Bankrupt Detroit Shouldn't Scalp Bondholders

Detroit, which just became the largest U.S. city to seek Chapter 9 bankruptcy protection, is in many ways unique. It has managed to lose a quarter of its population since 2000, for one thing. For another, its liabilities are a staggering $17 billion, according to an estimate by Emergency Manager Kevyn Orr -- in a city of roughly 700,000.

That's why plenty of analysts are asserting that Detroit's bankruptcy is also a unique case. Its finances are so calamitous, they argue, and its demographic and fiscal spirals so severe, that investors will treat its bankruptcy as a one-off event. So the haircut its bondholders will inevitably take is unlikely to result in significantly increased borrowing costs elsewhere.