The banks are presumably going to take a huge bath on bonds they bought from Detroit.

Is there reason to think that banks are major unhedged bondholders who will actually take losses?

I'd expect Detroit pension funds to be the bigger bond holders of Detroit bonds... No bank of note will have much exposure, the banks aren't stupid.

Any one know what kinds of perks Michigan as for state munis? In colorado you get a tax break on them.

If they do, it's only because Detroit literally has nothing of value left that can be taken.

"If they do"? Help me understand the word "if" there?

If, as in if the Federal Gov't doesn't bail them out.

No, certainly the garbage man doesn't write down his own pension. His union negotiates with the government over how much money (that doesn't belong to either of them at the time) to promise to all garbage men.

Banks deserve to be exposed to the risk they assume in general, but this issue has problems in addition to the problem of banks being sheltered from risk.