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Today in Detroit's bankruptcy

by: Eric B.

Sun Jul 21, 2013 at 11:01:42 AM EDT

I opened up Tweetdeck this morning to the horrifying reality that Detroit's bankruptcy was at that moment being discussed on Meet the Press by David Gregory, David Brooks, Chuck Todd and Jennifer Granholm. From the Tweets I saw, David Brooks gets the award for the most vapid, insipid metaphor -- the fall of Rome -- from the entire panel, which is quite an achievement considering his company. The idea that Detroit's problems are based on 30 years of cronyism requires that you know more about making allegories that sound smarter than they are than about the actual topic at hand. As for Jennifer Granholm...

Do yourself a favor and ignore the Sunday morning shoutfests. Those shows aren't actually intended for your consumption anyway. Those shows mostly exist for the likes of Chuck Todd, David Gregory, David Brooks, and Jennifer Granholm to say things that the Beltway pundit class passes for informed thought.

Instead, here are some things worth reading today:

*--A symbol of how things got to this point, from Stephen Henderson:

Sources close to emergency manager Kevyn Orr also have told me that he lobbied hard with Obama senior adviser Valerie Jarrett (a longtime friend) for federal help and has been frustrated by the White House’s lack of engagement.

Yes, yes, we were all pleased with Obama's speech on race the other day, as regards Trayvon Martin. He made that speech while turning his back on the 700,000 residents of Detroit. I don't like playing the race card, because it's usually too easy and usually not entirely applicable, but how do you not look at this and not see that at some level racism helped drive Detroit to where it is today.

It is plainly evident, looking at the reaction from the conservative media, that they believe Detroit's problems were caused by Detroit's politcal leadership and -- to the more astute -- various acts of God. This isn't a new thing. It's been decades in the making ... local, regional and state leaders, as Detroit's problems got worse, threw up their hands and said, "Not my problem." Evidence: Two years ago, Troy's now-recalled mayor Janice Daniels helped temporarily kill a transit center that could have made her city a regional commerce hub. Her reasons were that it would bring in a negative element. Translate that to: "It'll mean those people will be in our community." And, we all know what happens when those people start show up.

The president's speech on race and Trayvon Martin were great and everything, but if he wants to be serious about breaking down racial barriers (and I believe that he is), part of that is acknowledging that engrained racism didn't just help kill a 17 year old armed with an iced tea and pack of skittles, but has helped to also kill a city.

*--Charles P. Pierce wrote this a couple of days ago, but there are two points in it worth making. 

The first is that someone asked John Engler what he thought and no one pressed Engler on why state government took so long to get involved. This applies to Jennifer Granholm who, as Wattrick pointed out, helped make things worse by signing off on plans by Detroit to take on a bunch of bond debt to deal with budget problems that shouldn't have been dumped in the current administration's lap. The question that has to be asked is why former governors are being allowed to talk about this as if they bear no responsibility, while blame is being allowed to fall onto the shoulders of Detroit's elected leaders. This isn't to try to exonerate Detroit's elected leaders, who are very culpable in what happened. This is to point out that blame rests with a lot of people, and it is not being universally shared.

The second is that there is federal blight money, and lots of unemployed people in Detroit. To say this could form the basis of a short-term stimulus program is to yield to what the Tea Party calls Socialism. We should ignore the Tea Party (and, really, on everything), and put people to work cleaning up blight.

*--Speaking of self-inflicted wounds and blame, it appears that some blame rests with how actuarials do their business. This is worth a read.

*--Today's editorial in the Freep has this paragraph that expresses something that has gone overlooked.

There’s no comparison between retirees — many of whom live in the city and are familiar with its troubles — and the bankers who lent an insolvent city money, enabling and hastening its decline.

This is the exact same phenomenon as what happened in the crash of the housing market, back last decade (same risky behavior, same banking industry ... anyone else see a connection?). Mortgage lenders gave money to people who they knew wouldn't be able to pay it back (i.e. municipal bonds) to buy things they couldn't afford (fill budget deficits), and the banks that chopped all these up and sold them as good investments acted astonished when it all went South. Also, let's just finally admit that the credit agencies aren't worth shit.

Eric B. :: Today in Detroit's bankruptcy
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They took the risk and retirees should pay the price?
On the one hand you have a financial market that lent millions of dollars to the city and took that risk on behalf of investors.  On the other hand you have retirees whose pensions are supposed to be the exact opposite--free from risk and constitutionally protected. It seems clear who should and should not be prioritized in bankruptcy.  

I'll be interested to see how this plays out...
You have to add to that, that everyone knew about Detroit's finances, that it was hardly a state secret that the city was running deficits and was meandering towards either a financial emergency or bankruptcy. Everyone knew towards the end of Kilpatrick's years that the city was being run by a corrupt mayor and incompetent city council, and that incompetence at the top usually translates into horrible outcomes all the way down.

Everyone knew this, and knew that Detroit was a giant risk, and lent it money knowing the risk in part because they assumed they didn't share any of the risk and because they were aided and abetted by ratings agencies that helped fuel the housing bubble by refusing to do due diligence on how bundled mortgages were chopped up, rebranded and sold (and hedged).

If memory serves, Detroit's pension fund took a pretty big hit at the same time that a lot of pension funds took hits after betting on some of Wall Street's bad paper.

You'd also like to think that we can be at a point where a dollar given to a human retiree is considered a better dollar than one given to an investment firm that's just going to turn it over to investors as a return.

Sadly, I just don't think we live in a world where those kinds of judgments get made.

Among the Trees

[ Parent ]
Genuinely curious
When the EFM was appointed you scoffed at suggestions of racism and made it clear you thought Detroiters should have to give up their agency due to their poor decision making.  What is different here in your view?  

What I scoffed at...
A. That the emergency manager law was racist in nature. It is not. The emergency manager law was based on the failure of PA 72 to provide tools for emergency managers to adequately deal with financial emergencies in failing communities and school districts.

B. That people who railed against it didn't offer their own alternatives. What we're seeing in Detroit is a classic case of a failed city. People have to wait an hour for a cop to show up and less than half the city's streetlights function. It is not hyperbole to say that this kills people.

What is racist is the suggestion that all of this is the fault of Detroit itself. And, there are a lot of actual racists around the state who've done work just so Detroit will fail ... not just lawmakers from white, rural districts but also officials in metro Detroit. Again, before she was recalled, ex-Troy mayor Janice Daniels rebuffed federal money for a transit hub on the grounds that it would bring an undesirable element to Troy. And by undesirable, I mean black people. Lack of transportation limits someone's opportunities in job searches, so Daniels and people like her took active roles in restricting the ability to Detroiters to find the work in other communities (which is frankly very normal these days) that those same officials insisted that Detroiters didn't want to find.

Among the Trees

[ Parent ]

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