Detroit goes bankrupt
The Obama voter is defined by his ability to forget inconvenient bits of recent history, particularly when it comes to the words of Barack Obama. Nothing the man said before last week sticks in the minds of his voters; his promises and pronouncements from months and years past are dim phantoms, to be exorcised from the mind upon command. But on the off chance any of his voters actually remember the 2012 Democratic National Convention, they might recall speaker after speaker falsely accusing Mitt Romney of wanting to let Detroit go bankrupt, while Obama refused to.
Well, Detroit really did just go bankrupt, and Obama let it.
It’s the largest municipal bankruptcy in American history. Its necessity was discussed by Michigan’s Republican governor, Rick Snyder, in a Fox News article:
Kevin Orr, a bankruptcy expert, was hired by the state in March to lead Detroit out of a fiscal free-fall, and made the filing Thursday in federal bankruptcy court.
“Only one feasible path offers a way out,” Gov. Rick Snyder said in a letter to Orr and state Treasurer Andy Dillon approving the bankruptcy. The letter was attached to the bankruptcy filing.
“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,” Snyder wrote. “The city’s creditors, as well as its many dedicated public servants, deserve to know what promises the city can and will keep. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.”
Snyder had determined earlier this year that Detroit was in a financial emergency and without a plan to improve things. Snyder hired Orr in March, and he released a plan to restructure the city’s debt and obligations that would leave many creditors with much less than they are owed.
The city is a staggering $14 billion in debt, and currently running a $380 million annual deficit. The last-ditch debt restructuring plan involved asking creditors, including titanic union pension funds, to take 10 cents or less on the dollar. Unsurprisingly, there weren’t many takers. That’s an even worse “haircut” than the one imposed on creditors during the Greek debt crisis. On the other hand, bankruptcy means some of those creditors will now be getting more like zero cents on the dollar.
I heard a local morning news broadcast explain that Detroit’s bankruptcy was caused by “declining population and a fading auto industry.” That’s the standard media action line for covering the real cause: 50 years of corrupt one-party Democrat rule, in collusion with Big Labor. That population didn’t “decline” due to flying-saucer abductions. The fortunes of the auto industry are certainly a major factor, and books have been written on the business decisions that caused American automakers to lose their market dominance. We might conclude that tying the economic fortunes of a big city to a single industry is unwise.
But auto sales weren’t the biggest problem for the industrial giants of Detroit. Sales weren’t that bad, even in their toughest years. There is still fairly strong demand for cars and trucks in America, even in Barack Obama’s dead-parrot economy. It’s their ludicrous union-designed business model that sank Big Auto.
And let’s not dump too much of Detroit’s crisis at the feet of those automakers, because that corrupt Democrat Party elite spent the city into penury, racking up enormous long-term debt. They spent money like tomorrow would never come, but yesterday tomorrow came. Bloated pensions are just another form of deficit spending: commitments given to today’s workers, without worrying about who’s going to pay the bills when they come due. At some point, the spendthrift government can’t borrow enough money to keep the shell game floating any more. Who wants to buy bonds from a city that’s talking about 90 percent haircuts for creditors?
All of a sudden, the politicians who spent decades assuring their constituents that debt and deficits are no big deal throw up their hands, declare nothing can be done to escape the fiscal black hole they’ve created, and retire to their lavish estates. Detroit is end-stage Obamanomics. They’ve already tried the standard liberal snake oil of big tax increases on the Evil Rich; the result is empty buildings and catastrophic unemployment. The Wall Street Journal notes that harsh treatment of Detroit municipal bonds “may result in higher borrowing costs for cities and towns across Michigan, and potentially the U.S,” so future historians may date the socialist-engineered collapse of the entire American system from the Detroit bankruptcy. Just wait until entire states, like Illinois, follow Detroit into the abyss. That will do wonders for the cost of government borrowing.
It doesn’t help that the Detroit Democrats were inept at providing municipal services with the money that didn’t end up stuffed in the pockets of top officials and their very special friends. The Wall Street Journal describes the value Detroit residents are getting in exchange for their fat tax bills:
The city’s unemployment rate has nearly tripled since 2000 and is more than double the national average. Detroit’s homicide rate is at the highest level in nearly 40 years, and it has been named as one of the most dangerous cities in America for more than 20 years.
Its citizens wait an average of 58 minutes for the police to respond to their calls, compared to the national average of 11 minutes. Only 8.7% of cases are solved, compared to a statewide average of 30.5%.
More misery from Reuters:
Detroit’s economic struggles have resulted in a deterioration of city life. The murder rate is the highest in nearly 40 years, only a third of its ambulances were in service in the first quarter of 2013 and nearly 78,000 abandoned buildings create “additional public safety problems,” Michigan’s Republican governor, Rick Snyder, wrote in a letter accompanying the filing.
Residents have also had to cope with a breakdown of services. Forty percent of street lights were non-functional in the first three months of this year, while the police took an average of 58 minutes to respond to emergency calls, more than five times the national average. The city government has also been plagued by mismanagement and political corruption.
“Detroit has a lot to offer, but we need a clean sweep of politicians,” said Joanna Maslach, 30, a restaurant manager. “There’s still too much corruption here. It’s too dysfunctional.”
But as long as those union pension checks keep coming, who cares if it takes an hour for the cops to show up? The people who aren’t collecting union pension checks, that’s who. The Detroit death spiral is Democrat corruption, which drives people out of the city, which leaves fewer taxpayers to finance the next round of Democrat corruption. It’s been going on for years. The result is a city that lost 25 percent of its population over the last decade. Pensioned retirees now outnumber active workers by over 2 to 1. To blame all of this on the sales woes of Government Motors is dangerously foolish and deceptive. The people who actually live there don’t accept such excuses. Every article on Detroit’s bankruptcy includes quotes from people like Joanna Maslach. They know Detroit was a great city once, and the echoes of her greatness can still be glimpsed among the decaying corpses of buildings starved for inhabitants. People should want to live in Detroit, and not just because of the automobile production lines. Winning them back is the only way to save the city.
Forbes reports that bankruptcy has given business leaders and investors some cause for optimism, as Detroit survives tough fiscal surgery to have a shot at recovery:
While nobody welcomes the concept of bankruptcy, it is necessary to solve the long-term structural financial challenges of this historic city,” [Detroit Chamber of Commerce President Sandy Baruah] said, adding that it sets the stage for future growth. “The private sector is thriving and businesses continue to invest in Detroit. Addressing Detroit’s financial instability is the final barrier to robust growth.”
Dan Gilbert, founder and chairman of Rock Ventures/Quicken Loans, which has invested heavily in downtown Detroit, said it’s a difficult but necessary step. “Bankruptcy will be painful for many individuals and organizations but together we will get through it and come out stronger on the other side. We simply do not have a choice.” But he said bankruptcy hasn’t soured his desire to invest in the city. “We are all in. We are more committed than ever to Detroit and the opportunities downtown. Detroit’s best days are ahead.”
[...] “The incredible investment that has occurred in the city recently — $10 billion in five years — has all been ‘friends and family’ money,” [Baruah] said, referring to spending by Detroit companies like Quicken Loans, Blue Cross/Blue Shield of Michigan and General Motors to boost their presence. What Detroit has been lacking is capital investment from other parts of the country. “No one will want to invest in a city with grave fiscal and structural problems.”
Investors are always looking for a good deal. A lot of them won’t be worried that Detroit declared bankruptcy. They’ll be much more interested in what happens next. Perhaps the rest of America will learn a valuable lesson about the dangers of leaving huge bills for the next generation to pay off, and accepting excuses for abject failure from slick politicians. But that won’t happen if the Democrat-dominated media keeps telling its national audience fairy tales about people who disappeared for no reason, and auto factories wrecked by gremlins.