Mike Shedlock

Update on Detroit Bankruptcy

Detroit is financially and morally bankrupt yet the governor refuses to make that declaration. A Review team says Detroit faces financial crisis, has no plan to fix it so why won't the governor act?


For the second time in a year, a state review team has found Detroit is in a financial emergency that requires Gov. Rick Snyder to intervene in City Hall.

But this time, if Snyder agrees that a financial emergency exists, the governor's choices are more limited. He could appoint an emergency manager to keep Michigan's largest city from plunging into bankruptcy, experts say, or he could continue state financial supervision through a new consent agreement, which seems a faint possibility.

State Treasurer Andy Dillon ruled out a bankruptcy filing at this time.

The six-member review team unanimously concluded in a report released Tuesday that the city failed to restructure its debt-laden bureaucracy under the financial consent agreement signed in April and that Detroit's financial crisis requires Snyder's intervention "because no satisfactory plan exists to resolve a serious financial problem."

Chapter 9 bankruptcy is "always a possibility but I don't think the city should go through (Chapter) 9 to cure its ailments," he added.

The review team said the city's charter adds "numerous restrictions" and hurdles for closing departments, canceling contracts and the type of wholesale restructuring financial experts say is necessary to make city government live within its means.

Restrictions? Who Cares?

In bankruptcy, restrictions go out the window. So do union contracts and pensions. Since all of that needs to go out the window, what's holding the governor back?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com


Mike Shedlock

Mike Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management.