<html><head><meta http-equiv="Content-Type" content="text/html charset=utf-8"></head><body style="word-wrap: break-word; -webkit-nbsp-mode: space; -webkit-line-break: after-white-space; "><div><br></div><div><h6 class="kicker" style="margin: 0px; line-height: 1.4em; font-weight: normal; text-transform: uppercase; font-size: 8px; "><img id="43aa0302-cddc-4b2e-b838-1729941e1f4f" height="18" width="122" apple-width="yes" apple-height="yes" src="cid:BB115186-CC75-42A6-B49E-BEF909206939@att.net"></h6><h6 class="kicker" style="margin: 0px; line-height: 1.4em; font-weight: normal; text-transform: uppercase; font-size: 8px; "><font face="Georgia" style="font-size: 8px; ">EDITORIAL</font></h6><h1 itemprop="headline" class="articleHeadline" style="margin: 0px 0px 8px; font-size: 30px; line-height: 1.083em; font-weight: normal; "><nyt_headline version="1.0" type=" "><font face="Georgia">No Banker Left Behind</font></nyt_headline></h1><nyt_byline style="font-size: 8px; "><h6 class="byline" style="margin: 2px 0px; color: rgb(128, 128, 128); line-height: 1.2em; font-weight: normal; font-size: 8px; "><font face="Georgia" style="font-size: 8px; ">By <span itemprop="author creator" itemscope="" itemtype="http://schema.org/Person" itemid="http://www.nytimes.com/interactive/opinion/editorialboard.html" style="font-size: 8px; "><a href="http://www.nytimes.com/interactive/opinion/editorialboard.html" rel="author" title="More Articles by THE EDITORIAL BOARD" style="color: rgb(102, 102, 153); text-decoration: none; font-size: 8px; ">THE EDITORIAL BOARD</a></span></font></h6></nyt_byline><h6 class="dateline" style="margin: 0px; color: rgb(128, 128, 128); line-height: 1.2em; font-weight: normal; font-size: 8px; "><font face="Georgia" style="font-size: 8px; ">Published: August 15, 2013 </font></h6><div class="shareTools shareToolsThemeClassic articleShareToolsTop shareToolsInstance" data-shares="facebook,twitter,google,save,email,showall|Share,print,singlepage,reprints,ad" data-title="No Banker Left Behind" data-url="http://www.nytimes.com/2013/08/16/opinion/no-banker-left-behind.html" data-description="The Detroit bankruptcy case provides another example of how Wall Street wins." style="float: right; margin: 5px 0px 5px 5px; width: 134px; min-height: 200px; font-size: 8px; "><div class="shareToolsBox" style="border: 1px solid rgb(234, 232, 233); margin: 0px; position: relative; font-size: 8px; "><ul class="shareToolsList" style="margin: 4px 6px 0px; list-style: none; padding-left: 0px; font-size: 8px; "></ul></div></div><div class="articleBody" style="margin-top: 1.5em; margin-bottom: 1.7em; font-size: 8px; "><font face="Georgia" style="font-size: 8px; "><span itemprop="copyrightHolder provider sourceOrganization" itemscope="" itemtype="http://schema.org/Organization" itemid="http://www.nytimes.com" style="font-size: 8px; "></span><nyt_text style="font-size: 8px; "><nyt_correction_top style="font-size: 8px; "></nyt_correction_top><div style="margin: 0px; font-size: 16px; line-height: 1.467em; ">The <a title="A Times editorial from last month" href="http://www.nytimes.com/2013/07/19/us/detroit-files-for-bankruptcy.html" style="color: rgb(102, 102, 153); ">Detroit bankruptcy case</a> has been cast as a contest between bondholders and pensioners that can be resolved only by shared sacrifice.</div></nyt_text></font></div><div class="articleInline runaroundLeft" style="float: left; clear: left; display: inline; margin: 6px 15px 10px 0px !important; width: 190px; font-size: 8px; "></div><div id="readerscomment" class="inlineLeft" style="float: left; clear: left; width: 190px; background-color: rgb(244, 244, 244); margin: 0px 15px 20px 0px; border-top-width: 1px; border-top-style: solid; border-top-color: rgb(0, 0, 0); font-size: 8px; position: static; z-index: auto; "></div><div class="articleBody" style="margin-top: 1.5em; margin-bottom: 1.7em; "><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">In principle, we have no problem with that, though in practice, the pensioners’ fair share will have to take into account their <a title="NYT Editorial" href="http://www.nytimes.com/2013/07/23/opinion/getting-detroit-back-on-its-feet.html?_r=0" style="color: rgb(102, 102, 153); ">extreme vulnerability</a>: Public pensions are not federally insured and many municipal retirees do not receive Social Security.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">What we do have a problem with is shared sacrifice that does not seem to apply to the big banks that abetted Detroit’s descent into bankruptcy.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">Last month, just days before its bankruptcy filing, Detroit reached its <a title="Bloomberg" href="http://www.bloomberg.com/news/2013-07-16/detroit-said-to-reduce-swaps-debt-by-25-in-orr-deal-with-banks.html" style="color: rgb(102, 102, 153); ">first settlement with creditors</a>. The settlement was with UBS and Bank of America, and though the precise terms will not be nailed down until the bankruptcy judge weighs in, Detroit is set to pay an estimated $250 million to terminate a soured derivatives transaction from 2005.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">The derivatives, known as interest-rate swaps, were supposed to protect Detroit from rising interest payments on a chunk of its variable rate debt. The banks would pay Detroit if interest rates rose, and Detroit would pay the banks if rates fell. By 2009, both interest rates and the city’s credit rating were falling, forcing Detroit to pay the banks some $50 million a year and to pledge roughly $11 million a month in casino-tax revenue as additional collateral.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">In the settlement, Detroit will keep the casino-tax revenue. It will also reduce its debt load, according to city officials, because the banks have agreed to a discount of as much as 25 percent off what they are owed. But the haircut doesn’t mean that the banks will suffer. They have already made money on the swaps; the true extent of any discount will not be known until the deal is finalized.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">This much is clear:</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">■ The banks’ 25 percent hit is nothing compared with the 90 percent cut to pensions suggested by the city — a cut that would be disastrous in both human and political terms and that the State of Michigan must prevent from happening.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">■ Municipal officials are prey for Wall Street. The Dodd-Frank financial reform law called on regulators to establish “enhanced protection” for municipalities and other clients in their dealings with Wall Street, but the Securities and Exchange Commission has not yet completed rules, while the Commodity Futures Trading Commission’s rules are so weak as to virtually invite the banks to exploit municipalities.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">■ The special treatment banks receive when debtors are in or near bankruptcy is unfair and economically destabilizing. Detroit’s agreement with the two banks requires court approval, but, in general, swap deals by banks are not subject to the constraints that normally apply in bankruptcy cases; in effect, the banks are paid first, even before other secured creditors and certainly before pensioners. That privilege, dating to the heyday of derivatives deregulation in the 1990s and 2000s, is destabilizing because the assurance of repayment fosters recklessness.</font></p><p itemprop="articleBody" style="margin: 0px 0px 1em; line-height: 1.467em; "><font face="Georgia">Detroit’s problems are a reminder of broader challenges, identified but still unmet: protecting pensions; protecting municipalities from Wall Street; and, at long last, revoking the obscene privileges of banks that allow them to prosper on the failings of others.</font></p><div><font face="Georgia"><br></font></div></div></div></body></html>