Rodney Johnson | Thursday, April 10, 2014 >>
I was in California on business and joined a friend and his group for dinner last year.
The talk turned to politics and taxes, and one of the guys brought up his dear friend in Virginia, whose family is a very large landholder. However, the family characterize themselves as simply caretakers of the land.
Through taxes, the guy said, the State has the ability to relieve the Virginian of his wealth at any time. That seemed kind of harsh. (I thought he was being overly dramatic.)
Then I got to thinking about General Motors, and all the other instances where courts, agencies, and tax authorities twisted the words of agreements and the rule of law to get what they desired — which is usually someone else’s wealth.
This made the gentleman’s comments ring true.
Now, it’s happening again…
It’s no secret that the city of Detroit is in bankruptcy, with an annual budget shortfall of about $200 million, and billions of dollars in outstanding debt.
I’ve written before about how bondholders that specifically lent money to the city in order to shore up their pensions are going to get the least amount of payback.
Now comes a carve-out on the asset side of the ledger that only a gangster could love.
One of the jewels of the city is the Detroit Institute of Arts Museum, which holds a world class collection.
As it reads on its website, the city owns the museum.
This might give someone the mistaken impression that the museum’s collection could be sold to offset the city’s unpaid debts, but that would be wrong.
Last summer, the Attorney General of Michigan wrote a legal opinion that claimed, as an unexpressed charitable trust serving a public purpose, the museum and its contents could not be used to satisfy the debts of the city, even though the museum and its contents are clearly the city’s property.
This was weird, to say the least.
Then it got weirder.
A group of foundations from across the country have banded together to protect the museum and its contents from being sold piecemeal or held hostage for any purpose.
This group has pledged more than $300 million to “purchase” control of the museum and its contents from the city, and the state of Michigan has pledged to match this price, giving Detroit over $600 million in exchange for its control of the museum.
But there’s a catch.
The city can’t use the proceeds from the transaction. Instead, the proceeds must be delivered in total to the pensions of the city workers.
So the city owns the museum and all the art.
The Attorney General claims the city can’t sell the museum or art to satisfy its debts.
Yet a group of foundations — plus the state — can buy control of the museum and art from the city, and then direct where the money goes?
I’m sure Jimmy Hoffa is laughing in his grave, wherever it is.
Aren’t the pensions simply one group of creditors? Isn’t this course of action doing exactly what the Michigan Attorney General said wasn’t legal? That is, using the assets of the Detroit Institute of Arts Museum to satisfy the debts of the city…
Of course it is, but that’s not the point.
The sole intent of this legal/financial contortion act is to take control of the assets from the city so that this situation never arises again, and funnel money directly to a preferred group — the pension funds — at the expense of bondholders and others who have a legal claim on the city.
No one cares that the city mismanaged itself into this position.
No one cares that bondholders have just as much of a claim on ALL the assets of the city as do the pension funds.
So be careful when and how you invest.
Anyone in a position to rule on how assets are divided — be it judges, administrators, or Congressmen — can take your money away from you if they feel that their determination of a “better use of funds” is someone else’s pocket.
It can’t be any clearer: When push comes to shove, the law doesn’t matter.
|Follow me on Twitter @RJHSDent|
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