bankruptcy

Posted: April 15, 2015
By: Clay Cerny

 

Today’s Chicago Sun-Times reports that Governor Bruce Rauner is recommending that Chicago Public Schools (CPS) use bankruptcy as a way to solve a $1.1 billion debt. If we only look at the debt, this solution might seem logical. It’s done all the time in business. No one seems to care when retired employees lose part of their pension. I hate this solution because it is a form of wage theft. In this case, I’m outraged by what the governor’s real motive seems to be.

Bankruptcy would let CPS terminate its contract with teachers. It might even let school administrators and the mayor avoid negotiating a new contract. Rauner claims to be a man of the people in saying that the people should decide if teachers have collective bargaining rights. His real goal seems to crushing one of the city’s strongest, most prominent unions.

What didn’t the governor say? He never addressed the question of recruiting and retaining good teachers. Conservatives often point to “bad teachers” as the cause of poor student performance. If that is true, the governor’s solution would seem to a blueprint for making education worse. Teaching is a very difficult job. Teachers’ salary is not that good given the pressures and hours that are required to do a good job. Take away the pension and union protections, who will want to pursue a career in teaching? We need to decide whether we are serious about having schools staffed by good, professional teachers. If we want good teachers, they need to paid well and treated as professionals.

Posted: January 23, 2014
By: Clay Cerny

Aljazeera America reports that Michigan Governor Rick Snyder is backing a plan that will help Detroit workers save their pensions.  That’s great news if it is true.  Snyder is the man who brought emergency managers to strip out public wealth from poor cities throughout the state.  Now he’s promising $350 million to offset what his own emergency manager in Detroit claims is an $18 billion debt.  As Scott Walker in Wisconsin is promising voters big tax cuts, Snyder is trying to show that he really cares about poor people.  What is this about?  It’s time to run for re-election.  If working people are gullible enough to elect leaders that work against their interest, they will get what they deserve.

Posted: December 4, 2013
By: Clay Cerny

I frequently blog about income inequality because it is a vital issue that affects all working people, not just those in low wage jobs.  Today, President Obama called income inequality, “the defining challenge of our time.”  The President referred to specific types of low wage workers in calling for an increase in the minimum wage.  More importantly, he addressed the issue of decreased mobility:  not only are more Americans being born into poverty, they seem to be stuck there.  The President’s words are good and inspiring.  However, during his first campaign, he told labor that he would stand with them and put on his walking shoes to be with them in the picket line.  Did Obama march in Wisconsin or Ohio?  No.  Did he push through passage of the Employee Free Choice Act?  No.  Hopefully, these good words will lead to some positive action.  Let’s remember Jesse Jackson motto:  “Keep hope alive.”

There is nothing hopeful about the situation in Detroit.  Judge Steven W. Rhodes, a federal bankruptcy judge, ruled that all should be for the creditors, nothing for retired workers who paid into pension funds.  David Cay Johnston describes the situation as “stealing from the workers.”  His reasoning is clear:  Pensions are deferred wages.  Would anyone think of taking money from an employee’s paycheck?  That would clearly be theft.  How is a promised pension any different?  Johnson lists several examples of how politicians have played this game in the past.  Detroit is just the latest, ugliest example of a trend that is also taking place in my state, Illinois, which is run by Democrats.

As Johnston examines the economic impact of Detroit’s bankruptcy, John Nichols considers the political impact.  Citing a study by Demos, Nichols argues that Detroit’s serious financial problems should not have led to bankruptcy.  Why did the city go bankrupt?  So the Governor could appoint an unelected manager to strip assets that range from pension funds to the great collection in the city’s art museum.  Nichols quotes Detroit’s new mayor Mike Duggan, who admits that he will only have power to the degree that it is given by the governor and his manager.  The elected mayor is powerless.  Nichols captures the problem in these words:  “There is a lot more at stake in Detroit, and in Michigan, than one city’s balance sheet.  Our understanding of democracy, itself, is being subverted.” 

If President Obama is serious about addressing income inequality and mobility, he should start in Detroit.  Turn the Justice Department loose on Governor Snyder and his “Emergency Managers,” who lord over cities that are populated mostly by poor African Americans.  Clearly American citizens in the cities under Governor’s Snyder’s Emergency Manager system are not enjoying the rights promised under the XV Amendment.  Detroit is a good starting point, Mr. President.  Save democracy and promote opportunity in that great city.

P.S.  David Sirota calls out the fraud in Detroit by discussing funds that can be found for a new hockey arena and $6 billion in subsidies, also known as corporate welfare.

Posted: November 21, 2013
By: Clay Cerny

Sarah Lazare, a staff writer at Common Dreams, reports that Detroit’s bankruptcy is not the fault of pension funds.  A report by Demos has found that bank deals, including “swaps,” have put the city in its current hole.  The deals never should have been made given the city’s shaky standing.  It’s almost as if the banks wanted Detroit to go bankrupt, so they could sweep in and clean the carcass.  Another factor fueling the city’s failure was corporate subsidies, which the weak city gave to corporations that are flush with cash.  Given all this, it makes perfect sense to blame pension funds and the workers who will lose all of their pensions.  What’s going on in Detroit is criminal, but as we saw in the Banking Crisis of 2008 and its aftermath, bankers cannot be held responsible for their wrong doing.  They get a bail out.  Detroit gets the shaft.

Posted: August 4, 2013
By: Clay Cerny

Detroit is broke.  That’s what the media and the politicians like Governor Snyder tell us. It’s an easy story to tell given the way the city looks.  It’s also easy to tell when the politicians and their banker allies only give one alternative.  What they don’t say is that unions tried to work out a deal that would have prevented the bankruptcy.  The governor and his Emergency Manager (Appointed Dictator) would not talk to them.  A cynical person might even think that the governor had some reason for wanting the city to declare bankruptcy.

Common Dreams has reprinted an article by the Nation’s John Nichols that examines how democracy is not working in Michigan’s largest city.  Michigan and Detroit voters both rejected Snyder’s Emergency Manager program, only to have the governor revive the program during a lame duck session of the legislature.  Nichols interviews experts who point out that several American cities have problems similar to Detroit.  As the nation’s industrial base broke down, the federal and state governments responded by cutting funds sent to big cities.  Rather than blame local officials as the governor does, Nichols suggests that we look at state government as part of a complex problem.

John Cassidy of the New Yorker looks at the story from the perspective how the city came to the bankruptcy “solution.”  He asks the often unasked question:  Was this move necessary?  Were there alternatives?  He points to gentrification in parts of the city.  The Emergency Manager, Kevyn Orr seems only interested in giving pensioners as little as possible (as little as 20%) while offering bank creditors (as much as 75%).  Cassidy ends ominously by quoting a municipal bankruptcy lawyer who calls Detroit, “a test case.”

The same day Detroit declared bankruptcy, Chicago bond rating was hit with a big downgrade.  A couple of weeks later, the city’s school system had its bond rating slashed.  Do you see a pattern?  The same politicians who failed to fund pensions are now using that action to say pensions need to be cut.  They robbed Peter (workers) to pay Paul (bankers).  And now they’re asking Peter to pay the bill.

What happens in Detroit will be a test case.  If working people don’t wake up, they will pay the bill of the bankers while city workers, including those who have already retired, will have to live on a fraction of the pension they should have received as part of their compensation.  Pensions are not welfare.  Retired workers are not takers.  If Americans don’t wake up to this new make-the-rich-richer scheme, we will all lose.

Posted: November 29, 2012
By: Clay Cerny

Huffington Post reports that executives at Hostess are requesting $1.8 million in bonuses as part of their liquidation.  Let’s get this straight:  18,000 employees will lose their jobs, and the “leaders” who took the company into bankruptcy will get a bonus.  Some people have no shame.

Posted: May 12, 2012
By: Clay Cerny

One of my clients told me a story that made my blood boil.  He’s working at a plant that slated to close at the end of the summer.  I asked if he’s going to get a severance.  He said probably not.  The company, which has always been profitable, is declaring bankruptcy to avoid paying severance.  My client has only been with the company three years, so he doesn’t face the problem many of his co-workers do:  bankruptcy would enable the company to bail out on its pension payments.

This isn’t the first time I’ve heard this story lately.  One of my clients works for a large airline.  Half of his pension was lost in a restructuring.  Workers across the company are facing this creative accounting/legal trick.

If a company is failing, it should have the option of bankruptcy.  If a company simply wants to save money, it should not be able to declare bankruptcy.  Citizens have restrictions placed on declaring bankruptcy.  There is pain involved.  For big business?  It’s all good.

Posted: January 31, 2012
By: Clay Cerny

Writing for In These Times, Josh Eidelson profiles American Airlines’ bankruptcy and the effect it is having on the company’s workers.  Part of the story is how Bain Capital, Mitt Romney’s former company, is the consulting firm guiding the bankruptcy.  One union official quips that Romney is a “job cremator.” 

Politics aside, American Airlines/AMR has asked for and received concessions from its unions.  The company is using bankruptcy as a tool to break its current contracts.  Employees will be moved from pensions to 401(K) plans – the kind that Wall Street loves to serves.  There will also be layoffs. 

One of my clients has worked for this company.  She has lost half of her pension and hasn’t had a raise for the last few years.  It leads one to ask:  Is American Airlines financially bankrupt or morally corrupt?

Update:  The number of employees being cut by American is 13,000.  The "lucky" employees who keep their jobs face steep cuts in salary and benefits.  Don't listen to cliches about job creators -- large corporations only care about more and more profit.  People mean nothing to them.