Sunday, April 05, 2009

Detroit Needs Bankruptcy And Reorganization


General Motors has gotten all of the negative headlines recently, but in Michigan there is another entity that is chronically the most corrupt and mismanaged: Detroit.

  • The city, like General Motors, has been losing "market share" for decades.
  • The city, like General Motors, has had a series of dubious "leaders."
  • The city, like General Motors, neglected its "product."
  • The city, like General Motors, has needed government "bailouts."
  • The city, like General Motors, needs a bankruptcy proceeding and massive reorganization.
Over four years ago, during a relatively good economic time, I laid out the issues and what needed to be addressed:
What's the answer... the solution? The answer is that Detroit has been in decline for 1/2 a century and any turnaround must either be based on a total change in government... or a turnaround will take at least 1/2 century given current government processes. The solutions are myriad... and painful.
  • confiscation of vacant and abandoned property
  • rezoning from residential to public and forced buyouts - creation of green zones
  • closing of 20% of schools, renovation of the rest, and a takeover by the state
  • reduction by 30% of government employees and state supervised restructuring of departments and processes
  • creation of tax-free "enterprise parks"
  • establishing a tax structure that is "competitive" with suburbs
Of course, no such action was contemplated or taken and the situation continued to deteriorate. Detroiters continued to elect a mayor and council full of corruption and nepotism. Hey, what's the big deal? Everyone does it!

Last year I wrote:
It is time for change...
  • change at the state level to fiscal responsibility and pro-business policies
  • change at the city level to addressing problems rather than cultivating racial power
  • change at the personal level to realizing that "stupidity has its own rewards" and not being so damn stupid
What's the likelihood of such change? Somewhere between zero and zilch.

That makes it even more likely that ultimately the city will have to be split up into new, manageable pieces. As I also wrote in 2005:
Another radical approach would be to reduce Detroit to a 5 mile radius from the foot of Woodward Ave and then create several new cities along the outer ring or let existing cities annex adjacent areas. This would create a more manageable central area that could focus on high-end businesses and more affluent residents. The outer areas would be more traditional smaller cities that could focus on small business and the needs of its residents.

What do economists call that... creative destruction?
What has happened since then?
Crowd gasps at deficit

Financial manager shares plan for cuts



Surprise, disgust and un­comfortable confrontation marked the meeting Thursday night when the state-appoint­ed emergency financial man­ger for Detroit Public Schools discussed a historic $305.8­million deficit and stood up to board members who want more power than the law al­lows under a state takeover.
Occasional gasps broke the silence in a crowd of more than 100 people as Robert Bobb de­scribed how Detroit Public Schools racked up the deficit.
“Could that number change next week?” Bobb asked. “Ve­ry well could. We’re still work­ing.”
Bobb outlined his plan to close up to 50 schools and lay off thousands of workers over the next two years in his first public presentation since he took over the $1.1-billion bud­get last month.
He said he will present the school closure plan next week. DPS has shuttered more than 65 schools since 2005, and cur­rently has nearly 200 schools open with about 95,000 stu­dents. Demographers project the school system could drop down to 65,000 students with­in five years.

Unemployment in Michigan was at 12% in January, 2009, and rising. Unemployment in Detroit was at 22% and rising. Nothing is improving; everything is deteriorating. Yet Detroit plods on in its old way.
Conyers’ son and niece got jobs, too
Brother’s hiring causes a storm


Three relatives of Detroit City Council President Monica Conyers — including a son and her brother — received city jobs after Conyers took office.
Conyers hred her teenage son, John Co­nyers III, as a legislative assistant under a 1-year contract, at a rate of $15 an hour, city records show. It’s unclear whether he served the full year. The contract ended last June.
Her niece, Ellen Conyers, a lawyer, was hired around 2007 in the Mayor’s Office of Neighborhood Commercial Development. Her salary was $63,000 in 2008.
But it was the hiring of Monica Conyers’ brother, Reginald Esters, that ignited the latest controversy enveloping the City Council president.
Amru Meah, director of the city’s build­ing department, said Conyers lobbied him to hire Esters, a convicted felon.
Conyers denies trying to influence her brother’s hire.
Esters was fired for what building offi­cials characterized as chronic absentee­ism. He has a court hearing April 17 on four felony weapon charges.

The residents of this city apparently don't give a damn. It is time that Detroit, like General Motors, gets taken by its collective nose and marched into bankruptcy and reorganization... into a much smaller city.

If not, the only answer will be liquidation.


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There is always an easy solution to every human problem—neat, plausible, and wrong.
Henry Louis Mencken (1880–1956)
“The Divine Afflatus,” A Mencken Chrestomathy, chapter 25, p. 443 (1949)
... and one could add "not all human problems really are."
It was beautiful and simple, as truly great swindles are.
- O. Henry
... The Government is on course for an embarrassing showdown with the European Union, business groups and environmental charities after refusing to guarantee that billions of pounds of revenue it stands to earn from carbon-permit trading will be spent on combating climate change.
The Independent (UK)

Tracking Interest Rates

Tracking Interest Rates


SEARCH BLOG: FEDERAL RESERVE for full versions... or use the Blog Archive pulldown menu.

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."
"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."

December 11, 2007 Somehow the Fed misses the obvious.
[Image from:]
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 "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?

About Me

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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)