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Friday, July 19, 2013

the automobile city 'Detroit' files for bankruptcy.... !!

Most of the cities which developed in earlier days were all settlements on river banks…. People were closely associated with rivers as it provided them the natural wealth in abundance….  In the last century, this city grew so rapidly and became the cradle of automobile industry ~ now it is a city in shambles ~ the emergency manager puts that the city’s debt is likely to be $18 billion and perhaps as much as $20 billion. 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 the city’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 city’s creditors and representatives of city workers and municipal retirees ought to settle for less than they once expected.
Some bankruptcy experts and city leaders bemoaned the likely fallout from the filing, including the stigma. They anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on borrowing.

Insolvency is the inability of a debtor to pay their debt. Cash flow insolvency involves a lack of liquidity to pay debts as they fall due. Balance sheet insolvency involves having negative net assets—where liabilities exceed assets. Insolvency is not a synonym for bankruptcy, which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency.

The Detroit River is a 24-nautical-mile-long (44 km; 28 mi) river in the Great Lakes system. The name comes from the French Rivière du Détroit, which translates literally as River of the Strait.  This busy waterway carries the international border between Canada and the United States.  From the river originated the name of city Detroit, a settlement founded by the French in 1701. Detroit  is the most populous city in the U.S. state of Michigan. The Detroit area emerged as a metropolitan region with construction of an extensive freeway system in the 1950s and 1960s.  It quickly became a metonym for the Americal automobile industry which supplied arsenal for allied powers in WW II.  

Not all is well here now…… the city, once a symbol of US industrial power, is seeking protection from creditors who include public-sector workers and their pension funds. Detroit has faced decades of problems linked to the decline of its industry. It is stated that the public services are in a state of near collapse and around 70,000 properties lie abandoned.  The Mayor of the city Dave Bing has vowed that public services will keep running and wages for public workers will be paid. On Thursday, Michigan state-appointed emergency manager Kevyn Orr asked a federal judge to place the city into bankruptcy protection.

If it is approved, he would be allowed to liquidate city assets to satisfy creditors and pensions. The city  stopped unsecured-debt payments last month to keep the city running as Mr Orr negotiated with creditors. A deal in which creditors would accept 10 cents for every dollar they were owed was also proposed. But two pension funds representing retired city workers resisted the plan. Thursday's bankruptcy filing comes days ahead of a hearing that would have tried to stop the city from making such a move.

BBC reports that Detroit's fall is complete. It is a depressing, if inevitable, end to a grotesque saga of decline, corruption and mismanagement. The irony is that the bankruptcy comes just as the private sector is picking up in Motor City. There is a buzz downtown, with commercial and residential occupancy at record levels.
But public services are in a state of near collapse. Around 70,000 properties lie abandoned. Great swathes of the city need to be written off. For some, the announcement will come as some kind of relief.  The problem now is not just image. Bankruptcy looks bad. But Detroit is already a poster child for urban failure. Nor is it just about being locked out of capital markets - few would lend to the city anyway. But bankruptcy could take years to sort out, when Detroit's real world problems need urgent remedies. Meanwhile, the White House said it was closely monitoring developments in Detroit.

Detroit has seen steady decline in the recent past ~ its population has shrunk; it has the  highest violent crime rate of any major US city, with 15,245 reported incidents in 2011 ~ it has more than 75000 abandoned buildings; reportedly 40% of street lights do not work; only a third of the city's ambulances are in service; only  53%.  Sad that a city which was once a blooming industrial town has no finance left…… it now has the dubious distinction of the very few cities which have resorted to this extreme measure ~ is this akin to individuals attempting to suicide unable to honour their commitments !!!

Unlike corporate bankruptcies, there have been relatively few Chapter 9 cases since the Bankruptcy Act was amended in 1934 to include municipalities. This means there is little precedent and the number of creditors means a complicated road ahead. General Motors, the only major U.S. automaker headquartered in Detroit, said in a statement that the company “is proud to call Detroit home and…(this is) a day that we and others hoped would not come. We believe, however, that today also can mark a clean start for the city.” Ford Motor Co, which is based in the Detroit suburb of Dearborn, said it was “optimistic that governmental leaders will be successful in strengthening the community.”

So where to… from here….

With regards – S. Sampathkumar.

19th July 2013.

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