I don't see the feedback loop. In normal bankruptcies, or any other mistake in management, there's a feedback loop to help self-correct and prevent this from happening again. So politicians made a lot of promises they couldn't keep, got in bed with the folks running the city and created all sorts of sweetheart deals, made lots of speeches about making the city a better place and so forth while running it into the ground.

The lawyers come in, nullify the promises made to many of the participants, including bond holders and dedicated employees, all of whom acted in good faith. The politicians walk away. Heck, some of them are probably busy right now continuing to move up the political ladder.

So where's the feedback loop? The fact that bondholders will be more careful next time around? That's all I can see, and it's a very flimsy thing to hang that much optimism from. My bet is the state picks up the bonds, takes over managing the city budget, and gives everybody involved a 30-40% haircut. This may prevent the particular city named Detroit from repeating the same mistake for a few years, but it does absolutely nothing for all the other mismanaged cities. I'm not even sure Detroit will remain in the doghouse very long. In fact, from a certain political angle, looks like a very well-played strategy. At the end, all the players walk free and continue making speeches about how awesome Detroit is and "if they had only listened to me" things would have worked out.

Doesn't look too encouraging for anybody, but heck, maybe I missed it.