Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

The largest municipal bankruptcy in US history, the NYT writes, is threatening to drag other Michigan cities down with it.

When Detroit filed for bankruptcy two weeks ago, its emergency manager proposed treating the city’s general obligations bonds like any other form of city debts. This broke a long-standing precedent in the muni market, where certain GO bonds are typically treated as being backed by the “full faith, credit and taxing power” of the city. On Thursday, Michigan’s Saginaw County became the third local issuer in the state to postpone a bond sale.

The NYT calls this “the Detroit Effect”; one muni analyst tells the WSJ “You really break the foundation” of the muni market when cities can rejigger their bond obligations. Still, as Brian Chappatta notes, this effect has so far been limited to Michigan: nationally, spreads between general obligation bonds and revenue bonds have only shot up after Detroit’s filing.

If Detroit’s $18 billion bankruptcy is messy, its public services are even messier: earlier this year, the city found an uncashed $1 million check in a municipal desk drawer. Back in February, Cate Long suggested “Detroit needs to begin its restoration process by collecting unpaid property taxes.” Not only did it have a creaky bookkeeping system, but many residents couldn’t (or just didn’t) pay the city what they owed: currently 384,861 properties in the city are in some form of tax distress.

Lack of revenue has led to things like closing parks and cutting down its police force, in addition to having a pension system strained by a ballooning number of retirees. But Richard Larkin thinks things might not be as bad as generally thought: “Detroit is not the worst funded city pension system in the US; in fact, Detroit’s funding levels are almost twice as good as ‘A’ category-rated Philadelphia.” Morningstar also suggested Detroit’s pensions are reasonably well funded. Josh Barro, meanwhile, notes that while pension liability is not a driver of Detroit’s insolvency, it is still overestimating likely returns on its pension assets. If those returns aren’t met, taxpayers may have to pony up even more, Barro writes. – Shane Ferro and Ryan McCarthy

On to today’s links:

JP Morgan
The SEC won’t let JPM off the hook for the London Whale without admitting wrongdoing – DealBook
The London Whale will not face criminal charges in the US – Reuters

Alpha
Howard Schultz: “The irony is that Ackman himself has every step of the way severely damaged this company” – WSJ

Long Reads
Inside a save-the-world field trip for tech moguls – Max Chafkin

Unintended Consequences
The JOBS Act was about startups, right? It’s helping Dan Loeb’s Bermuda reinsurance firm with zero US employees – Bloomberg

Yikes
UK’s Serious Fraud Office lost a serious number of documents – DealBook

Warnings
Simon Johnson: Getting banks out of the commodities business – NYT

IPOs
“The basic problem with IPOs isn’t that they are too hard. It’s that they are too easy” – Bloomberg
One underwriter isn’t enough – Dan Primack

Inequities
Another way we tax poverty: the lottery – US News

Educational
Optimizing grad school finance with credit cards – Inside Higher Ed

Ouch
Krugman on Friedman: “historians of economic thought will regard him as little more than an extended footnote” – NYT

Follow Counterparties on Twitter. And, of course, there are many more links at Counterparties.