Skip to content


March 8, 2014

We saw in Parts I and II that the federal bankruptcy court in charge of Detroit’s chapter 9 bankruptcy matter and the so-called “emergency manager” who brought the petition in bankruptcy on behalf of the city are by their acts and failures to act clearly impairing the rights of the city’s present and future retirees in derogation of the Michigan state constitution. We saw also that, contrary to propaganda from the Republican state administration, it was the pressure from the bankers and not the pensioners and pensioners to be who brought Detroit to bankruptcy. We also saw that the “emergency manager” is a member (on leave) from the same law firm that landed an $18 million dollar contract to represent the city, as though being on temporary leave assures his independence from his law firm’s importunities.
Michigan’s Republican governor told us that bankruptcy was necessary because of the ineptitude of the city’s politicians who didn’t know how to run anything and that the state needed to move in and straighten out the mess. He knew or should have known that such propaganda was false, that the reason Detroit was having money problems was because of its documented and massive out-migration of population and the consequent disastrous reduction in tax base, which had nothing to do with ineptitude. Few if any could have predicted such a disaster. Ineptitude, if it was at all involved, rests with the state and federal trade aficionados. When fifty percent of the cars in the street are manufactured elsewhere or in non-union venues here and jobs evaporate in Detroit and people start moving out by the thousands and tax revenues plummet, it should come as no surprise that the city started having problems paying its bills. If you and I had our salaries cut by fifty percent, we might have problems paying our bills, too. Detroit laid off people and drastically reduced costs to a point that public services suffered, resorted to loans with investment bankers etc., but no city could endure the double whammy of wholesale out-migration and such huge losses of revenues – and then came the 2008 Wall Street banking disaster, which exacerbated loss of auto market share and people leaving town even further.
So who are all the characters in this cast, perhaps some not so prominent but who made a Chapter 9 filing inevitable? First it was the investment banks. One of the triggers (credit rating downgrade of the city) was pulled and the banks wanted their money – now. The city didn’t have the money or any way to get it, so boom! Chapter 9, with the banks lined up first at the preference trough upon filing. The state, whatever its motives in being sure Detroit failed, did its share. Consider the following: Detroit’s annual shortfall was $198 million; the newly elected Republican state legislature cut the state’s annual revenue sharing funds to Detroit by $67 million, which would have covered almost one-third of the city’s shortfall, and while some of that cut was properly triggered due to the city’s population loss, Republican legislators cut an additional $48.2 million to balance the state budget – on the backs of pensioners and taxpayers in the city. When the governor was asked if he were going to propose restoration of the lost revenue to Detroit, he answered arrogantly “That’s a legislative prerogative,” (as though he had not made dozens of proposals to the legislature to reduce taxes on his corporate friends and benefactors).
Finally, and long before the Chapter 9 filing, two attorneys of the law firm now representing Detroit (for 18 million dollars) wrote a roadmap in how to slash municipal pensions via bankruptcy. The piece was published in a law review by attorneys Jeffrey B. Ellman and Daniel J. Merrett, members of the Jones Day law firm, which is significant since the Jones Day law firm later served and is now serving not only as the attorneys for the City of Detroit but also the law firm from which the City’s “emergency manager” was hired (speaking of nepotism run amok, pretended objectivity etc.).
The article was entitled “Pensions and Chapter 9; Can Municipalities Use Bankruptcy to Solve Their Pension Woes,” and laid out in detail how cities can use bankruptcy to impair municipal pensions. This plan was approved by the Republican governor of the state, and along with state officials in his administration and financial consultants and the Jones Day law firm and the Miller Buckfire investment banking firm, was proposed and accepted by the (captive) “emergency manager” and further adopted by the bankruptcy court. It is a recipe for further disaster for Detroit’s current and future pensioners.
So what do we have here? Is this, as some say, a war on the middle class? Probably, since the usual Republican claim of welfare bums doesn’t work here. Detroit’s pensioners aren’t asking for a handout. This involves money they have already paid into a retirement system that is somehow not to be treated as secured but rather subject to plunder by banks and lawyers (and perhaps unconstitutionally as well). Someone tell me how that is fair and just.
There are other repercussions to this continuing travesty; the dismantling of American ownership. With one fire sale after another of real property in Detroit (which the business press reports routinely), Chinese and Japanese investors are swooping in and scooping such properties up for a song. A Chinese investor indeed bought the Detroit Free Press building sight unseen at auction for $4.2 million for proposed conversion into 150 apartments and retail space. At the same auction, a Shanghai firm bought a 38-story building for $9.4 million. The Detroit News building goes on the auction block in June. Chinese interests recently bought Smithfield Ham to add to their continuing acquisitions.
Naomi Klein coined the phrase “disaster capitalism” in her book “The Shock Doctrine” as descriptive of the rapid-fire corporate reengineering of societies reeling from shock which I think has application here. With the court’s adoption of a “plan” explicitly designed to enable municipalities to divest themselves from their pension obligations under Chapter 9 of the bankruptcy code, what we are at bottom seeing is a vertical redistribution of the wealth from taxpayers and pensioners to bankers and lawyers, and all under legitimating order of court. Again, someone tell me how that is fair and just and good for America.
I think we are beginning to see the results of our trade policies and unregulated cross-border movement of capital in the global economy. Part of the money and know-how we exported to China and elsewhere that has impoverished Middle America is now coming back – not to stimulate American exports – but rather to buy our business infrastructure and, in time, dominate our domestic marketplace.
If I am correct (and I hope I am not), then the Chapter 9 catastrophe unfolding in Detroit will only be the first of many systemic failures leading to our descent into Third World status, because, ultimately, when America does not own America, we (both rich and poor) are on the road to loss of social cohesion and decay. We will not be the first; history has recorded dozens of others (e.g., Rome, Athens et al.).
Is anyone in a policymaking position listening on behalf of a future for America and its people, or are we too engaged in political catfights and amassing of gain and profit to survive? Time will tell. GERALD E


From → Uncategorized

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: