. Simpler, less risky financing alternatives were available. This was especially troubling since the deals were put together in the administration of Mayor Kwame Kilpatrick, currently serving a 28-year sentence for misdeeds while he was in office.

In a special report, Demos identified these issues and urged the bankruptcy court to reject the swaps settlement agreement and force either the resolution of validity issues or the negotiation of a much smaller amount. In a hearing just before Christmas, Judge Steven Rhodes ruled that the Emergency Manager had not demonstrated that the large settlement amount had been justified. He designated a separate judicial mediator to try and get a reasonable deal. Before the New Year, a new deal was presented, increasing the “haircut” of the claim to a flat 33% from the floating 20-25%.

Bankruptcy Judge Steven W. Rhodes

On Thursday, Judge Rhodes ruled that this new deal did not come close to being good enough. He found that the claims of invalidity are “reasonably likely to succeed.” If they did succeed, the banks would recover little or nothing on their claim. Moreover, if the swaps were void at inception, the City might be able to recover eight years of payments on the swaps, hundreds of millions of dollars. All of this would reduce the need to cut public employee pensions to pay for basic services and improvement of the City’s economy.

The Emergency Manager now has two choices. He could pursue resolution of the validity issues in court. Judge Rhodes promised prompt resolution of issues presented to him. Alternatively, he could bring the banks back in to negotiate a far lower settlement number that Rhodes would deem fair, eliminating the litigation risk.

The judge’s ruling deepens a lingering mystery surrounding the deal with the swaps banks: why did the Emergency Manager rush through a settlement that even the bankruptcy court found to be fundamentally out of balance while simultaneously pounding away at the public employee pensions? Perhaps he was genuinely panicked by the prospect of losing all of the gaming tax revenues until the banks were paid back. Perhaps he is just ideologically predisposed to prefer obligations to banks as being more sacred than obligations to pensioners. But there are some other possibilities:

He may have seen his mission to include damaging the public employee unions forever by fundamentally altering the retirement system. He could have concluded that, the direr were the City’s fiscal circumstances, the easier it would be to justify draconian cuts to the benefits of retirees.

He might also have been predisposed to avoid challenges to the validity of municipal swaps. Orr was a partner a Jones Day before his appointment and that firm was hired to represent the City (meaning the Emergency Manager) in the bankruptcy. Jones Day is a huge law firm with a large municipal finance practice. It has rendered hundreds of validity opinions in municipal swaps and bond deals. Such a law firm would hardly welcome any finding that a municipality’s financial obligations were invalid.

We will probably never know if any or all of these motivations were at work. But it is clear that the continuing fights over pension obligations of cities and states should be seen in the context of ideology, partisan politics, and the sheer power of the financial sector.

Protesters march outside Cobo Center where the 2014 North American International Auto Show is being held.

Photos and text by James Fassinger for MintPress News

January 14, 2014

Detroit–As automakers prepared to trumpet record profits and reveal new car models at the 25th annual North American International Auto Show at the Cobo Center in Detroit, dozens of union members, supporters and concerned citizens turned up to demonstrate for a ‘People’s Recovery’ outside the venue on Jan.12.

Union members and supporters protest outside the North American International Auto Show.

Organized by Autoworker Caravan and joined by other groups such as Moratorium Now, National Action Network and Jobs for Justice, they chose the day before Press Preview Week opens in hopes of capturing the attention of more than 5,000 journalists from around the world who are expected to cover the event.

Members of Moratorium Now turned out in support of public and private workers and to demand the banks forgive Detroit’s loan debt.

“We see this as a golden opportunity to get past the Detroit corporate media censorship and tell our side of the story: that the 1 percent are making out like bandits while autoworkers are living with concessionary contracts and city workers are getting thrown under the bus,” organizers said.

Autoworker Caravan was founded in 2008 to give voice to rank and file auto workers after the financial crisis and bankruptcy of General Motors and Chrysler. Now in its fifth year protesting outside the NAIAS, organizers assert that Detroit, currently in bankruptcy, is at the forefront of a nationwide assault against workers and their unions in both the public and private sector. They demand an end to multi-tier workplaces and the “alternative work schedules” automakers have instituted, as well as the overturning of Michigan’s controversial Right to Work legislation and a moratorium on cuts to retiree pensions and benefits.

Renla Session, UAW local 600 assembly worker walks the picket line outside Cobo Center during the protest. “We are out here for all workers,” she says.

“Massive job losses and home foreclosures have left the city starved for revenues. Instead of creating an emergency jobs program and declaring a moratorium on home foreclosures, Governor Snyder and Wall Street are exploiting Detroit’s crisis for their own gains,” the group writes in an announcement for the action. “Using an Emergency Dictator, they forced Detroit into bankruptcy so they can – without interference – break union contracts, threaten city retirees’ negotiated pensions and benefits, reward the banks for fraudulent loans and sell off city assets to predatory corporations.”

Megan Minton (center) UAW local 12 member, started working at the Toledo, Ohio Chrysler Jeep assembly plant in August 2013. She came out to show her support for her fellow UAW workers and speak out against the two-tier system. Hired in at the lowest tier last August, she just started receiving her healthcare benefits this month.

Marching with her sign ‘Stop Outsourcing,’ Megan Minton, UAW local 12 member, said she came to support her union brothers and sisters. Minton works the line at the Toledo Chrysler Jeep Assembly Plant, about an hour south of Detroit. In August 2013, she was hired in at the lowest tier at the facility but only started receiving her health care benefits this month, with no dental or vision plan yet in place.

Don and Stacey Kemp of Flint, yell and chant during the rally. Don, a UAW local 598 member and autoworker at the Flint Truck and Bus facility has been with GM for 29 years. He and Stacey came out to protest against what they see as the social injustice happening with the implementation of the 2 and 3-tear wage system his company has introduced.

Minton says she doesn’t mind her fellow workers in the upper tier earning more money, because they have been working there longer, but with the new system, she will never be able to reach their hourly pay scale no matter how long she works at the plant.

Melvin Thompson, former president of UAW local 140, and Warren Truck Assembly Plant worker of 19 years, rallies the crowd at the demonstration.

Melvin Thompson, former president of UAW local 140, has worked at the Warren Truck Assembly Plant for 19 years. Also an Autoworker Caravan member, he sees the two-tier system instituted in manufacturing today as a ‘divide and conquer’ strategy used by the automakers to create inequality in the workplace.

With the GM Renaissance Center the background, dozens demonstrate for an economic ‘People’s Recovery’, against the Trans-Pacific Partnership (TPP) trade agreement and against unfair labor practices like the multi-tier wage systems now in place within the manufacturing industry.

“How can we be union brothers if you are right next to me making two-thirds of what I’m making and we’re doing the same job? Then, when new contracts come up, you’ll have a section to vote on and I’ll have a section to vote on, and they’ll try to divide and conquer us by giving one something and taking something away from the others. So, we have to eliminate this two-tier system and get back to true solidarity.

Mark Farris worked for Ford for 30 years. He turned out to voice his opposition to what is happening in society and with workers. He says, “The rich keep getting richer and the poor keep getting poorer.”

“The recovery is clearly happening because we are selling vehicles, not because we are paying people less. You could pay all of us $40 an hour more than we’re making right now and they’d still make a killin’. [But] nobody’s going to do the math and print that in the paper,” Thompson said.

Dozens turned up to demonstrate for a ‘People’s Recovery’ outside Cobo Center in Detroit, ahead of Press Preview Week at the North American International Auto Show.

The organizers believe that the Big Three work in tandem with the fossil fuel industry and ignore climate change caused by the burning of fossil fuels, maintaining that Detroit could be a leader in public transit and renewable energy components.

Frank Hammer, retired UAW Local 909 president and Autoworker Caravan co-founder, says that automakers could help workers and the current economy by converting old, unused production facilities for green manufacturing to produce rail cars for public transportation, as well as products like solar panels and wind turbines. In doing so, automakers would not only provide thousands of manufacturing jobs, but help fight global climate change and cut carbon emissions.

Autoworker Caravan supporters pose and chant after the rally for a German camera crew in town to cover the NAIAS.

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Dr. Martin Luther King, Jr. marches against genocidal U.S. war on Vietnam.

By Jay Janson

January 15, 2014, Dr. King’s birthday

On TV, the week-end before the Martin Luther King Jr.’ birthday holiday, see all the celebrities, Black, white, Asian, Latino. They will come to praise King and bury again King’s condemnation of US atrocity “wars meant to maintain unjust predatory investments on three continents.” [1]

They will hail King to heaven, loudly, to drown out anyone whispering that King called their dirty government “the greatest purveyor of violence in the world.” [1]

They will be talkative, have lot to say about how good King was, but before and afterward, they will have been, and will continue be, silent about their friends and neighbors, maybe some family members, slaughtering, or having slaughtered, what has now amounted to tens of millions of innocent non-white men, women and children. The confident deep pocket investors in war, owners of 98% of America’s sources of information, owners of the government and rulers of society, hope we understand this silence as ‘patriotism.’

The Martin Luther King Jr. everyone on TV will be making a big show of praising, had a different understanding of such silence about genocide, “B E T R A Y A L!” [1]

Famous photo of Vietnamese children fleeing U.S. soldiers after their village was napalmed.

The young Martin Luther King knew about the genocidal way the land and lives of Native Americans were taken. He knew that more than a million of his ancestors were murderously enslaved to make money for wealthy Americans. Knew about the deadly war on Mexico and the raping away of half its land area. Knew the Japanese had to sign a trade agreement or see Yokahama cannoned into ashes. – knew about the years of horrible massacres committed in conquering the Philippines. (Maybe he even learned that Korea was given to the Japanese for their accepting a US owned Philippines.)[2]

German diplomats award Henry Ford, center, with their nation’s highest decoration for foreigners, the Grand Cross of the German Eagle, in July 1938. (AP Photo). Especially timely as Detroit’s Big Three auto companies host International Auto Show at Cobo Hall. Both Ford and GM were involved heavily in investments in Nazi Germany. Up to 60 percent of U.S. corporate investments went there.

Certainly knew of the invasion of China, shooting of Chinese and looting of Beijing. Knew profits from loans to keep bloody World War One going made the US a great colonial power. Knew of the decades-long ruthless military occupation of Haiti and Nicaragua. might have known that all of the greatest US corporations heavily invested and joint ventured in low wage prostate Nazi Germany, building its Wehrmacht up to number one military power in less than five years in full knowledge of Hitler’s constantly announced plans for communists, Jews and the Soviet Union. Everyone knows the mega profits from a war that took fifty million lives and its aftermath made the US the awesomely wealthy single superpower.

King might have learned that the US army occupied Korea after its US-supported brutal forty year Japanese occupation, disbanded the democratic government the withdrawing Japanese had permitted to form, flew in from Washington and installed a murderous and hated Korean dictator in the South, whose police and special forces would massacre nearly 200,000 men, women and children in persecution of communists, socialists, unionists, nationalists and people against division of its nation; 60,000 on Cheju Island alone.[3]

He might have known that the US massively lethal 1950 re-invasion and subsequent genocidal bombing flat of every city and town on the entire peninsula of what had been a US officially recognized Japanese colony took place in a Korea already re-united during the five previous weeks, as soldiers of the South defected north or went home rather than fight for the hated US imposed dictator, who even after being re-installed by America fire power, had to flee for his life; that today, in South Korea, his name, Syngman Rhee, is never mentioned except solely for having been its first president.

King knew about the first thirteen years of what is now sixty years of US enforced diabolical international sanctions suffered by the population of North Korea and biannual US live fire war games off its coast within earshot of its capital and would have made King understand why North Korea made itself the most heavily militarized half-nation on Earth.

Patrice Lumumba, Congo President murdered in U.S. led coup, calls to mind the slaughter of Muammar Gadhafi and the massive devastation of Libya, an oil-rich well-developed country which sought to lead the African continent to prosperity and independence from the neocolonialist powers.

The murder of popular first Congo president and installation of the abominable Mobutu in his place, who would cause millions of deaths is well known, as is President Ike bringing another genocide to Guatemala with his overthrow of another democratically elected and beloved president. But with the horrific carpet bombing of Laos and the holocaust Americans put upon Vietnam after paying the French army for eight years to retake the colony it had turned over to Japan during the Second World War, our now more worldly aware and politically informed successful hero Rev. Dr. Martin Luther King Jr., in early 1967, now knew enough, AND HAD HAD ENOUGH.

He said:

“A time comes when silence is betrayal.” And that time has come for us. “They languish under our bombs and consider us, not their fellow Vietnamese, the real enemy. They move sadly and apathetically as we herd them off the land of their fathers into concentration camps where minimal social needs are rarely met. They know they must move on or be destroyed by our bombs. So they go, primarily women and children and the aged. They watch as we poison their water, as we kill a million acres of their crops. They must weep as the bulldozers roar through their areas preparing to destroy the precious trees. They wander into the hospitals with at least twenty casualties from American firepower for one Vietcong-inflicted injury.

Dr. Martin Luther King, Jr. delivering his historic speech, “A Time to Break Silence” at Riverside Chuch in NYC.

“So far we may have killed a million of them, mostly children. They wander into the towns and see thousands of the children, homeless, without clothes, running in packs on the streets like animals. They see the children degraded by our soldiers as they beg for food. They see the children selling their sisters to our soldiers, soliciting for their mothers. What do the peasants think as we ally ourselves with the landlords and as we refuse to put any action into our many words concerning land reform? What do they think as we test out our latest weapons on them, just as the Germans tested out new medicine and new tortures in the concentration camps of Europe? Where are the roots of the independent Vietnam we claim to be building? Is it among these voiceless ones? We have destroyed their two most cherished institutions: the family and the village. We have destroyed their land and their crops. We have cooperated in the crushing — in the crushing of the nation’s only non-Communist revolutionary political force, the unified Buddhist Church.

“We have supported the enemies of the peasants of Saigon. We have corrupted their women and children and killed their men. And I knew that America would never invest the necessary funds or energies in the rehabilitation of its poor so long as adventures like Vietnam continued to draw men and skills and money like some demonic destructive suction tube.” [1]

For forty years now, one had read and heard the highest admiration for Rev. King from the same New York Times, Washington Post, other newspapers and electronic media that in 1967, after Rev. King made embarrassing world headlines with his sermon “Beyond Vietnam – a Time to Break Silence,” vilified him as “a traitor,” and “a disgrace to his race!” Continue reading →

Detroit EM Kevyn Orr, Jones Day, global banks dismantle nation’s largest Black majority city while profiting from billions in debt. Clockwise l to r: Rec. Dept., D-DOT, Public Lighting, retirees’ pensions, Water and Sewerage Department, Belle Isle

COPS “A ticking time bomb” 

Orr claims litigation “too lengthy and costly” 

Tries to gloss over evident bribery by UBS AG/SBS of former city CFO Sean Werdlow, Kilpatrick administration 

By Diane Bukowski 

ANALYSIS 

January 12, 2014 

DETROIT – The city could recover over $2.8 billion from the banks involved in the mammoth “Pension Obligation Certificates” (COPS) deal of 2005-06, and more on a related swaps deal, if it pursued litigation challenging what Detroit Emergency Manager Kevyn Orr admitted Jan. 3 were likely unlawful and fraudulent transactions.

Detroit youth demand cancellation of Detroit’s debt to the banks.

“They were a ticking time bomb,” Orr testified that day during a special bankruptcy trial hearing. For the first time, he admitted that the $1.44 billion COPS, foisted on the city in 2005-06, with the related swaps totaling $475 million, were likely scams which exposed Detroit to tremendous financial risk. He admitted that the banks and Wall Street ratings agencies pushing them were duty-bound to explain their risks to city officials, but said they did not do so. The COPS, with related interest and other fees, now amount to at least $2.8 billion.

At the trial, which is set to wrap up tomorrow, U.S. Bankruptcy Judge Steven W. Rhodes is considering whether to approve a modified proposal to borrow $165 million from Barclays, a UK-based bank, to pay Swiss-based UBS AG and the Bank of America to terminate only the swaps at a discounted rate, ignoring the COPS.

All the banks involved have been charged in global venues with criminal and civil transgressions related to the LIBOR and ISDAfix rates, predatory lending, and other mammoth white-collar scams.

“Jones Day is not the City of Detroit” — Rev. Bill Wylie-Kellerman; part of Jones Day Detroit bankruptcy team.

Orr said Jones Day, as the city’s attorneys under Public Act 436, along with the city’s PA 436 investment banker Miller Buckfire, drafted possible litigation against the banks involved, which was shown to the mediators, to get the banks to back down slightly on their demands for termination payments. He also claimed that he spoke with the Securities and Exchange Commission about a possible criminal investigation of the deal, with unknown results.

First Detroit protest to demand cancellation of debt to banks May 9, 2012.

Orr testified regarding the possible outcomes of litigation against the COPS and swaps.

“The upsides were as great as invalidating the entire transaction, recovering all payments made over the years, even recovering damages, invalidating the swaps,” he said. “It perhaps would have allowed the city to recover the millions or hundreds of millions of dollars it had paid over the years. The downside was that if we did not prevail, the swap contract would have been validated, the city would have had [to pay] hundreds of millions to the swap counterparties, and incur out of pocket litigation expense, also possibly that of the counterparties.”

VOD has questioned Orr repeatedly about the COPS transactions since the day of his appointment.  VOD editor Diane Bukowski, who has covered the COPS deal since Jan. 2005 beginning at the City Council table, filed an amended objection on the COPS with Rhodes. Rhodes later expressly threw it out by refusing to address it.

(L to r) Jounalists Vickie Thomas of WWJ and Diane Bukowski of Voice of Detroit question Kevyn Orr after meeting with creditors June 14, 2013.

Rhodes and Orr appear to be conspiring to bury the COPS question in a rush to carry out plans by the Jones Day law firm to use Chapter 9 to savage public pensions and city assets. Orr said litigation on the COPS and swaps would be “too lengthy” and costly, ignoring the huge sums already spent on Jones Day and other city “consultants.”  He said success was debatable because city officials and attorneys had approved the deals after extensive legal analyses, debate, and passage of city ordinances. He also contended that the city initially profited from the deals, prior to the global economic crash of 2008.

Orr did not explain what “legal analysis” allowed Detroit’s former Chief Financial Officer Sean Werdlow to take a top level management job with Siebert, Brandford and Shank (SBS), UBS’ partner in the COPS deal, nine months after Council approved the deal in 2005. Werdlow was in that position in 2006 when the deal was re-negotiated to cover 30 instead of 14 years, and is now COO of SBS.

Former Detroit CFO Sean Werdlow and former Mayor Kwame Kilpatrick accept Bond Buyer award for POC deal.

U.S. Bankruptcy Court Judge Steven W. Rhodes’ head popped up as Orr attempted to gloss over the CFO issue, failing to name Werdlow. Rhodes demanded his name. It will be enlightening to see how Rhodes rules after eliciting this apparently undisputable evidence of bribery of a city official. Such bribery similarly led to a 75 percent cut in Montgomery County, Alabama’s debt payments to JPMorgan Chase on water department bonds in that government’s bankruptcy case.

“There were theories that both the underlying COPS and swaps were void ab initio for different periods, fraudulently produced,” Orr testified. “It was my understanding that the city did not have the authority to enter into the underlying COPS of 2005-06 because state law prohibited further indebtedness. . . .[and that the casino] revenue stream was an improper way to pay the swaps.”

2008 global economic crash.

Detroit defaulted on the COPS and swaps after the global economic crash of 2008, caused primarily by predatory and fraudulent mortgage loans. It faced a termination event that would have cost $400 million, so then Detroit Mayor Kenneth Cockrel, Jr. and Auditor General Joe Harris cut a deal with Wall Street. They agreed to turn over the city’s casino revenues to a trustee, the U.S. Bank of North America, which has been paid a fee to set aside $4 million a month to ensure payment of the debt. It is that deal which is being challenged during this portion of the bankruptcy trial.

“The Revised Municipal Finance Act 34 of 2001 was violated because the city [used] an end run around that law by interposing service corporations and service contracts [to effectuate the POC loan],” Orr said. “My understanding was that that under Act 34, the city had reached its debt limit. It could not do [more] borrowing, so it created a structure whereby the service corporations were put between city and borrowers. The issue was whether the service corporations were independent, whether they insulated the city from Act 34—or whether they were an instrumentality of the city. If they were not acting legitimately, the city was the borrower. Therefore the whole structure fell. The underlying COPS were of no effect, void ab initio.”

Orr contended on the other hand that such service corporations have been used by other cities and that they were approved by the city’s legal analysts and the City Council.

Wallace Turbeville, senior analyst at Demos, who Judge Rhodes barred from testifying at the trial, raised the service corporation issue in a special report on the Detroit bankruptcy in November, 2013. Turbeville also noted that the POC’s were used as a substitute for voter-approved bonds, constituting an end run around the right of the city’s residents to decide its level of indebtedness.

Wallace Turbeville, author of Demos report on Detroit bankruptcy.

Rhodes said he barred Turbeville, a former Wall Street banker, from testifying because he wanted to wrap up the trial by Jan. 6, saying he (Rhodes) “would not be available” after that day. Meanwhile, the major cold vortex and snowstorms which hit the Midwest intervened, shutting down the courts for the rest of that week. So Rhodes has now scheduled final arguments for Mon. Jan. 13, still not allowing Turbeville’s testimony, as requested by Attorney Jerome Goldberg on behalf of city retiree David Sole.

Orr testified regarding claims that fraud was involved in the deals.

“There were a number of legal theories,” Orr said. “The general basis was that the counterparties to the swaps had superior knowledge to the city, that they represented to the city that [the deal was] low-risk, beneficial, when they knew or should have known that it was potentially volatile. They designed more or less a ticking time bomb, by designing the termination fee to be linked to credit ratings.”

Snake oil salesmen: Joe O’Keefe of Fitch Ratings and Stephen Murphy of Standard and Poor’s sell Detroit City Council on POC deal Jan. 31, 2005/Photo Diane Bukowski

In December, 2005, Standard and Poor’s, which had advocated for the POC loan under threat of further debt ratings downgrades, downgraded the city’s debt anyway, and thousands of city workers were laid off despite former Mayor Kwame Kilpatrick’s assurances that approval of the COPS deal would forestall such actions. Further downgrades since then have left Detroit with the lowest debt rating of any major city in the country.

Orr admitted that the banks involved have been charged globally with massive civil and criminal transgressions.

“It is fairly well publicized about LIBOR, that UBS AG reached a multi-country settlement with the United States Justice Department,” Orr said. That settlement was for $1.5 billion. The Securities and Exchange Commission has sued UBS AG separately for $5 billlion.

Detroit’s MGM Grand Casino.

Orr said fraud claims would also involve “costly and expensive litigation,” amounting to “millions or tens of millions,” including likely trips overseas.

He said fraud claims also arose with regard to the use of the city’s casino revenues under the state’s Gaming Act, which limited the revenues to services like public safety, education, and improvements in the quality of life, not as collateral for an unrelated debt. He said, however, that both the city’s legal department and the State Gaming Board found no problems with such use of the revenues, and that the state said the parties did not have to apply for a license.

He said the City Council earlier classified casino revenue as excise taxes, making it “special revenue” protected by bankruptcy law.

Go to war against the banks.

In the end, Orr said, if litigation were to be pursued, the “single largest most secure source of revenue for city would have been imperiled, we would have not had stability in the city’s finances and ability to plan strategically for the city or in any other matter. Someone said about war that the best laid plans go to hell. Litigation sometimes takes on a life of its own. Part of the risk I was trying to assess—if we pursued it, what was the probability that we were going to be able to stabilize city’s finances during the course of litigation.”

Meanwhile, in just the short period since Orr took dictatorial control of Detroit in May, 2013, he has “stabilized” the city’s finances in the fashion desired by the banks. The country’s largest Black majority city is being dismantled, divested of  its most valued asset, the Detroit Water and Sewerage Department, the third largest in the country, its beautiful Belle Isle, the largest urban island park in the country, its public workforce, the chief opportunity for the future of the city’s youth, and the livelihood of its retirees, who face the possibility of devastating cuts in their pensions, and have already been subjected to the loss of substantially all their health care benefits.

It is time not for “stabilization,” but a massive uprising by the people of Detroit and their supporters across the world.

Greek protest against banks’ austerity demands.

RECENT RELATED STORIES;

http://voiceofdetroit.net/2014/01/12/peoples-attorney-goldberg-questions-em-orr-on-detroit-bankruptcy-giveaway-to-ubs-boa/

 http://voiceofdetroit.net/2014/01/12/detroit-pastor-removed-from-bankruptcy-trial-jones-day-is-not-the-city-of-detroit/

 http://voiceofdetroit.net/2014/01/12/city-bankruptcy-one-of-many-attacks-on-detroiters/

http://voiceofdetroit.net/2014/01/03/recuse-detroit-bankruptcy-judge-rhodes-mediator-rosen-em-orr-from-the-citys-future-abolish-the-em-law/

Related document:

Demos Detroit bankruptcy report highlighted

Detroit EM Kevyn Orr (r) appointed by Michigan Gov. Rick Snyder (l) under PA 436, discusses bankruptcy filing at press conference July 19, 2013. Photo by Diane Bukowski

 A coalition of organizations is asking Detroiters and their supporters to pack U.S. Bankruptcy Court at 231 W. Fort Mon. Jan 13, at 9 a.m., for the closing arguments on the swaps giveaway to Bank of America, UBS. For further info: https://www.facebook.com/#!/events/503611456421560/

Jerome Goldberg questions EM Kevyn Orr over giveaway to Bank of America, UBS, on Jan. 3, 2014

(VOD story on Orr’s direct testimony coming shortly. This transcript is from http://detroitdebtmoratorium.org/jerome-goldberg-questions-em-kevyn-orr-over-giveaway-to-bank-of-america-ubs-on-jan-3-2014/)

January 6, 2014

Attorney Jerome Goldberg, appearing on behalf of City of Detroit retiree David Sole, questions Emergency Manager Kevyn Orr regarding the interest rate swaps deal, viewed by many as another gift to the very banks that destroyed Detroit’s neighborhoods using subprime mortgages and that have been charged and convicted of fraud of all sorts.

Click on image to launch audio

Unofficial transcript:
Orr trial cross by JG.01032014
Unofficial transcript from audio file by KH

Attorney Jerome Goldberg, who represents city retiree David Sole in bankruptcy hearings. March 26, 2012 Photo by Diane Bukowski

Jerome Goldberg appearing for Interested Party David Sole.

JG: For the court ordered mediation for December 23 and 24, isn’t it true that Judge Rosen mandated that the parties have individuals there with settlement authority?

KO: Yes.

JG: And isn’t it true that you testified in your deposition that in fact Judge Rosen informed you that the banks did not have anyone there with settlement authority on December 23rd?

KO: Yes, at least one of them, yes.

JG: And that he had threatened to hold them in contempt of court just to get them to agree to this settlement, is that not true?

KO: He threatened to enter a default judgment.

Barclays and UBS AG, one of the original lenders in the Detroit $1.5 billion Pension Obligation Certificates predatory loan of 2005-06 and in related swaps, have both been charged with massive fraud in numerous venues globally, related to manipulation of the London-Interbank-Offered Rate (LIBOR) interest rates.

JG: I apologize. A default judgment. Just to be clear, this $165 million termination loan with Barclays, was subject to similar terms to the original swap termination loan?

KO: Yes.

JG: So the interest rate would be anywhere from 5.5 to 8.5 percent?

KO: Yes, whatever was on the chart. Yes.

JG: Once bankruptcy is over and the loan becomes due the interest rate goes up an extra 2 percent, right?

KO: well there’s a mechanism by which the interest rate can go up, yes.

JG: So it can go up from 5.5 up to 8.5 percent, right?

KO: Yes if that’s the math, right.

JG: And the loan is secured against income tax revenue?

KO: Yes.

JG: And that amounts to about $4 million per year, correct?

KO: Yes.

Protesters rally against swap deal outside Coleman A. Young Municipal Center Oct. 21, 2013. The City Council then voted not to approve the deal.

JG: And do you recall that in the city’s motion, the city’s income tax revenue for this year, pledge secured against income tax revenue and in fact that amounts to $48 million per year, $4 million per month times 12, right?

KO: Yes.

JG: Do you recall that in the city’s motion it said the city’s income this year was approximately $232 million?

KO: If that was in the motion, I’ll stand by it, yes.

JG: So what we’re taking about basically is that for the next four years about 20 percent of income tax revenue will go to pay off this deal with UBS and Bank of America through Barclays, is that not correct?

KO: Roughly, yes.

Attorney Goldberg represents city retiree David Sole of the Moratorium Now Coalition.

JG: And in fact $165 million at 8.5 percent interest would be approximately $30 million in interest, up to $195 million over the next four years and city tax revenues will be diverted to pay off Bank of America and UBS through Barclays?

KO: It could, yes.

JG: OK. And in fact, those payments will be going on long after you’re done as emergency manager and have left Detroit, is that not true?

KO: There’s an expectation that there would be an exit facility financed.

JG: But as of now there’s no exit facility in place.

KO: That is correct.

JG: In contrast, I believe the testimony in both depositions was that the swap payments, the hedging payments from 2008 to 2012 totaled $247 million?

KO: Approximately that amount of money.

JG: I could show you the deposition, but we’re in the ballpark?

KO: Yes, mmhmm.

JG: And 2013 would be about another $45 million to $50 million. Is that a fair statement?

KO: That’s a fair statement.

Protester at bankruptcy court Oct. 28, 2013

JG: So we’re talking about $300 million having been paid to UBS and Bank of America since 2008 on the hedging derivatives, on the interest rate swaps.

KO: Since when?

JG: Since 2008.

KO: Roughly that amount.

JG: And in addition to that, if the City was successful in its litigation, in recovering, in getting the swaps declared void ab initio as you testified, potentially that amount could be recovered, correct?

KO: Yes.

JG: And in fact any termination amounts moving forward, in the neighborhood of $200 million, could be eliminated?

KO: Yes.

JG: So rather than paying $165 million, we could be recovering up to $300 million?

KO: Yes.

JG: I want to go into a little bit, and you testified quite well, about the claims the city is making. One of them is fraud based on problems with the Libor as documented relative to UBS, is that not correct?

KO: Yes.

$1.5 billion UBS/SBS POC debt pushed on Detroit City Council Jan. 31, 2005 by (l to r) former Detroit CFO Sean Werdlow, now COO of SBS, Bill Doherty of SBS, Joe O-Keefe of Fitch Ratings, Stephen Murphy of Standard and Poor’s, and former Deputy Mayor Anthony Adams, during Kilpatrick administration. Photo: Diane Bukowski

JG: Another one was that the counterparties, and I’m talking about the equitable claims, about fraud, breach of contract based on implied breach of the fair dealing, and unjust enrichment claims. And another that the counterparties had superior knowledge to the city when they entered into this complex financial transaction with the city and had a duty to make it clear to the city?

KO: Yes.

JG: That they misrepresented that there was a low risk of default and termination in connection with swaps?

KO: Yes.

JG: That they did not explain to the city the potential dangers that a termination event would mean for the city, that they could have called in tens of millions or hundreds of millions in interest payments, correct?

KO: Interest payments and the termination fee, yes, correct.

JG: And the city was a ticking bomb, as you described it, based on a lowering of the city’s bond rating based on the city’s financial history?

KO: Yes.

JG: Are you aware that representatives of Fitch rating service and Standard & Poors were at the table when the swaps were being voted on or being debated in city council?

KO: I didn’t know it was Fitch and S&P but I know the ratings agencies were present.

JG: And that they encouraged the city, they were supportive of the transactions?

KO: I don’t know that.

JG: And in fact it was these same ratings agencies that triggered the default in 2009 by the lowering of the city’s bond rating, correct?

KO: I know the ratings were lowered. I don’t know if it was S&P and Fitch.

JG: OK. You testified earlier that the CFO of the city Sean Werdlow took a job with SBS and that was approximately five months after the swaps were completed?

KO: Yes.

JG: And you testified that that raises a red flag, correct?

KO: It raises concern, yes.

JG: You testified that you spoke with the SEC about their involvement in investigating these matters and I believe in your deposition you said they were willing to have further discussions. Is that correct?

KO: Yes. Continue reading →