Detroit announced on Friday that it will stop making payments on some of its $18.5 billion debt. That is obviously an unsustainable debt built up after 50 years of Democratic rule.
Detroit failed to make a $34 million dollar payment Friday, putting it in default.
Detroit is emblematic of our declining economy but we keep spending money we don’t have.
They are in danger of bankruptcy. The “insolvent” city asked its creditors to take pennies on the dollar to avoid a bankruptcy filing. It would be the largest municipal filing in history.
Detroit’s emergency financial manager Kevyn Orr said unsecured debt holders will receive less than 10 cents on the dollar. Secured creditors will do somewhat better, how much better is unknown.
Fitch and Standard and Poor’s Ratings Services downgraded them to junk status. S&P said default is a certainty.
Detroit has a dwindling population and very high unemployment. Fifty years ago it was the fifth largest city and now it is eighteenth with half the population having left in the last ten years. As a result, Detroit is not bringing in enough revenue to sustain its high debt and overwhelming entitlement payouts. Two-thirds of Detroit’s children are impoverished.
Tens of thousands of homes are vacant and the median house price is $9,000. Property crime is double the average. Violent crime is triple. In the last ten years, half of the police and half of the firefighters were laid off. Much of Detroit is unsafe.
GM is not alive as Joe Biden claimed before the election but they are not very willing to do their fair share.
The unions have taken minimal cuts. They don’t want additional cuts, but after the creditors walk away with pennies on the dollar, there will be little choice.
Orr summoned public labor unions, bondholders, bond insurers and others to a Detroit airport hotel to present a 200-page restructuring plan.
Creditors have little recourse and few protections in a bankruptcy of a municipality. Unlike in corporate Chapter 11 bankruptcies, judges have more limited powers in a municipal Chapter 9 proceeding. A judge in a Detroit bankruptcy could not replace Orr, liquidate the city, or force it to sell assets or raise taxes.
Still the Detroit unions claim that Wall Street is to blame. It’s not the crime, the taxes, the excessive spending, the union demands, it’s only Wall Street that is to blame.
No matter who is to blame, it is a tragedy and it is on Obama’s watch. It’s not the first city to go bankrupt and it won’t be the last.
Cities and towns failing is a sign that our economy is rotting from the inside. We need to stop spending.
While the people of Detroit are suffering, Obama is taking a $60 million to $100 million dollar vacation to Africa.
Read more at yahoo.com