Posted on 07/23/2013 10:21:48 AM PDT by SeekAndFind
Even after Detroit’s announced bankruptcy — stalled momentarily in the courts — there has been surprisingly little appetite in Washington or anywhere else for a bailout. The Detroit Free Press’ editors made that explicit in their editorial on Sunday, even before Governor Rick Snyder appeared on Face the Nation to oppose it — not even a bailout from the state of Michigan. “And theres no obvious relief on the way from Lansing,” they wrote, “which (for better or worse) seems unlikely to build the necessary statewide support for a bailout or to change laws to permit new tax levies for Detroit or anywhere else.”
If the state of Michigan — which has more to lose in a collapse of Detroit than any other stakeholder other than the city itself — isn’t interested in a bailout, why should Washington step up to the plate? Washington has its own problems, Detroit native Ron Fournier writes, including some of the same problems that felled Detroit. See how familiar some of these descriptions are to the rest of us outside of Motor City:
Economy: Detroit failed to adapt to the global economy and to diversify for the post-industrial era. “Sometimes the losers from economic change are individuals whose skills have become redundant; sometimes they’re companies, serving a market niche that no longer exists; and sometimes they’re whole cities that lose their place in the economic ecosystem,” wrote economic columnist Paul Krugman in today’s New York Times. Sometimes, the victims are whole countries, a fact that seems lost on Washington, where the leadership is polarized and smart ideas go to die. …
Bad government: “The city’s operations have become dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifferences or corruption,” Detroit’s emergency manager Kevyn Orr wrote in May.”Outdated policies, work practices, procedures and systems must be improved consistent with best practices of 21st-century government.” It would not be a stretch to apply Orr’s words to the federal government.
Broken promises: The group most at risk in Detroit’s bankruptcy may be the city’s 20,000 retirees (including my father as well as many friends and family members). Of Detroit’s overall debt, about half represents pension and health benefits promised to retirees, according to the Washington Post. This is because city leaders borrowed against pension funds and mortgaged the future not unlike what Washington’s leadership is doing to Social Security and Medicare.
Rigid institutions: Government agencies, businesses, schools, churches, the media, and virtually every other city institution failed to help residents weather the tumult of the last four decades of the 20th century. In particular, Big Labor never managed a second act after anchoring the rise of the American middle class in Detroit. Union membership and influence has declined in Detroit and elsewhere, considered by many to be more of an obstacle than solution.
I’d disagree with the last point, at least in part. Public-employee unions have remained very influential in Detroit and other large urban centers, and drive public policy through union dues turned into political campaigns and contributions that oppose reform of big-spending policies. That’s why they’re seen as an obstacle now rather than part of the solution.
Still, this is a disaster for the residents of Detroit, and likely for its workers, who relied on contracts and promises for pensions. There is simply no escaping the fact that the retirees will be the most vulnerable players in the drama that will unfold over the next several months, and that the resources they put into those pension plans will most likely be severely damaged, if not almost utterly destroyed. That would explain the impulse for a federal bailout if and when it materializes — but it’s not likely to happen. In my column for The Week, I explain that the problem isn’t just Detroit, and the solutions won’t be found in dodging the real issues for state and local governments:
Governor Snyder hits the mark when he notes that a federal bailout won’t fix the underlying problems, at least not without drastic reform. It also would send a bad message to investors, who have poured money into Detroit bonds despite its performance over the last decade. “Basically, Detroit hasn’t had a positive fund balance since 2004 in its general fund. 2004,” Snyder emphasized to Bob Schieffer on Face the Nation. “If you were lending to the city of Detroit in the last few years, didn’t you understand there were major issues and problems?” In other words, investors looking for premium returns on municipal bonds allowed local politicians to paper over the collapse so why should they get a bailout on their bad investment?
That points to the much larger danger in a federal bailout. If Detroit were a singular event, a collapse from uniquely incompetent management or corruption, then in isolation the federal government might be tempted to step in. That’s not the case, though, as the escalating numbers of Chapter 9 filings attest. More cities, counties, and states teeter on the brink of insolvency, thanks to the same kinds of structural problems and the failure of political leaders and voters to address them. For instance, Stanford University warned three years ago that California’s unfunded pension liabilities amounted to a whopping $500 billion 100 times that of Detroit and six times the state budget for FY2010. A year later, a former Orange County treasurer put the total at $884 billion. A Boston College study estimates that the total of all state and local pension liabilities is $3.8 trillion, with $1 trillion unfunded, which is almost certainly a conservative estimate.
Federal bailouts will not solve this problem, nor the other problems of urban mismanagement and incompetence. Bailouts would obscure them, as well as the need to fix the structural and political issues that have led to the collapses already in motion, and those to come. Politicians and citizens who want to avoid the unpleasant duty of reform have already put off these issues for far too long. The White House can send a strong signal for responsibility by refusing to rescue cities and states from their own folly, starting with Detroit.
We can’t afford to bail everyone out, nor would that address the underlying structural issues that created the crises in the first place. At some point, Detroit has to take responsibility for Detroit, just as California will have to take responsibility for California. And a lot of other state and local governments had better learn that lesson quickly, or else we’re not going to have any more buckets for any kind of bailouts at all.
Unfortunately, if you work for a public agency, you often have no options. As a school district employee, almost 15% of my gross goes to pay for Social Security and PERS. I have real doubts that either will be available when I retire, but because I am required to pay into those programs, I have little left over to pay into a private retirement plan.
Just keep in mind that not all public employees have the type of retirement plans that allow you to retire at 50 with 90% of your salary and little to no contribution required. Unfortunately, our "contributions" go into the same retirement pool with the people who make no contributions, and as a result, we will probably get screwed in the end.
IMO, implicit promises were made to indebted blue states and cities. “Help get Obama a second term, and you’ll ALL get bailouts”.
So now they are expecting him to make good. Only the whole scheme depended on his ability to roll the Pubbies on the sequester, get a bunch of new taxes and a whole lot of open to spend.
He screwed that up, and now finds himself in a predicament.
Zimbabwe.
And it would encourage a huge number of other cities to ask for bailouts.
Who would bail out the taxpayers?
If the federal government were foolish enough to give Detroit a $100 billion dollar bailout or even more, within a short time things would be back to where they are...bankruptcy. Detroit’s financial mess was created by decades of liberal and socialist civic leaders spending other people’s money and as much lining their pockets and those of cronies as doing anything useful for the city. Sadly the same people are in charge and nothing would change.
No bailout. It’s would be a mistake that would take all our other cities down...
Government encouraged criminals and stopped protecting homeowners, businesses and honest citizens decades ago. The honest and productive left. The criminals, welfare recipients and some government employees stayed. There are not enough productive people left to support all the parasites.
City government literally stole billions of dollars over the last decades. Federal and state programs to pay people in Detroit for doing nothing useful kept the economy alive for a while.
Politicians refused to fund their promises. There was never any attempt to be responsible and provide money for these programs. Questionable accounting and outright fraud prevented the inevitable collapse for a few years so politicians and friends could continue to feed off the taxpayers.
In the 1960’s Detroit was by far the wealthiest city in the entire world. That wealth was used to fund the socialist Democrat programs and but generations of Democrat voters. The money has been squandered and now Detroiters are looking for new suckers.
In order to fix Detroit, the city MUST crash and the public employee unions and education power must be destroyed. Useless restrictions on business must be repealed or rescinded. Nothing is likely to happen because of the current dependent, illiterate, and thug population.
This does not answer whether Detroit has a reason to exist.
Who would bail out the taxpayers?
I believe John Galt has a plan for that.
Assume that it is the job of Federal government to act as an insurer of last resort against bankruptcy of the States. Likewise, States to act as the last resort for Counties, Counties for cities and municipalities.
How should such a system be constructed? If there is an insurance like program, would the higher level insurer require that there be first an external or commercial insurance? Would there be payment requirements from the lower bodies being insured? Would there be fiscal constraints imposed on the lower entities? Could such a system be used to contain government at the local and state levels?
What would be the unintended consequences of such a system?
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Don’t even GO there man! Don’t give them any ideas! My first thought was: I smell a TAX and another bloated Federal Agency!
DAMN, how I wish I could have stated it exactly like you did!! Not an exclamation point or CAP anywhere!
Your post is it in a nutshell.
Required some editing for clarity.
Coleman Young, crony capitalism and communism destroyed Detroit. Barack Obama is using the same formula to destroy America. Will you let him? They will go for the guns next....then the 401k’s + MM funds...then the white suburbs will be undulated w/ the section 8 voucherers....
A Detroit bailout would open Pandora’s box. It would be the death knell of the USA for certain. Every major city without exception would be giving away the bank to the 47 percenters.
Detroit would be a bottomless pit that could never be filled. And if the government tried, a lot of other cities would line up for a bailout, like pigs at a trough.
That is EXACTLY what they'll do. Three cities specifically in CA alone are either in bankruptcy or teetering on it. This is a pandora's box that should NEVER be opened.
>>Unfortunately, our “contributions” go into the same retirement pool with the people who make no contributions, and as a result, we will probably get screwed in the end.
So in other words, its the same SS boat that the rest of us are in? Contribute all your life, and maybe you’ll get it, maybe you won’t, or just maybe you’ll get means tested out of it.
And then back to Detroit for another bailout.
You can’t raise taxes on people who don’t exist to pay for unfulfillable promises to 50 yr old retirees.
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