Tuesday, July 23, 2013

Detroit Files for Bankruptcy

Ian Ransley Design/Flickr
Like all the media, The New York Times reported that the city of Detroit has filed for bankruptcy:

"Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, filed for bankruptcy on Thursday, the largest American city ever to take such a course........... 

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion..............

Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets. From here, there is no road map for Detroit’s recovery, not least of all because municipal bankruptcies are rare. State officials said ordinary city business would carry on as before, even as city leaders take their case to a judge, first to prove that the city is so financially troubled as to be eligible for bankruptcy, and later to argue that Detroit’s creditors and representatives of city workers and municipal retirees ought to settle for less than they once expected."

This development doesn't come as a surprise as I highlighted in an earlier blog post, Detroit, a Microcosm of America?

Also Steven Rattner, the financier who headed President Obama’s auto-industry task force in 2009 that reorganized the predecessors of Detroit-based General Motors Co. and Chrysler Group LLC in bankruptcy court, said on Bloomberg that this development was inevitable:

“It’s analogous to the auto companies, in that you have too many stakeholders whose claims are too underwater to have realistically ever worked this out without some kind of bankruptcy. I felt the same way about the auto companies as I did about Detroit from the first moment -- bankruptcy was the only option.”

In any case, the die has been cast, let's now see what the consequences will be.

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