What Caused the Detroit Bankruptcy?

Something needs to be made clear about the Detroit bankruptcy:

The chapter 9 filing is not the fault of the city's pensioners nor is it the fault of the unions representing Detroit's worker bees.. Detroit has not fallen because 'greedy pensioners' are sucking up the money as America's wingnuts and their allies scream. IAccording to news reports the average pension in Detroit is some $19000 per year and the average social security benefit is about $14000 per year.

There are lots of people and institutions who are indeed responsible for the disaster that is Detroit but it is not the fault of the unions and it is not the fault of the pensioners. To say otherwise is simply not true and another example of lies being told in the GOP war against workers and poor people. These misstatements whether intentional or not are just examples of the class war being waged against people by other people working for vultures feathering their own nests.

The public employee unions represented the workers toiling for the City and its inhabitants negotiated labor contracts with the City. No one overpowered the City or otherwise took advantage of the City regarding pay, benefits and working conditions. These contracts were approved by both the workers and the City fathers through the City's legislative body elected by the citizens of the City. The result is there was created a contract binding both sides: the workers worked and the City paid a fair wage and agreed to pay money into the pension funds created by the contract. That should have been the end of the matter but it wasn't.

Several things coincided in time over the last decade or so to cause this bankruptcy:

The city fathers decided for whatever reason that they were not going to fund their portion of payments into the pension fund. These are called by the euphemistic term “unfunded pension liabilities”. In plain English the City government breached the labor contract.

The tax base of the City eroded because of a combination of things. Motor City was dependent upon the auto industry and the auto industry demanded and received special rights in the form of tax benefits which decreased significantly the funds available to the City to run the local government and to fund the pensions. The American auto industry began to falter due to competition from foreign auto industries in Europe and in Asia. The auto manufacturers and other industries dependent on the auto industry such as parts manufacturers left the City for other places where they could negotiate better deals for themselves and their equity holders and basically abandoned the City and abandoned their plants in situ to become Detroit's problem. As a result taxes were not being paid by the industry to the City. None of this of course happened overnight but these results accumulated over time. The net result was a decrease in the City's cash flow. Cash flow became a trickle.

The City needed to continue operating and to do that it had to borrow money and those loans were obtained on the strength of the tax value of the real property located in the City. The City borrowed this money from Wall Street banks and banking institutions generally referred to now as Banksters. The obligation to repay these loans were secured by tax levies and the consequent revenue stream now flowing very slowly. The value of real estate in Detroit plummeted and the tax receipts were no longer sufficient to support the City neither in its day to day operations, nor it obligation to maintain and repair or replace infrastructure nor its obligations to repay the Wall Street banks. The City's credit rating plummeted as well and for for the simple reason that the lenders were nervous and feared they would end up holding the bag. This started a ball rolling downhill and the City struggled to refinance its debt and meanwhile the City stopped making contributions to the pensions. Detroit made a habit of robbing Peter to pay Paul. The debt was refinanced and interest payments deferred to allow the City breathing room. The refinance documents tied the new obligations of the City to the City's credit rating as determined by the banking industry's allies in the credit rating industry. The banksters and the credit rating industry were and still are linked at the hip. Under the deal signed on to by Detroit and its bankster creditors if the City's credit rating decreased further which it did all bets were off and the deferred interest payments became due and payable not over a period twenty years but now. Due dates were accelerated just banks do with individual credit card users

The state of Michigan which had an obligation to pay to Detroit some forty seven million dollars annually for some mandated activities failed to make those payments and thereupon reduced the City's cash flow even more. Everyone it seemed had a straw in Detroit's revenue stream with an obvious result.

Michigan has a law that is pretty much unique to Michigan. It is called the Emergency Manager Law and is codified as Public Act 4 enacted and signed into law in its present form by GOP governor Rick Snyder. It allows the governor of the state to impose upon distressed \local governments and school districts a super bureaucrat called an Emergency Manager who after appointment runs all of the affairs of the city and converts the elected government into an a dictatorial government run by that manager. That manager reports to the governor and becomes in effect both the City's legislature and the City's executive. The elected government is magically turned into a group of political eunuchs with no legal authority to do the jobs that the citizenry elected them to do. It effectively overturns elections. The emergency manager is responsible only to the governor and are analogous to viceroys who were responsible only to the kings who appointed and anointed them. It was the Emergency Manager who initiated the bankruptcy that is now threatening the paltry pensions of Detroit's retired workers.

To say that the City's pensioners or the Union representing City workers are responsible for this bankruptcy is total unmitigated nonsense. The fault lies with Detroit's city council and other elected officials, the state legislature which defunded Detroit, the greed exhibited by Wall Street Banksters, the governor, the emergency manager and the credit reporting firms hired by the banksters. The destruction of the domestic automobile industry bears some responsibility. Currently it is the plan that Detroit's retirees are going to make up the shortfall by decreases in the payments the retired workers will receive. The banksters as is the usual case will get paid in full on he backs of poor and middle class people.

Remember that un-restrained capitalism is an upward wealth redistribution scheme in which the rich get richer and the poor become poorer and middle class destroyed. That my friends is what is going in Detroit. If there is a conspiracy it must be laid at the feet of the financial industry.