Cities love to borrow and spend, and they can borrow at low interest rates because bondholders are first in line to get paid when there's a shortage of money. But what happens if the "bond" is severed and unions cut to the front of the line?
Unions seem determined to fight municipal bond market investors over who should shoulder the burden for Detroit's debts, setting up a lose-lose situation for blue politics.If the unions win, it could lead to an implosion in the municipal bond market across the country as lenders realize that money lent to struggling cities may never be paid back. As Walsh notes, this outcome would upend standards that "such bonds are among the safest investments and that for 'general obligation' bonds cities could even be compelled to raise taxes, if that's what it took to make good." This would be disastrous for other cities, which would find it much harder to borrow money, and would likely need to pay exorbitant interest rates to do so.
If the unions lose, however, it would deal a major blow to support from their own members. Detroit's pensioners would begin to wonder why they pay dues to a union that can't guarantee the pensions or benefits they were promised. A similar dynamic all but destroyed unions in the private sector as striking union members saw their jobs shipped away to China.
Thieves fighting over the last scrap of loot.
