The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content


()

FINANCIAL TIMES

Detroit bankruptcy will answer tough questions

Lex is a premium daily commentary service from the Financial Times. It helps readers make better investment decisions by highlighting key emerging risks and opportunities.

The city of Detroit has capitulated, and will take its place in history as the largest U.S. municipal bankruptcy. This is unfortunate but widely expected. The Motor City and home of Motown has been in terrible shape for years. And the hardball tactics that Kevyn Orr, the corporate bankruptcy lawyer turned Detroit emergency manager, took with creditors and unions signalled that an out-of-court compromise was unlikely. After years of worrying that poor fiscal management would end in tears for the $4-trillion U.S. municipal bond market, investors will now be thinking about two very simple questions. The first is whether Detroit is a sign of things to come or due to unique circumstances. Second, will the city’s blockbuster bankruptcy spook investors out of their other municipal bond holdings?