In response to Controversy in Detroit: What’s a Fair Settlement of Bondholder and Pension Obligation Claims? reader Ken suggests my proposal to have Detroit bondholders and pensioners be treated with the same percentage haircuts is not fair.

Ken asked “Which of the two would suffer more: pensioners or bondholders?

The answer is irrelevant. By definition, “fair” implies equal treatment and equal opportunity, whether black or white, rich or poor.

Is it “fair” the poor have to pay the same for a loaf of bread as the rich? Heck on a percentage-of-wage basis, the poor pay thousands of percent more. Should Bill Gates have to pay $1,000 for a loaf of bread as an act of “fairness”?

I suggest, it’s clearly “fair” for everyone who walks into a grocery store to pay the same price for a loaf of bread. Imagine having to prove how much you make and be charged accordingly every time you bought something.

In cases where bargaining happens (auto sales for instance), everyone gets the same chance to bargain, not just the poor or the rich. Some people bargain better than others, but the chance to bargain does not discriminate.

Equal Protection

Equal treatment is fair. There is no other way.

By the way, the “equal protection clause” of the 14th amendment reads:

“No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”

Does “equal protection” sound “fair” to you? It does to me.

Are the rights of Detroit pensioners higher than the rights of bondholders? Clearly not, given both are unsecured creditors. Whether or not pensioners would suffer more than bondholders is irrelevant.

“Screw the Bondholders” has a nice “Robin Hood” ring to it, but it is blatantly unfair, as well as unconstitutional.


Reader John offered an interesting as well as accurate assessment. Paraphrasing John … Detroit bonds are assets in the retirement plans of other. Ken essentially argues it’s fair if Detroit pensioners’ retirement prospects are enhanced at the expense of others’ retirement plans.

Mike “Mish” Shedlock