From The Wall Street Journal:
Emergency Manager Orr Seeks to Liquidate Assets to Satisfy Creditors
By Matthew Dolan | Updated July 18, 2013, 5:47 p.m. ET
The city of Detroit filed for federal bankruptcy protection on Thursday afternoon, making the automobile capital and onetime music powerhouse the country’s largest-ever municipal bankruptcy case.
The Chapter 9 case filed in U.S. Bankruptcy Court for the Eastern District of Michigan came after Kevyn Orr, the emergency manager, failed to reach agreements with enough of the bondholders, pension funds and other creditors to restructure Detroit’s debt outside of court. The final decision rested with Republican Gov. Rick Snyder, who had appointed Mr. Orr as Detroit’s overseer in March.
“This was a difficult and painful decision but I believe there are no other viable options,” said Mr. Snyder in a video on Michigan’s official website. “This is a situation that’s been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt, Detroit is broke.”
Mr. Snyder wrote in a letter dated Thursday to Mr. Orr and Michigan state treasurer Andrew Dillon that he knows that many will see this as a “low point” in the city’s history but he said he also thought that this will be “a chance for a fresh start, without burdens of debt it cannot hope to fully pay.”
More at the link. The bankruptcy filing was supposed to come on Friday, but the city rushed it through due to pending lawsuits trying to stop the bankruptcy filing.
Detroit was a great American city, and the “capital” of the American automobile industry. But the Motor City has shrunk from almost 2 million people in 1950 to around 700,000 today, and vast swaths are the abandoned homes of a larger, more vibrant city.
This photo was one of several on a slideshow in the JOURNALarticle, but it caught my eye. My eye sees a great house, well built, with first-rate urban architecture. There has been some (unfortunate) cosmetic remodeling done to the front of this house, but this is a home that is crying out for restoration . . . but there’s no one living there who wants to restore it, and it’s just plain not economically feasible.
Detroit lost people and lost businesses to the suburbs, because the city failed to keep them at home. Too much of Detroit was involved with one industry, and as problem hit automobile manufacturing, and as automation reduced the number of workers it took to build a car, Detroit began a slow, downward spiral. It isn’t the city’s fault that there were far fewer automobile jobs, but it was the city’s fault that they didn’t take action to reduce the burdens of government on the city when necessary. Detroit has been borrowing over $100 million per year, for several years, just to meet operating expenses, and had no realistic chance to pay those debts. The people and businesses who loaned money to Detroit are going to suffer, as they are going to see only a small fraction of what was loaned actually repaid, but they should have taken a harder look at to whom they were lending money.
The results? Some people who thought that they had great pensions will see little or nothing. Vendors who sold things to the city on credit will get paid pennies on the dollar for what they sold. Creditors who thought that they could make money investing in a failing city are going to lose much of it.
But the real loser might be Philadelphia. Investors are going to start to look harder at investing in the municipal bonds of cities which don’t have their financial houses in order, and if the City of Brotherly Love isn’t the next closest to bankruptcy, it is the next city so thoroughly dominated by labor unions. Municipal unions rule the city government, the public schools are in disarray and pushing bankruptcy, the Democrats’ unchecked control has led to a government that is nothing but cronyism, taxes continue to rise but still don’t balance the budget, and the stranglehold the unions have on construction in the city make things much more expensive for those people who’d consider building and starting businesses there. With the failure of Detroit, the image that municipal bonds had as being highly secure has been shattered, and interest costs for those bonds are now going to rise for cities like Philadelphia.
I can tell you this much: I would never invest my money in municipal bonds from Philadelphia!
- Sister Toldjah: On Detroit, bankruptcy, and President Obama
- The Lonely Conservative: It’s Official, Detroit Is Bankrupt
And a picture, which pretty much says it all: