Detroit Bankruptcy?
 

Detroit becomes largest US city to file for bankruptcy

http://www.bbc.co.uk/news/world-us-c...73#TWEET826506

So any other cities gone bankrupt and what has it meant for them?

And the figure at the end of the story of the city losing 250K people from 2000-2010...that doesn't sound that bad to me, but I guess it is...

Re: Detroit Bankruptcy?
 

It means that the creditors are going to lose. Expect those who have city pensions and bondholders to take substantial haircuts.

Detroit has to pay to support infrastructure that is meant to serve a population three times its current size. They would better off if they could consolidate what's left of it into a smaller space and turn the remainder into a big empty field.

Re: Detroit Bankruptcy?
 

Aren't they already doing that by flatting out developments on the skirts so that they don't have to provide fire/police etc type of cover to empty areas?

Re: Detroit Bankruptcy?
 

I believe that there have been some modest efforts to do that, but it isn't nearly enough.

Detroit has lost over 60% of its population since 1950. Over that same period, the US population doubled. They have considerable problems, and barring some kind of miracle, the bankruptcy will only slow the bleeding.

Re: Detroit Bankruptcy?
 

San Bernardino, Stockton, and Vallejo California all filed for bankruptcy over the past few years. It is much more unusual for large cities to file for bankruptcy.

When they file for bankruptcy, they can renegotiate with unions and creditors and bond holder take a haircut.

Federal law does not allow states to declare bankruptcy.

Re: Detroit Bankruptcy?
 

Amazing it took this long for someone (administrator not the poster) to state the obvious. This of course paves the way for lots of other places to do the same and get out of over generous public pensions....

The big shame is that money wasn't put into Detroit with the provisio to make some sort of mass market non oil based car/transport for the masses with all the government bail out money. I don't think the Chevy volt is that.

Some innovation might have "retooled" Mo-Town as opposed to all the useless waste of gov money that's been going on.

Detroit could the poster child for the first US city to be in ruins and deserted.

Re: Detroit Bankruptcy?
 

The whole internet is making Robocop jokes right now.

This message brought to you by OCP.

Re: Detroit Bankruptcy?
 

It's not all that easy. Postwar freeways and suburbs began the decline, white flight hastened it, excessive dependence on the car industry entrenched it, and crime and the school system did the rest. It's not as if there's much reason for businesses to start moving en masse to Detroit; you could pay them to move, and it still wouldn't be worth it.

Re: Detroit Bankruptcy?
 

More landfill space for Toronto. :fingerscrossed:

Re: Detroit Bankruptcy?
 

Very true. Its been a slow bleeding.

I suppose the motor industry died sometime ago with off shore plants. Seems sad but that's progress.

Re: Detroit Bankruptcy?
 

Orange County also went through Chapter 9 in the mid 90's and Jefferson County in Alabama is also currently in Chapter 9.

Unlike Chapter 7 and Chapter 11 for corporations Chapter 9 will not let the municipality just run down and liquidate so it's all about restructuring existing obligations.

Re: Detroit Bankruptcy?
 

I believe that ones who decided to do it were Republicans. Right in the middle of the city starting to show signs of a bounce-back.

Re: Detroit Bankruptcy?
 

We don't know if some of the union contracts are way out of kilter or not. As an example when Vallejo filed for bankruptcy, police and firemen salaries were making in excess of $100,000 in a city with a medium income of about $35,000. This couldn't continue unless city and county sales tax, property tax, and any other tax levied by local authorities was significantly increased on the low to middle income families since the city had tapped out it's credit limit and no one would buy their bonds anymore.

An extreme example is air traffic controllers in Spain average about $400,000 per year as compared to about $100,000 per year in the US. How does a population with over 25% unemployment rate and medium income of about $25,000 pay $400,000 salaries?

Re: Detroit Bankruptcy?
 

NYC came close in the '70's but fortunately for it it got a federal guarantee for its debt. That's not going to happen for Detroit.

Re: Detroit Bankruptcy?
 

Detroit has something like 18-20 billion dollars in debt, and just around 700,000 residents. I don't think there is any other possibility for them but to file bankruptcy.

Detroit is not a healthy city in any way shape of form.

Median income in Detroit just keeps dropping, its down to somewhere around 25,000 now, about half the national average.

18% in the city are unemployed.

Median value for an owner occupied home 50,000, in 2007 it was 88,000 and keeps on falling.

35.5% of families live at or below poverty.

57% of children in live in poverty.

Only 13% of residents over 25 hold a bachelors degree , compared to 28% nationwide.

The article is from Sept. 2012, so things may have gotten worse since then.

http://www.mlive.com/news/detroit/in...median_in.html

Re: Detroit Bankruptcy?
 

I'm surprised they went to Canada to shoot the remake - could have gone back to Detroit where they wouldn't need to waste money designing a set and it would have looked incredibly authentic - perhaps getting an Oscar for Best Production Design ....

Re: Detroit Bankruptcy?
 

They need to shrink down to a sustainable level, bulldoze some sizeable areas and then reboot with some sort of technology or biotech park/hub and nearby some suitable housing - condos, townhomes, some good quality apartments, and some executive quality housing. With the right plan and the right backers they could make that work and rebuild the city.

Re: Detroit Bankruptcy?
 

A judge in Detroit has ruled the bankruptcy application as a violation of the constitution so this will make things a bit tougher. http://www.bbc.co.uk/news/world-us-canada-23381456 They are pretty much stuck unless they are successful with their appeal.

Re: Detroit Bankruptcy?
 

That's just asinine. If Detroit isn't allowed to go bankrupt in a controlled and organized manner, it is just going to run out of money, then nobody will get anything. Someone needs to tell the onions that money doesn't grow on trees and there simply isn't enough to go round. Chopping salaries and pensions isn't "fair", but where do they suppose the money Detroit needs to carry on in the way it has, is going to come from? :confused:

Re: Detroit Bankruptcy?
 

Bernanke..A little QE :D

Re: Detroit Bankruptcy?
 

Detroit has been quantitatively easing itself for the past 60 years! :rofl: .... It is a lesson for all of us, if you rely on borrowed money, eventually you WILL run out of credit. :unsure:

Re: Detroit Bankruptcy?
 

The BBC omitted an important detail from the story.

The ruling was made by a county circuit court judge. But bankruptcy in the United States is a federal matter.

Federal law prevails over state law for a matter such as this. A bankruptcy judge has no obligation to consider the Michigan state constitution or other state laws. If anything, the judge may very well be compelled to not follow what just happened in the Michigan state court, since creditor priority has to be considered in deciding bankruptcy cases.

Re: Detroit Bankruptcy?
 

If that is the case, why has Detroit appealed the ruling? (I'm not disagreeing with you, I am just interested to know why.)

Re: Detroit Bankruptcy?
 

It certainly can't hurt to have a state appeals court toss out the lower court ruling, even if it isn't really binding on the federal court. I don't see why the state attorney wouldn't have appealed it, and the judge expected it to be appealed, given what she said in court.

There are also political issues at work here. On the one hand, the state government has thrown its hat into the ring with this, and needs to make sure that the case keeps moving forward; the judge's decision adds drama to the whole affair.

On the other hand, the judge may be doing a bit of grandstanding herself. She issued instructions that her decision be sent to Obama and that he should look into the pension issue, a move that was a bit out of left field. Circuit court judges in Michigan are elected, and this judge is up for reelection next year -- she probably expects that this decision will play well with the votes in her district, even if it is overturned.

Re: Detroit Bankruptcy?
 

The idea of a city of a bankrupt is something I struggle to get my head around. Is it even possible in the UK?

EDIT: Apparently so: http://www.publicservice.co.uk/featu...y.asp?id=16128

Re: Detroit Bankruptcy?
 

Although there are federal bankruptcy laws that affect the states to write bankruptcy laws, bankruptcy laws are primarily written by the states. Unless there are specific federal bankruptcy laws that prohibit the states from enacting their own bankruptcy laws, the states bankruptcy laws are the laws that are followed. As an example, Florida law gives unlimited protection on a primary residence (expect from the mortgage lender and taxing authorities) during bankruptcy and all states define what can be protected and the amount that can be protected from creditors. In fact, Florida even allows a person to sell his/her home during bankruptcy and purchase a new home with the proceeds and that money can't be touched by creditors as long as the intention is to purchase a new home with the proceeds. Therefore unless federal law specifically states that pensions are protected or not protected during bankruptcy, states can write laws defining whether pensions are protected or not.

Re: Detroit Bankruptcy?
 

Interesting Michael, so in essence if there are laws in Michigan that protect those pension plans, Detroit may not be able to get around it? I 'm sure there are many cities around the country watching this very carefully to determine if this is the only road they can take to shake off the burden of these payments. Although I appreciate the burden the state is facing, still tough for those that are dependant on their pensions.

Re: Detroit Bankruptcy?
 

The pensions will probably be treated as unsecured creditors, which gives them a lower status than secured creditors. They'll be at the back of the line, with every other unsecured creditor. They aren't the equivalent of a homestead.

Re: Detroit Bankruptcy?
 

I think you're right, because if the pensioners were protected they wouldn't now be kicking up such a stink about the bankruptcy filing.

Re: Detroit Bankruptcy?
 

We won't know until the appeals have gone through the court system.

Pensions could also possibly be treated the same as employee pay (first in line) which appears to be the way that Michigan law wanted it to be treated when the law was passed.

Unless you can quote a federal law, we are just speculating. Unless the Michigan attorney general finds some federal law that overrides Michigan law, he's bound to lose the appeal. I suspect they are now trying to find some basis for the appeal. If one can't be found, what may have to happen is the state passes a law to overturn the bankruptcy protection law (if they have the votes) and then Detroit declares bankruptcy again.

Republicans seem to defend states rights to their last breath until they don't like state laws and then they try to ignore them or pass federal laws to enforce their ideology in all states.

Re: Detroit Bankruptcy?
 

I'm not really speculating. For one, Detroit is contending that the pensions are unsecured creditors.

For another, this very process is currently underway with the Stockton, California bankruptcy, and that case is proceeding without the pensions being carved out from the case.

The bondholders will fight for this based upon the priority issue, claiming that they're being treated unfairly as a class if the pensions are allowed to stand at the head of the queue.

Unlike a Chapter 11, the courts don't have much say in a Chapter 9 so over the details of the plan, aside from determining whether there are elements of bad faith that allow the court to reject the plan. (They can't force assets to be sold to pay creditors, for example.) The pensions are going to have a hard time fighting this, but even a priority wage claim would put the pensions behind the secureds.

Re: Detroit Bankruptcy?
 

But Detroit is ignoring state law.
But California doesn't have such a state law.
That is likely true but there is such a thing as due diligence. If investors performed due diligence to determine that such a state law was on the books, they may have accessed the risk as higher then they may have originally thought. Banks used that defense successfully that investors must perform due diligence and therefore banks are not responsible for investor losses.
Although Congress took care to draft the legislation so as not to interfere with the sovereign powers of the states guaranteed by the Tenth Amendment to the Constitution, the Supreme Court held the 1934 Act unconstitutional as an improper interference with the sovereignty of the states. Congress enacted a revised Municipal Bankruptcy Act in 1937.

http://www.uscourts.gov/FederalCourt.../Chapter9.aspx

So even though congress was careful not to interfere with the sovereign powers of the states, a more watered down version had to be passed.

In my personal opinion, pensions will likely have to take a haircut for Detroit to be on the road to recovery but it sounds like there will be long court battles before that will be resolved.

Re: Detroit Bankruptcy?
 

Agreed about consolidation. The city workers might be OK, it is Detroit :)

My home city has been through this before, and although smaller had/has very similar problems to MoTown.

The root of the problem is the Machine. Dem, Rep, doesn't matter. All they know is growing their empire secures their power and ability to milk more and more money. Shrinking (which is solely needed) is completely foreign to them.

Smash the machine. Although without the kind of obvious corruption shown here lately (half our 'leaders' are now rotting in jail where they belong) it's very very difficult, because through patronage and quid pro quo their tentacles are long and many.

Have no doubt though, Detroit will rise again. Might take a while though!

Pete

Re: Detroit Bankruptcy?
 

This was very good:

http://www.france24.com/en/20130723-...-auto-industry

Pete

Re: Detroit Bankruptcy?
 

This is nothing new and a long, slow downward spiral. Detroit has been a hole since at least the early seventies. The WSJ lays the blame for Detroit's woes squarely on the shoulders of Coleman Young, the mayor 1974-1994. Give it a read, it's a compelling argument. Basically, disasterous social and economic policies resulted in a self-sustaining rapid depopulation of the city. This destroyed the city's tax base without cutting its obligations.

Subsequent administrations have been ineffective in fixing the city's crime, social and economic problems. Some of them have also indulged in some of the most blatant nepotism, patronage and outright corruption in the country (see Kwame Kilpatrick).

People forget that Detroit was the Silicon Valley of the 40s and 50s. It's amazing to see how hard it has fallen.

Re: Detroit Bankruptcy?
 

Ach, need to be a subscriber :(

Cleveland once rivaled 5th Ave as a home and shopping destination. My dad said that all changed when the city passed the 'Rockefeller Tax', a tax on rich people.

Pete

Re: Detroit Bankruptcy?
 

Isn't that always the excuse that the rich use. Currently the rich blame Obama for having poor policies that is not business friendly and is taxing the job creators even though stocks have risen dramatically, the rich are wealthier then ever, and the US is one of the few developed countries that has had continuous job creation, increased gdp, lowering unemployment, and decreasing government deficits.

For some reason it seems the rich would rather have austerity programs like Europe with declining gdp, increasing unemployment, double and triple dip recessions, poor stock market performance, and increasing government deficits. Then to satisfy their egos, they could blame Obama for the mess he created. But in reality, if there wasn't so much headwinds from European policies, the US would be significantly further down the road to full recovery.

Economics is a lot more complex than the right, the rich, and the unions wants us to believe. The rich wants us to believe that all the problems in Detroit were caused by powerful unions and regulations but fail to mention poor management even though Germany has much more powerful unions and stricter regulations than Detroit but the car industry in Germany has thrived.

Re: Detroit Bankruptcy?
 

It might be an excuse but move out they did, and with them the rug under Cleveland's golden age.

Detroit used to be a beautiful, wealthy city. Now it isn't. I'm not rich, but I'd much rather live in a wealthy society than a poor one.

Pete

Re: Detroit Bankruptcy?
 

How well did Hoover's policies work of keeping taxes low and running the unemployment rate to 25% and still rising when he left office with massive people in food lines? I suspect that if there would have been quick action, the damage to the economy could have been limited but that is not a right wing ideological belief.

Since the 1970's, Detroit's auto manufacturer's management made one mistake after another. Now that they've hit bottom, maybe now with the assistance of the government (bad policy as far as the right is concerned even though Germany and Japan does it) management may have learned their lesson and maybe in the future, the golden age of Detroit will return.

Clinton raised taxes and the economy boomed and the prosperity was shared. Bush Jr. lowered taxes and the rich got richer and the poor got poorer. So there is no one right answer to any problem.

Re: Detroit Bankruptcy?
 

I have no problem with the rich paying their fair share btw. 'Fair' is a tough one though.

Hoover had exactly nothing to do with the depression. As a matter of fact he pulled his money out of the market almost a year before the crash and told anyone who would listen to do the same. The government lacked the power to do practically any regulation at the time.

The recent derivative based crash does trace back to Pres Clinton who refused to regulate them based on the advice given by his treasury staff (btw, the same folks Bush Jr and now Obama use). That doesn't absolve Bush Jr, he'd didn't do anything either. I really don't blame them as no one wants to stop the gravy train, but it would've been very statesman like if they did.

To get an idea how bad both the corporate and factory floor attitude was in the auto industry I suggest 'The Decline and Fall of the American Automobile Industry' by Brock Yates.

The government is very involved in the auto industry, at least GM. Ford did it on their own.

Pete