Wall Street Swaps Claim Detroit Cash Over Retirees: Muni Credit

As Nobel Prize-winning economist Joseph Stiglitz sees it, banks that sold interest-rate swaps to Detroit “should be at the bottom in line” among those paid in the city’s record bankruptcy.

Instead, they may be first, ahead of retired city workers and investors. UBS AG and Bank of America Corp., which sold the swaps to the city as a way to cut the cost of borrowing for pension contributions, won the preferential treatment in 2009, four years before Detroit’s $18 billion bankruptcy filing. The banks probably will get 75 percent of what they’re owed while unsecured bondholders and pensioners will get less than 20 percent under Emergency Manager Kevyn Orr’s plan to restructure.