Thursday, July 18, 2013

Detroit Goes Bankrupt

In a last ditch effort to save Detroit, Gov. Rick Snyder authorized Emergency Manager Kevyn Orr to file bankruptcy under a law the Legislature passed in December. The 16-page petition was filed in U.S. Bankruptcy Court in Detroit.

The bankruptcy filing came just minutes before Ingham County Circuit Judge Rosemarie Aquilina was scheduled to hold an emergency hearing this afternoon on a temporary restraining order blocking Snyder from authorizing a bankruptcy filing.

That request was filed by Ronald King, an attorney representing the police/fire and general retirement pension systems.

The judge did go ahead and grant temporary restraining orders against Snyder and Orr from taking further action in the bankruptcy proceedings, which is frankly ridiculous given the situation.

King told reporters he may file a motion Friday in the case seeking to require Orr to withdraw the bankruptcy filing.

“This was a race to the courthouse this afternoon and yet another example of (the Snyder administration) completely usurping the will of the people, ignoring the referendum in the fall and then flat-out racing to file bankruptcy protection so you can get out from the protection of (pensions).”

What King is ignoring, just like the dysfunctional city council and what's left of Detroit's voters is that this is what happens when other people's money runs out.

The Chapter 9 filing is going to be a precedent setter. Pensions are an issue because a bankruptcy judge has the power to override Michigan's state constitution by slashing retiree pensions, ripping up public employee union contracts and paying unsecured creditors a fraction of what's outstanding for unsecured claims worth $11.45 billion.

During a month of negotiations, Orr did his best in spite of being fought by the City Council every step of the way. So far, he's been able to reach a settlement with only two creditors: Bank of America Corp. and UBS AG. They've reportedly agreed to accept 75 cents on the dollar for approximately $340 million in swaps liabilities.

Unsecured creditors always take the biggest hit in bankruptcy court. Orr wants them to divvy up a $2 billion payout on approximately $11.5 billion worth of debt, which includes an estimated $9.2 billion in health and pension benefits and $530 million in general-obligation bonds.

By doing that, Orr says he would have $1.25 billion over the next decade to buy police cars and fire trucks, do long overdue street and building maintenance, tear down burned-out homes, and provide city services to parts of Detroit where they have become sporadic. SO far, he's a voiding selling off city assets like Belle Isle and a Detroit Institute of Arts collection worth serious money.

Orr also wants to lower property taxes and outsource a number of departments. Considering what's left of Detroit's tax because of the declining population and skyrocketing crime, I'm not sure how much lowering taxes would actually help the situation, but it couldn't hurt.

By the way, Detroit voted almost in a bloc for Barack Obama, and in spite of the all black city council's demand for 'Obama Money' as a racial payback, so far it hasn't been forthcoming.

How did Detroit get this way? A combination of racial politics, corruption and and unfettered rule by Democrats and the public employee unions.

It all started when the city's demographics changed enough to elect  Detroit's   first black mayor Coleman "I don't know nothin' about no Krugerrands" Young  in 1972. Young was something all right. He was a former member of the Communist Party and the National Negro Labor Council, a communist front group Young started with Soviet agent Paul Robeson that also included Obama's communist mentor Frank Marshall Davis. Mayor Young  habitually referred to himself as 'the chief muthaf**ker in charge'.

 During his  five terms, he presided over the decline of a once great city. Young was an expert when it came to practicing racial politics, and letting the public employee unions gorge themselves at the trough with increased salaries and benefits and patronage jobs in exchange for campaign contributions and votes.  By the end of his last term, the population of Detroit had shrunk by more than half as middle class taxpayers and businesses fled, the school system became dysfunctional, and taxes skyrocketed along with the crime rate.

And that includes, of course, what became a proud tradition of corruption among Detroit's public officials. When Mayor Young's close friend and political adviser William L. Hart was convicted for stealing $2.6 million from city funds and he and other Young cronies in the police department, school boards, sanitation, and other departments took the fall in what the FBI called 'a large circle of corruption surrounding the mayor', a substantial amount of the evidence they used was from wiretaps on Mayor Young's own home telephone.

The only reason he stayed out of jail is because the Carter Justice Department didn't want to indict a popular black Democrat mayor and risk antagonizing a reliable voting bloc.

Young's successors like Kwame Kilpatrick (who's now a guest of the State of Michigan) continued this legacy with gusto, if not with the same ability to get away with it.

And no matter what short term solutions are tried, nothing is going to really change in Detroit unless the politicians that run it and the population that continues to vote for them  are transported elsewhere or infused with enough newcomers to change the city's basic character . And that isn't going to happen.

Here's one idea. Detroit could sell off the art collection, Belle Isle and anything else  marketable to arrange a suitable  pay off to its creditors including the unions and the pension funds.Then just cease being a city at all. Use whatever money's left to turn the part of the city still capable of being reasonably secured into one giant  theme park, sort of a gritty, urban themed Vegas. Create casinos, reataurants and  clubs designed to bring in the sort of people who judging by their votes already seem to be happy with what today's Detroit has to offer...or at least slightly more upscale ones, with a little money to spend. Add a few brothels and a few choom parlours and you'd be set.

You could even have a park for kids and today's young urban teens, with attractions and rides I'll leave you to imagine...I would imagine a George Zimmerman shooting gallery would go over quite well.

Something like that has a lot more chances of succeeding than Kevyn Orr's ideas, unfortunately.


louielouie said...

in spite of the all black city council's demand for 'Obama Money' as a racial payback, so far it hasn't been forthcoming.

the city council of detroit could threaten to nuke israel.
that seems to get the "threatener" flush with US taxpayer monies.

GW said...

Good post. The real test is whether the Bankruptcy Court will make real changes to Detroit and not merely set up for failure in another few decades. What I am personally watching for is whether they break all public sector union contracts and go from defined benefit pension and health care plans to 401k's and health savings plans that would involve current funding and no future promises on the city treasury. If that becomes the model for public sector bankruptcies, then there might yet be hope for the nation.