Detroit just filed for bankruptcy.  This is the largest city bankruptcy in U.S. history and much of it has to do with the banks.

Legions have fled Detroit over the last decade.

Detroit lost a quarter-million residents between 2000 and 2010. A population that in the 1950s reached 1.8 million is struggling to stay above 700,000. Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them.

Yet the Detroit bankruptcy details show the desire to slash city pensions and health benefits while too big to fail banks are first up to get their derivatives paid off.

Sources agree that Orr’s deal with creditors, widely reported to be Bank of America Corp. and UBS AG, to pay a $344-million swap with a $255-million debtor-in-possession loan, is instrumental in the timing of the potential bankruptcy filing.

The deal gives the city access to $11 million a month in casino tax revenues that Orr has said is key to maintaining city services while negotiations, in or out of bankruptcy court, take their course with other creditors and unions.

There are other reports that banks and their swaps will be paid first in any bankruptcy proceedings.

Wall Street firms that sold interest-rate swaps to Detroit as part of $1.4 billion of pension-bond issues stand to get paid before investors and the retirees the borrowings were supposed to help.

In 2009, the companies -- UBS AG (UBSN) and SBS Financial Products Co. -- could have forced the city to pay a fee to end the agreements, which were designed to cut the cost of the debt. Instead, the firms struck a deal giving them a claim on Detroit’s gambling-tax revenue, guaranteeing they’ll get paid $50 million a year.

Under Emergency Manager Kevyn Orr’s proposal last week to restructure the insolvent city’s finances, the payments get priority over promises to retirees and holders of unsecured debt, including the pension borrowings. Being ranked among secured creditors gives the banks the same protection as investors in water and sewer bonds or general obligations secured by liens on state aid.

While the banks are going to get theirs, guess who gets the shaft, public workers of course.  The bankruptcy filing protects the city against their claims.

The bankruptcy petition would seek protection from creditors and unions who are renegotiating $18.5 billion in debt and other liabilities.

There is an entire website devoted to exposing bank loans and derivatives to the city of Detroit, demanding that debt be canceled, obviously to no avail.  All of this amounts to Wall Street 1, Detroit 0 as banks and hedge funds get paid 100% while the workers, pensions and public services get tanked.  The negotiations before filing were so low, the city wanted to pay pensions and benefits less than 10¢ on the dollar.  That's over a 90% cut!

The Detroit Pension board also tried to stop the bankruptcy and filed a lawsuit attempting to block cuts to workers benefits, clearly to no avail as bankruptcy was filed.

Detroit has been dependent on the banks since 2005 and in case you missed it, Bloomberg wrote an in depth exposé on banks making a killing off of Detroit and their financial woes.

The only winners in the financial crisis that brought Detroit (9845MF) to the brink of state takeover are Wall Street bankers who reaped more than $474 million from a city too poor to keep street lights working.

The city started borrowing to plug budget holes in 2005 under former Mayor Kwame Kilpatrick, who was convicted this week on corruption charges. That year, it issued $1.4 billion in securities to fund pension payments. Last year, it added $129.5 million in debt, 9.3 percent of its general-fund budget, in part to repay loans taken to service other bonds.

If anyone is aware bankruptcy is where pensions go to die, getting turned over to the PBGC.