Thursday, February 21, 2013

Detroit is Broke ... Not Saved ... What's Next? ... Who Knows?

We must begin to emphasize the fundamental national need for private sector led growth.

Otherwise, our deficits and growing national debts and unfunded entitlement obligations will continue uninterrupted and out of control. We also need to curtail unnecessary government spending and increase tax revenues. Doing these three things are absolute essentials to our nation's and citizens' future well being.

And without taking these actions, our growing financial problems as a society will get worse and worse until they are "unfixable" short of catastrophe. That much is clear.

Meanwhile, President Obama, our "Progressive-in-Chief," has pronounced GM to be among the saved. Detroit is GM's headquarters, so one would assume that if GM is saved, then its hometown would be safe. And Detroit serves as UAW headquarters as well, so I guess that makes the auto workers' union a viable institution, too. Or does it?

Is it too late for the city of Detroit to escape financial disaster? Maybe it is. And if so, shouldn't other cities try to learn its lessons before reaching a similar state of "unfixability?" Let's look closer.

GM and the UAW have been bailed out, at least temporarily, by the nation's taxpayers. Is it now the city of Detroit's turn? And if so, where will the taxpayers get the money? How much does the "Progressive-in-Chief" have left to spend?

Well, my guess is that nobody will ride to the rescue of Detroit anytime soon, if ever. It wouldn't be the politically smart thing to do, and it wouldn't accomplish anything useful either.

In fact, Detroit is perhaps in the worst shape of all American cities. What can be done is the question, and my guess is that nobody, including the President has the slightest idea of what the answer to the city's financial woes might be. The city may well be too far gone to be savable.

Detroit S.O.S. has the story:

"News flash: President Obama did not save Detroit. That's not actually news, at least not to Motown's 700,000 residents, but it may bear repeating as the president preaches his gospel of wealth and virtues of "collective action."

A report yesterday by a state-appointed financial review team indicates the city of Detroit may need to be put into conservatorship, an outcome Mayor Dave Bing and Gov. Rick Snyder had hoped to avoid last spring with a consent agreement. In return for $137 million in financial assistance, city leaders promised to undertake labor and other structural reforms.
Dave Bing, mayor of Detroit

The review team now says the reforms city leaders have implemented are too little, too late, and that more drastic measures are required. Notwithstanding last year's state bailout, the city is facing a deficit of more than $100 million. The city has also accrued $15 billion in long-term liabilities (which includes retirement benefits) and will need to spend nearly $2 billion in the next five years to finance these debts.

Mr. Snyder has resisted appointing an emergency financial manager who would supercede Mr. Bing and the city council, but the review team suggests that doing so may be the only way to dig Motown out of its ditch. "We gave the city every chance to avoid the outcome we're recommending to the governor today," said state Treasurer Andy Dillon, who sat on the review team. Trouble is, city leaders have refused to take action.

Another option for the governor would be to allow the city to file for Chapter 9 bankruptcy, which would help shed much of its bond debt. But a court-mediated restructuring has significant downsides. For one, it would impair Detroit's ability to borrow for perhaps decades....

Nor would it necessarily force labor reforms since the U.S. Treasury Secretary would be authorized under federal bankruptcy law to intervene. That could result in a reprise of the Chrysler-United Auto Workers bailout.

Detroit needs to eliminate inefficiencies, slash labor costs and develop a growth strategy, all of which can be done outside of bankruptcy. It's too bad its political leaders haven't been up to the task."

Summing Up

Sadly, Detroit's story is not an unfamiliar one. And it won't be the last such story.

Cities are broke, states are broke and the U.S. as a whole has huge financial problems as well.

Meanwhile, the governments keep spending money we don't have on things we can't afford.

And We the People sit by and continue to let the political aristocrats practice their short term focused, sound bite based and vote getting political redistribution business as usual.

And perhaps as a nation we'll keep on keeping on avoiding the ugly reality until we no longer can look the other way. But not the citizens of Detroit. Their time has finally come when they must face the facts and deal with the truth.

And they'll learn that there's no easy way out. Maybe there's not even a hard way out of the mess they're in.

But gutting up and facing reality is going to be coming to lots of places real soon, and that's maybe a good thing.

That's my take.

Thanks. Bob.

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