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"Let Detroit go bankrupt"

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  • Center Left Democrat
    Flagstaff, AZ
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    We're all familiar with the clip of Mitt Romney that was played during the 2012 Presidential campaign:

    This is how it was brought up in one of the debates between Romney and Obama:

    By now, you're also aware of the fact that General Motors is no longer Government Motors, since the Treasury Department sold the last of its shares yesterday:,0,5451053.story

    On the surface, a $10 billion loss to the taxpayers may seem like a bad deal, until you consider that the fact that the government's bailout of the auto industry saved 1.5 million jobs, and preserved $105.3 billion in personal and social insurance tax collections.

    If you think that Rick Wagoner became suicidal after he was fired by the President of the United States, think again. After he left General Motors, he retired with an exit package valued at $10,000,000, which includes $1.65 million in benefits his first 5 years of retirement, a $74,000 pension for the rest of his life, and a life insurance policy worth $2.6 million, which can be cashed out at any time:

    In addition to the auto industry, the financial industry also received help from the government. In total, the Treasury Department has received $433 billion from the Troubled Assets Relief Program, a profit of $11 billion on its $422 billion investment:

    Five years after the banking crisis, federal regulators are FINALLY about to pass reforms that will limit some of the practices that caused the problem in the first place.

    Detroit, of course, HAS gone bankrupt, but not before the city agreed to spend $444 million on a new Red Wings hockey stadium:

    The owner of the Detroit Red Wings, as well as the Detroit Tigers, is pizza king Mike Ilitch (he founded Little Caesars in 1959) is worth an estimated $2.7 billion. Logically, you'd think that he'd be able be build his own darn stadium, but that was a decision made by someone other than me.

    If you listen to the conservative mainstream publications, you'll know that Detroit's problems were caused by all those darned union pensions. The only problem is, that simply isn't true.

    The REAL reason for Detroit's bankruptcy is the banking industry.

    Starting in 2005, Detroit was more or less forced into risky financial investments known as derivatives in order to solve a funding crisis they had at that time. Detroit is not alone in becoming a victim of derivatives, since bankruptcies have also been forced on Jefferson County, Alabama, and San Bernadino, California, and hundreds of other local governments have also faced budgetary distress.

    Simply dropping a bomb on Detroit isn't going to solve the city's problems, even though the Hiroshima/Detroit comparison shots show that Hiroshima is clearly in better shape than Detroit:

    Detroit's problems will eventually get solved somehow, and conservative talk show hosts like Glenn Beck will continue to blame "progressives" , but at least now you have the facts.
  • Liberal Democrat
    Colorado Springs, CO
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    Arizona --

    Thanks for sharing all of your research on the Detroit bankruptcy. It is really sad to see the photos of how the city has declined...or should I say decayed. I read or watched all the links in your post, but the one that really caught my attention is the Aljazeera opinion article:

    Andrew Elrod, Aljazeera, December 10, 2013: Pensions aren't the source of Detroit's woes

    While much of the mainstream media seems to focus on the unions and pension funds as the source of the city's debt problems, they ignore the real cause...shady investments in derivatives by financial "whiz kids."

    Risky derivatives issued in 2005 and 2006 as part of a money-raising deal to avoid getting voter approval for loans made to the city were the real culprit. Risky in 2005 and 2006 but fatal with the 2008 financial crash, the city lost tax revenues while having to service the hefty interest on that debt.

    Quoting Elrod:

    "Under the terms of the swap, the interest rates the city was paying were fixed to higher prerecession levels, while the interest payments the city received from the banks in return were pegged to the Federal Reserve’s new postrecession interest rates, which by then had dropped precipitously. This greatly increased the costs of servicing the debt issued in 2005 and 2006.

    "The banks knew these deals were risky, but they were protected from any potential fallout: If one payment was late, they could terminate the agreement and demand their projected profits in full. Desperate to avoid such an event, Detroit has imposed severe austerity in order to come up with the cash. So far, it has managed to avoid late payments. But there remain other so-called termination triggers in the debt deal, including one that the city could not avoid: In 2009, Detroit had its credit rating downgraded, allowing Bank of America and UBS to cancel one of the swaps and demand $450 million dollars immediately. The city could not pay the fee and had to agree to increase the amount of its fixed payments, while allowing an insurance company guaranteeing its debt to place a lien on designated tax revenue."

    The problems continued into 2011 with the city taking out another loan to service the $547 million in swap payments and termination fees it must pay Bank of America and UBS on the prerecession deals. Wow...and now Rick Snyder's appointed city manager is cutting retirement pensions to service the banks while also putting tax payers on the hook for two-thirds of the cost to replace the Detroit Redwings "antiquated" stadium. It just blows my mind.

    Yet you ask anyone on the street whose fault it is, and they will point the finger at greedy public sector workers and unions. That's how billionaires like Detroit Red Wings owner, Mike Ilitch, and Fox News owner, Rupert Murdoch, are in control.

    Thanks again Arizona for sharing this. Hope you don't mind my expanding the discussion using your material.
  • Center Left Democrat
    Flagstaff, AZ
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    The Daily Kos this morning posted an article detailing how that $105 billion is broken down. The figures were determined by the Center for Automotive Research. The conclusion of the article states that Uncle Sam's investment in the auto industry produced a return ranging between 334 and 768 percent:
  • Strongly Liberal Democrat
    Dallas, TX
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    Also, local officials were lobbied by industry to sign-off on these agreements.