In a final, desperate move, the very unions whose members were being laid off became the city's lenders of last resort. By investing their pension funds in the newly created MAC bonds, they effectively bailed out their own employer, a high-stakes move that ultimately averted total bankruptcy.
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The classic distressed debt strategy is broken. Market dislocation windows are now incredibly narrow, often lasting just days. Furthermore, low interest rates for the past decade eliminated the ability to earn meaningful carry on discounted debt. This has forced distressed funds to rebrand as 'capital solutions' and focus on private, structured deals.
Moses pioneered using independent authorities to issue bonds for infrastructure, sequestering revenue streams like tolls away from the city's general fund. This model starved public transit and other services, creating a structural vulnerability that contributed significantly to the 1970s fiscal crisis long after he was gone.
In a distressed scenario, simply asserting seniority as a junior capital provider is ineffective. You cannot force the majority owner and management team, whom you've just told are worthless, to run the business for your benefit. The only viable path is to renegotiate and realign incentives for all parties to work towards a recovery together.
The city wasn't simply bad at accounting; it effectively had no centralized system. Finances were tracked on scraps of paper and in drawers, making it impossible to know the true state of its debt. This systemic failure, not just policy choices, made the collapse inevitable.
Ford's refusal to bail out New York wasn't purely a fiscal decision. It was a strategic political move to outflank Ronald Reagan on the right ahead of the 1976 Republican primary. This shows how national political calculations can directly and severely impact municipal-level crises.
The debate over CUNY's free tuition was more than a line item. For bankers, it symbolized fiscal irresponsibility. For New Yorkers, it represented the city's social contract and a path to mobility, crystallizing two competing visions for the city's future and what it means to be a citizen.
The crisis was a tipping point in American political thought. The preceding era was defined by the 'Great Society' belief in robust government services. The bailout's conditions, forcing deep cuts, signaled the dawn of a new 40-year consensus prioritizing austerity and fiscal conservatism over public spending.
When a company enters Chapter 11 bankruptcy, common stockholders are the last to be compensated, meaning their shares will likely become worthless. Investors should view this filing not as a potential turnaround but as a clear and final indicator to sell their position immediately to avoid a total loss.
Jeff Aronson reframes "distressed-for-control" as a private equity strategy, not a credit one. While a traditional LBO uses leverage to acquire a company, a distressed-for-control transaction achieves the same end—ownership—by deleveraging the company through a debt-to-equity conversion. The mechanism differs, but the outcome is identical.
While President Ford never uttered the words, the infamous headline created a common enemy. This external threat helped galvanize a city whose internal factions—unions, bankers, politicians—were at each other's throats, fostering a necessary sense of shared purpose to overcome the crisis.