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Friday, January 11, 2013

Can $150 Million Turn Around Detroit?

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The Kresge Foundation has announce a $150 million grant to the city of Detroit following more than $100 million dollars invested over the last decade.  From The Wall Street Journal:

One of the nation’s largest foundations will spend $150 million over the next five years to implement a new land-use plan in an attempt to revitalize this ailing industrial city.

The announcement comes as Michigan’s governor is weighing whether to appoint an emergency manager for Detroit because it is running out of cash. A decision could come this month.

The Kresge Foundation, the nation’s 17th-largest grant-making foundation by assets, according to the Foundation Center, invested more than $100 million in Detroit over the past decade to construct a riverfront promenade, build greenways and help fund a new 3.4-mile downtown trolley line that is expected to receive federal support.

The new philanthropic investment—about $120 million in new funding beyond previously announced programs—is a sign that the foundation based in Troy, Mich., just north of Detroit, and its leader, Rip Rapson, are doubling down on the future of the city despite its chronic fiscal woes.

Mr. Rapson said he had confidence other foundations and government programs would follow Kresge’s lead with more funding. “The value will be multiplied if we invest together and strategically,” he said in an interview.

Urban planners say many plans similar to the new Detroit blueprint have had disappointing outcomes, relegated to bookshelves as cities struggled find the resources and political will to implement a long-term vision.

But Prof. Robin Boyle, chairman of the department of urban studies and planning at Wayne State University here, said the new Detroit framework is encouraging. “It has the opportunity to set a new direction and a new tone that the city has to be smaller, tighter and more dense.” He cited Philadelphia as an aging industrial city that has made strides in finding new uses for its vacant and underused property.

He cautioned, though, that the plan may fail to address the growth in the city’s suburbs where many jobs will still lie. More pressing, he said, is how Detroit will continue to serve residents in sparsely populated areas even as they hope to turn those into parks, farms or urban forests. [read more]
The problems Detroit faces are systemic and endemic.  Vacant or abandoned property accounts for more than 1/4 of the 138 square miles occupied by only about 700,000 people.  Corrupt government and unions, an under-educated population more interested in "black" politics than good government, and the flight of businesses despite heroic efforts by a few, have left the city a shell of its former self.

It may not be salvageable in its present configuration and considering that even after $100 million dollars investment, Detroit is on the verge of complete fiscal failure.  Another $150 million over the next five years may only beautify the corpse.

UPDATE From Forbes:
Coleman Young, the mayor of Detroit from 1974 to 1993, was able to “move forward as he did” thanks in part to training he got from the “party”—that is, the Communist Party. Young was, in fact, a secret member of Communist Party USA, as shown by several sources, including Cold War historians Ron Radosh, John Earl Haynes, and Harvey Klehr. Young had a woeful impact on Detroit. If there is any wonder why Detroit often resembles an Eastern Bloc municipality (minus the police state, since Mayor Young made it a routine to attack and neglect the city’s police forces, ensuring that the 1967 riots picked up where they left off), consider that for 19 years the mayor who ran the city economically and socially was a closet Marxist. Carl Levin, senator from Michigan, was Young’s right-hand man as Detroit City Council president during the most destructive years of Young’s reign.
That has to be taken with a grain of salt, however.  The author is not what would normally be deemed an "expert" and his sources may not be deemed "reliable."

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FEDERAL RESERVE & HOUSING

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February 3, 2006
Go back to 1999-2000 and see what the Fed did. They are following the same pattern for 2005-06. If it ain't broke, the Fed will fix it... and good!
August 29, 2006 The Federal Reserve always acts on old information... and is the only cause of U.S. recessions.
December 5, 2006 Last spring I wrote about what I saw to be a sharp downturn in the economy in the "rustbelt" states, particularly Michigan.
March 28, 2007
The Federal Reserve sees no need to cut interest rates in the light of adverse recent economic data, Ben Bernanke said on Wednesday.
The Fed chairman said ”to date, the incoming data have supported the view that the current stance of policy is likely to foster sustainable economic growth and a gradual ebbing in core inflation”.

July 21, 2007 My guess is that if there is an interest rate change, a cut is more likely than an increase. The key variables to be watching at this point are real estate prices and the inventory of unsold homes.
August 11, 2007 I suspect that within 6 months the Federal Reserve will be forced to lower interest rates before housing becomes a black hole.
September 11, 2007 It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
September 18, 2007 I think a 4% rate is really what is needed to turn the economy back on the right course. The rate may not get there, but more cuts will be needed with employment rates down and foreclosure rates up.
October 25, 2007 How long will it be before I will be able to write: "The Federal Reserve lowered its lending rate to 4% in response to the collapse of the U.S. housing market and massive numbers of foreclosures that threaten the banking and mortgage sectors."
November 28, 2007 FED VICE CHAIRMAN DONALD KOHN
"Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," he said.

"Uncertainties about the economic outlook are unusually high right now," he said. "These uncertainties require flexible and pragmatic policymaking -- nimble is the adjective I used a few weeks ago."
http://www.reuters.com/

December 11, 2007 Somehow the Fed misses the obvious.
fed_rate_moves_425_small.gif
[Image from: CNNMoney.com]
December 13, 2007 [from The Christian Science Monitor]
"The odds of a recession are now above 50 percent," says Mark Zandi, chief economist at Moody's Economy.com. "We are right on the edge of a recession in part because of the Fed's reluctance to reduce interest rates more aggressively." [see my comments of September 11]
January 7, 2008 The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
January 11, 2008 This is death by a thousand cuts.
January 13, 2008 [N.Y. Times]
“The question is not whether we will have a recession, but how deep and prolonged it will be,” said David Rosenberg, the chief North American economist at Merrill Lynch. “Even if the Fed’s moves are going to work, it will not show up until the later part of 2008 or 2009.
January 17, 2008 A few days ago, Anna Schwartz, nonagenarian economist, implicated the Federal Reserve as the cause of the present lending crisis [from the Telegraph - UK]:
The high priestess of US monetarism - a revered figure at the Fed - says the central bank is itself the chief cause of the credit bubble, and now seems stunned as the consequences of its own actions engulf the financial system. "The new group at the Fed is not equal to the problem that faces it," she says, daring to utter a thought that fellow critics mostly utter sotto voce.
January 22, 2008 The cut has become infected and a limb is in danger. Ben Bernanke is panicking and the Fed has its emergency triage team cutting rates... this time by 3/4%. ...

What should the Federal Reserve do now? Step back... and don't be so anxious to raise rates at the first sign of economic improvement.
Individuals and businesses need stability in their financial cost structures so that they can plan effectively and keep their ships afloat. Wildly fluctuating rates... regardless of what the absolute levels are... create problems. Either too much spending or too much fear. It's just not that difficult to comprehend. Why has it been so difficult for the Fed?

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Michigan, United States
Air Force (SAC) captain 1968-72. Retired after 35 years of business and logistical planning, including running a small business. Two sons with advanced degrees; one with a business and pre-law degree. Beautiful wife who has put up with me for 4 decades. Education: B.A. (Sociology major; minors in philosopy, English literature, and German) M.S. Operations Management (like a mixture of an MBA with logistical planning)