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A Bailout For Detroit? Perhaps.


Steven Rattner is calling for a bailout of Detroit.

No one likes bailouts or the prospect of rewarding Detroit’s historic fiscal mismanagement. But apart from voting in elections, the 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.

America is just as much about aiding those less fortunate as it is about personal responsibility. Government does this in so many ways; why shouldn’t it help Detroit rebuild itself?

We can get behind this concept, but only in exchange for much tighter oversight of the city, accompanied by some meaningful political changes and housecleaning. Pumping more money into a dysfunctional system, no. Helping the city to a genuine fresh start, especially if this involves some help for pensioners—many of whom retired long ago, didn’t vote or live in the city, and have little to no personal responsibility for the meltdown—yes.

But the pre-conditions for something like this have to be serious and real, perhaps including prosecutorial scrutiny of what went wrong. Maybe Congress should hold hearings?

[Photo courtesy Getty Images.]

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  • rheddles

    Bail out Bodie first. They’ve been suffering longer.

    There is a phrase in engineering that all solutions are temporary.

    Detroit did not exist as a major city before automobiles. And it didn’t need government aid to grow once the automobile arrived. Now that the auto business has left, there is little reason for Detroit to exist on its former scale. What new scale is correct? Let the market figure it out. But don’t take my money by threat of violence to give it to them for no reason that benefits me.

    Maybe they can relabel it the city too tough to die and have daily re-enactments of the Battle of the Overpass. That should attract the tourists. And the Henry Ford is a great museum. That’s it. A tourist attraction. Sort of like the Pyramids and the Sphinx. Oh, wait…

  • bpuharic

    Hey this is just another business cycle by an entity too big to fail

    What did Congress do about that the last time?

    Bailed them out. Then did nothing

  • Stacy Garvey

    No. Stop it, please. Just no.

  • Tom Servo

    They are not responsible? Oh Puh-Lease. Those who suffered from Hurricane Sandy didn’t vote overwhelmingly in favor of asking Hurricane Sandy to take over their neighborhoods and destroy things in exchange for promises of hugs, kisses, and eternal prosperity.

    But that’s *Exactly* what the voters of Detroit did. Time for them to pay the price for the choices they collectively have made.

    • circleglider

      The “victims” of Hurricane Sandy built their homes and businesses on the beaches where hurricanes have landed for centuries.

  • cubanbob

    I don’t live in Detroit. I have never lived in Detroit. And I will never live in Detroit and as a net taxpayer I don’t see the need to pay for its problems since I never benefited from Detroit’s services. While I feel bad for the pensioners I don’t feel bad enough to pay higher taxes at the expense of my family for the stupidity a d venality of others.

    • Pete

      Don’t feel bad for the pensioners; they played a major role in milking the city into the ground

      • Thirdsyphon

        I feel terrible for the pensioners. They didn’t spend their careers doing things like inspecting water mains and picking up trash because they thought they’d get rich. . . and sure enough, most of them didn’t. So now they’re screwed, along with the rest of the American middle class, and for that they deserve our sympathy, not our scorn.

        • bpuharic

          The trope of the right is that the middle class is composed of moochers (Romney) that exists to support those in the 1% who are genetically superior (Greg Mankiw).

          So it’s all our fault, you see. We should just shut up and pay the bills for the wealthy so they can continue the massive job creation they’ve been doing

          Haven’t you noticed?

        • Pete

          Look, Detroit essentially hung on to the size of its public sector work from its 1950s hay day until fairly recently.

          That is, as the city’s population dwindled, the public sector stayed the same …and it got ever fatter compensation packages.

          The public sector unions fought tooth and nail against any reform or sensible downsizing.

          And as far as picking up the trash, if you watched city garbage men, they move like molasses compared to when the garbage is pick up by a private company. This inefficiency (featherbedding) maintained jobs but at a terrible cost to the city.

  • f1b0nacc1

    No. Not. One. Penny.
    Lets remember that these ‘innocent’ citizens voted overwhemling in election afte relection to put the the perpetrators of this nonsense in power in the first place. Just exactly why should the rest of this country’s taxpayers underwrite this? The dysfunctional public employee unions extorted the unsustainable benefit packages that are helping to bankrupt the city, and refuse to even consider giving up their ill-gotten gains. The Left (as our own resident loon demonstrates) refuse to even acknowlege their own culpability in this mess.
    Without some real consequences, this will only set a precedent for more bailouts (California, New York, Illinois, etc.) in the future. Lets draw the line here, establish some real consequences for this sort of stupidity, and provide an example that might possibly help others avoid this fate. The residents of Detroit can move, the pensioners can learn what it is like to live in the private sector, and the Left can absorb some reality-based lessons.
    Not one cent…

    • bpuharic

      The real problem with Detroit, as with so many problems in America, is the welfare state for the wealthy. Just as we deregulated Wall Street and had, as Elizabeth Warren pointed out, our first serious recession in 80 years, so Michigan and Detroit gave massive subsidies and tax bailouts to corporations.

      The right prefers to blame unions because this fits with the right wing narrative that the middle class is composed of moochers who need to be controlled by their genetic superiors (Greg Mankiw). It’s just as simplistic as the typical right wing belief in religious fundamentalism.

      • Bruno_Behrend

        You’re a broken record incapable of rationally discussing the few points you make.

        In a nation that has had fairly balanced control by both parties for decades, and that passes just as many “left” laws as “right ones, the shopworn line that “It’s all the right wing’s fault” are the blatherings of an idiot.

        • bpuharic

          You mean the radical right which has control of congress is balanced? The record number of filibusters is balanced?

          The right wing is in the grips of a fundamentalist ideology that voids the very idea of compromise. At least moderates and liberals are willing to consider it. The right, which controls congress, isn’t

    • Thirdsyphon

      I agree with you that the Federal government can’t afford to set a precedent of bailing out cities (even large ones) that can’t find a way to meet their obligations. But that being said, I don’t think you can blame Detroit’s failure on liberal politics. There’s a broad arc of towns and cities in this country that came to exist because the most vibrant part of our national economy was focused on mining and refining and manufacturing things from steel, and shipping commodities and finished products back and forth across the Great Lakes and along major rivers. That part of our economy has long since dried up, and that being so, Detroit could have been run by liberals, conservatives, socialists, or red-spotted lemurs for the last 40 years, and it wouldn’t have made much of a difference. When the coal runs out in a coal town, the town tends to wither and disappear, and it doesn’t much matter who the mayor is. This is basically that story, writ large.

      • bpuharic

        Good GAWD someone’s actually SANE around here.

        Those of us born and raised in Pittsburgh are familiar with Detroit’s problems.

      • f1b0nacc1

        Your argument is not entirely without merit, but ultimately it is not sufficiently explanatory.
        The auto industry didn’t dry up (America builds a truly astonishing number of cars each year, easily as many as in the glory years of Detroit), but those cars are now built elsewhere. Now why is that? Unlike a mining town that drys up when the mine no longer can be exploited for ore, Detroit (and the state of Michigan) actively drove away business with outrageous taxation, corrupt politicos, and byzantine regulation.
        You mention the Rust Belt as a broader example of what is going on with Detroit, and I can respect that attempt at rational analysis, but it isn’t hard to find numerous cases in the Rust belt where cities have grown and prospered when they gave up the bad policies. For that matter, look at the South, which found its own rebirth by adopting a low-cost labor, light touch regulatory model. When the endless textile mills closed and the heavy industries of the deep south were shuttered, they found other ways to grow and prosper. Look at Atlanta or the Research Triangle as obvious examples of this dynamic at work.
        Detroit doubled down and doubled down again on failed Blue policies, elected corrupt racialist leaders, and embraced the worst of union-schtupping, and has seen it crush them. To suggest that this was the result of the decline of the auto industry (which has done well in Ohio, Alabama, Tennesee, etc.) confuses cause and effect.

        • Thirdsyphon

          Fair points all. I’d submit, though, that the South has *always* had a low-wage, low-tax, low-regulation model of governance that has only recently begun to bear fruit as broader economic conditions in the world have shifted to favor them.

          There’s a reason why, in my post above, I dwelled on the Great Lakes and the rivers that intersect them. In 1842, the third most populous city in North America was New Orleans. (Detroit only ever got to Number Four) This was due to the critical importance of the Mississippi River as a means of transporting goods to and from the interior of a continent with almost no formal infrastructure for transportation. What sealed the fate of New Orleans was the same development that sparked the rise of Detroit: in 1817, after much deliberation, the legislature of the State of New York appropriated the ruinous, barely even imaginable sum of 7 million dollars to dig a 363 mile-long ditch between Albany and the Western coast of Lake Erie. To get the Southern mind’s perspective on this folly, we need look no further than the President of the United States at the time, Mr. Thomas Jefferson, who called the project “a little short of madness” and rejected Federal funding for it. From the defiant decision of New York to go ahead and fund this ambitious project by itself, one may date the birth of the “Blue Model” of governance in America. And it worked. Where the canal met the shore of Lake Erie, the city of Buffalo boomed into a metropolis. New York City, at the coastal terminus of the system, became the foremost port in America and the crux of the U.S. economy. And across from Buffalo, if you trace your finger to the western end of Lake Erie, you’ll encounter Detroit. The canal system opened trade from New York all the way to Chicago, and the industrial dominance of the North owed a great deal to the head start that region had given itself in moving stuff around. “Union schtupping” flourished in that region because, for generations, it was the only game in town. Companies couldn’t leave the region without losing the benefit of that trade axis, which was worth more to them than even the greediest and most effective unions could charge them in wages. That’s no longer true, due in no small part to the vastly reduced costs of moving things around between states and even hemispheres. If economic conditions no longer favor the “Blue model”, it’s because all the critical investments that the Blue Model calls for have already been made across most of the globe.
          But that’s not cause for celebration. As WRM has pointed out, America’s future can’t rely on competing against Malaysia to be the “Wal-Mart of work.” Someone’s always going to be willing to work for less money, with less regulations and lower taxes than us.

          • f1b0nacc1

            Keep in mind that until the 70s, New Orleans was the primary HQ for most of the energy companies in the US…it managed to drive them out (to the benefit of Houston, which until then was only a regional center), with a combination of truly awful regulation and some world-class corruption. The notion that business only moves because of labor costs simply isn’t borne out by the historical record…your example of the Erie canal, for instance, ignores the fact that social and political factors prevented the South from exploiting their (in many ways superior) access to raw materials and shipping for reasons having nothing to do with labor. Businesses couldn’t move because the costs of moving (for reasons having very little to do with infrastructure, which was far cheaper to implement then than now) were so high. Detroit wasn’t destroyed by businesses locating to low-cost labor overseas (Japanese labor, for instances, was MORE expensive than American labor in the 80s and beyond), but because it was cheaper to move to Ohio or Tennesee, where the unions didn’t have a strangehold on the local governments, and rational business practices could be implemented. Union work rules were far more destructive to GM, for instances, than were teh UAW’s extortionate wage demands.
            The Blue model is being badly beaten up by foreign competition to be sure, but if cheap labor were the only criteria for business relocation, Africa would be the inustrial powerhouse of the world. Corruption, crumbling infrastructure, excessive taxation (yes, it does matter), and most of all crippling regulation (both union and governmental) all work to drive off useful business activity. The 19th century example of the Erie canal existed in a different regulatory world (the state paid for the canal, and then got out of the way), and while this had mixed results (the 19th century’;s social ills are certainly not something to be applauded), it beats the 21rst century regulatory state’s approach.

          • bpuharic

            Of course another reason businesses relocate is because many states are willing to buy their business with tax subsidies.

            Michigan, which WRM and the right has blamed for allowing the ‘unions’ to scalp Detroit, gave away over 7 BILLION in subsidies and is 2nd in the nation.

            Funny how the right has completely ignored this burden on the MI taxpayer while it screams about unions


          • Tom Servo

            And almost all of that was done by Jennifer Granholm, Democratic Party Darling, yes??

            Funny how the left pathologically blames everyone but themselves for all the mistakes that they make.

          • Tom Servo

            The Texan economy is booming, champ – and state government revenues are soaring. Texas has the highest in-migration of any state in the nation, and all of those people who follow the jobs are buying houses and paying lots of sales taxes on all the stuff they buy. And California – didn’t Jerry Brown just say that he’s got state revenues back in line with spending now?

            So how come ONLY Detroit is the place that has suffered total collapse from this one thing, supposedly?

          • bpuharic

            Yep it is. Nice to have a snap shot of a random event, isn’t it, as TX busily creates a population with the highest percentage of minimum wage jobs in the country

            And Orange County, CA also collapsed a few years ago after investing in credit default swaps. Detroit isn’t unique.

            But, again, I just present evidence. The fact you choose to ignore it?

            Merely marks you as right wing

  • Marty Keller

    What’s that definition of insanity again?

  • Karl Bock

    Absolutely not! Not a single dime to help Detroit. It should become a dead city; a ghost town. A lesson on the consequences of tolerating an urban kleptocracy. The notion of bailing out Detroit is insane. Preconditions? We live in a nation whose government routinely ignores its own laws, and you’re talking about “preconditions?”

    The only thing I would support is building a very high wall, guard towers and a mined security perimeter, and renaming the city, “Detroit Federal Penitentiary.”

    • bpuharic

      Should have done that to Wall Street rather than giving them a trillion dollar bailout.

      • Tom

        For once we agree on what shouldn’t have happened.

  • Thirdsyphon

    Comparing what happened to Detroit with a natural disaster is disingenuous. Federal disaster relief has a clear and achieveable goal: to restore the disaster area to its previous condition. Restoring Detroit to its condition a month ago -or even its condition 3 decades ago, if such a thing were possible- would accomplish almost nothing. The same economic forces that crushed Detroit will promptly crush it again, like they’re crushing half the cities in the Rust Belt.
    This isn’t a precedent that we can afford to set. If the Feds bail out Detroit, how can we say no to similar pleas from Flint, Michigan or Gary, Indiana? Or, for that matter, from any of the dozens and dozens of dying small towns across the Great Plains?
    I might be willing to set aside these misgivings if I thought someone had a plan to revive Detroit that might actually work. . but I don’t see any such hope on the horizon. If Detroit is going to come back, it will have to find some way to save itself. I wish the city good luck.

  • Fat_Man

    A “bailout” of Detroit would not involve giving money to Detroit. It would involve giving money to Detroit’s creditors.

    There are two classes of creditors.

    One class is the bond holders. They volunteered to be bond holders and there is no particular reason to relieve them of that error.

    The other class is the pension and health plans of the employees of Detroit. They too volunteered for their position. They could have insisted on full funding, but they did not.

    On the other hand, if Detroit does not pay the plans (which are underfunded, but not unfunded) then some of their beneficiaries will eventually suffer.

    I do not think that Detroit’s employee benefit plans ought to be bailed out for this reason, unless they too are reorganized so that the pain is spread fairly among their beneficiaries. Any such reorganization should involve: 1. haircuts of pension benefits so that they do not exceed social security and PBGC standards, 2. disabled and over 65 health care beneficiaries should be transferred to Medicare without penalties, but without benefit enhancements, 3. termination of the plans and their replacement with social security and defined contribution plans, 4. damage payments by the union fiduciaries who fell down on their jobs so egregiously, 5. ending the representative status of the unions that got the plans into this mess, and 6. repeal of the Michigan State Constitutional provision that the unions claim prevents such reorganizations.

    • Bruno_Behrend

      You forgot one of the most important laws that need to be passed all over America – hard constitutional spending caps that limit government spending growth to inflation + population growth.

      Further, all borrowed money must fall under the cap – no exceptions.

      Allow for referendum to increase beyond the cap – making people pay in real time for every dime they vote to spend.

  • Fat_Man

    In any event, whether Detroit’s creditors are discharged by operation of law (i.e. the Chapter 9 proceeding) or are discharged by payment, Detroit’s residents will still live in a place that has a lot more questions than answers, such as, how are they going to make a living?

    Veronique de Rugy notes that:

    “Detroit has more public employees per capita than almost any similarly sized cities (and that’s after downsizing its public work force quite a bit). In 2011, the city had only 55 residents per employee, lower than all but one peer, San Francisco.”

    A bailout would not answer these questions.

  • Scott

    No. No. No. No. No. The repetition isn’t to reinforce opposition; it’s to preemptively say no to a few of the other city and state bailouts that this would set a precedent for. This is not a road we want to head down, unless we’re interested in bailing out Illinois and California somewhere further along it.

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