Excellent Common Sense Blog about Detroit Bankruptcy in NY Times

[401don]

"...Detroit’s most serious problems are confined to the city limits. Elsewhere in the metropolitan area, there is ample economic activity. In suburbs like Bloomfield Hills, Mich., the median household income is more than $125,000. A 45-minute drive from Detroit is Ann Arbor, home of the University of Michigan, one of the world’s pre-eminent hubs of research and knowledge production.

Detroit’s travails arise in part from a distinctive aspect of America’s divided economy and society. As the sociologists Sean F. Reardon and Kendra Bischoff have pointed out, our country is becoming vastly more economically segregated, which can be even more pernicious than being racially segregated. Detroit is the example par excellence of the seclusion of affluent [[and mostly white) elites in suburban enclaves. There is a rationale for battening down the hatches: the rich thus ensure that they don’t have to pay any share of the local public goods and services of their less well-off neighbors, and that their children don’t have to mix with those of lower socioeconomic status...."

Full Article at:
http://www.google.ca/url?sa=t&rct=j&q=&esrc=s&frm=1&source=newssearch&c d=1&cad=rja&ved=0CCsQqQIoADAA&url=http%3A%2F%2Fopi nionator.blogs.nytimes.com%2F2013%2F08%2F11%2Fthe-wrong-lesson-from-detroits-bankruptcy%2F&ei=SNoIUtCCMYX22AXS_oCADw&usg=AFQjCN FJUIzq9toa7cX3hurGHSFUzFRGNw&sig2=bW1DjGUWIC7_yZjn OCzcZQ

[sumas]

Thank you for sharing that article. I don't agree 100% BUT 98% is pretty good

[Wesley Mouch]

Thank you for sharing that article. I don't agree 100% BUT 98% is pretty good

Yes, pretty good. Few reporters out there look at this divide between City and region. People who haven't been to Detroit do not understand that distinction.

Detroit is the example par excellence of the seclusion of affluent [[and mostly white) elites in suburban enclaves. There is a rationale for battening down the hatches: the rich thus ensure that they don’t have to pay any share of the local public goods and services of their less well-off neighbors, and that their children don’t have to mix with those of lower socioeconomic status.

There's no doubt that there's a separation. What this reporter misses is that the separation is mutual and voluntary.

[Detroitnerd]

There's no doubt that there's a separation. What this reporter misses is that the separation is mutual and voluntary.

Yeah, we less affluent city residents just don't want to live around have-somes. Oh, and despite the fact that so many urban residents don't have the money to move anywhere, it's totally voluntary. Yup, nothing to see here!

I think what this reporter misses is that the separation is profitable and subsidized.

[mwilbert]

There's no doubt that there's a separation. What this reporter misses is that the separation is mutual and voluntary.

Don't know what an un-mutual separation would be, but I agree with Detroitnerd that it isn't exactly voluntary on the part of the immobile.

I think what this reporter misses is that the separation is profitable and subsidized.

Joseph Stiglitz is hardly a "reporter". He is one of the handful of greatest economists of our time. Nor do I think he missed the issues of profit and subsidization, but rather I think that his opinion is different than yours. In particular, my reading of the piece is that he thinks that at this point the separation is self-sustaining and doesn't require subsidization to continue.

[michimoby]

It was well-written, for sure.

Here's what I'm wondering: you have this influx of affluent white suburbanites moving into the city center. Has their perspective on the outlying neighborhoods really changed? Are they driving up Livernois to shop at Mike's, or is their lifestyle entirely confined to Midtown/Downtown?

If it's the latter, then a decent case that there's really not been any progress made toward creating a functional, livable city could be made.

[bailey]

It was well-written, for sure.

Here's what I'm wondering: you have this influx of affluent white suburbanites moving into the city center. Has their perspective on the outlying neighborhoods really changed? Are they driving up Livernois to shop at Mike's, or is their lifestyle entirely confined to Midtown/Downtown?

If it's the latter, then a decent case that there's really not been any progress made toward creating a functional, livable city could be made.

Given the regional ejaculation over the opening of the smallest Whole Foods in the country in the most affluent area of Detroit proper.... the answer to your question should be self evident.

[Lowell]

My Peace Corps years in Southern Africa long ago revealed to me that Detroit had become a 'reverse' Johannesburg which is a city with vibrant center surrounded by a ring of slums and poverty. This is the typical third world model. Metro Detroit has reversed that donut. Some call Detroit third world. It actually is fourth world, a new dimension in urbanity.

In both cases 'problems' are ghettoized. The wealthy parts of the city get a pass on a share of the difficulties and expenses. If you are on one side of the donut everything is fine. Race and class are the dividers in both cases.

[sumas]

Yes, pretty good. Few reporters out there look at this divide between City and region. People who haven't been to Detroit do not understand that distinction.

[/FONT][/COLOR]There's no doubt that there's a separation. What this reporter misses is that the separation is mutual and voluntary.

Not sure about mutual. Of course I have seen reverse racism but mostly ignore it. It is a mental defense mechanism.

[iheartthed]

I think Stiglitz makes a good point about isolation of economic access contributing to Detroit's current situation. But Packman51 posted a copy of a report by JP Morgan that shows a pretty stunning decline of both the city and metro. Metro Detroit has lagged all other metropolitan areas by nearly every economic measure for the last four decades. I think that also needs to be examined in discussion of Detroit's current situation.

08-06-2013 -JPMorgan - How Different is Detroit.pdf

[Detroitnerd]

I think Stiglitz makes a good point about isolation of economic access contributing to Detroit's current situation. But Packman51 posted a copy of a report by JP Morgan that shows a pretty stunning decline of both the city and metro. Metro Detroit has lagged all other metropolitan areas by nearly every economic measure for the last four decades. I think that also needs to be examined in discussion of Detroit's current situation.08-06-2013 -JPMorgan - How Different is Detroit.pdf

Yes, it's true. But I think our brand of suburban triumphalism leaves that in the blind spot. I hear the argument that it's Detroit's problem. Or that the way southern Warren is going to seed is an example of the pernicious influence of Detroit.

The truth has been known for a long time, and the truth is that the rot is eating away at the foundations for the region. Regions that work together prosper. Regions that are divided, or where one part of the region says, "It's their problem. At least we're not them," have essentially lowered their sights.

[belleislerunner]

While that was a bank’s write-up that lacked any of the “positive” spin/recent developments – it does present some interesting facts. Very cool find. Thanks.

I actually found page 6 the most interesting. This quote on page 5 kicks it off “Why are municipal bankruptcies so complicated? There are some unresolved inconsistencies between Federal law and State law, a consequence of efforts by states to effectively prioritize retiree claims. See the Appendix on the following page for more details. On the margin, the local politics and emotions involved argue for considerable caution regarding risky local municipal issuers.”

This entire bankruptcy really comes down to a constitutional question, as detailed on page 6.

Do states have the right to pass laws that trump federal [[and Constitutional) mandated powers?

As much as I like state’s rights [[absent Constitutional direction otherwise – see Amendment 10, any power…) – If I was a lawyer advising retires – I would basically advise them that Michigan’s constitutional provisions [[i.e. retiree benefits) are immediately trumped by the US Constitution – given the clear articulation of powers. Jurisdiction was one wedge out [[but that’s already been ruled federal is the way to go). To me, it’s very cut and dry.

Maybe we’ll have another war over state’s rights? Haha – Though if anything it should encourage seniors [[50+ is a huge population) to mobilize nationally for a constitutional amendment related to it.

If that passes – I’d be fine with it. Fine with the approach.

[English]

My Peace Corps years in Southern Africa long ago revealed to me that Detroit had become a 'reverse' Johannesburg which is a city with vibrant center surrounded by a ring of slums and poverty. This is the typical third world model. Metro Detroit has reversed that donut. Some call Detroit third world. It actually is fourth world, a new dimension in urbanity.

In both cases 'problems' are ghettoized. The wealthy parts of the city get a pass on a share of the difficulties and expenses. If you are on one side of the donut everything is fine. Race and class are the dividers in both cases.

Excellent and accurate assessment.

[michimoby]

My Peace Corps years in Southern Africa long ago revealed to me that Detroit had become a 'reverse' Johannesburg which is a city with vibrant center surrounded by a ring of slums and poverty. This is the typical third world model. Metro Detroit has reversed that donut. Some call Detroit third world. It actually is fourth world, a new dimension in urbanity.

In both cases 'problems' are ghettoized. The wealthy parts of the city get a pass on a share of the difficulties and expenses. If you are on one side of the donut everything is fine. Race and class are the dividers in both cases.

Jo'burg, in many respects, is like Detroit -- except outside the ring of affluence is a ring of squalor. Many residents in exurbs like Sandton refuse to go into downtown Jo'burg despite its relative safety.

[renf]

In 1970 and for 20 some years thereafter, the city-suburban divide in metro Detroit was pretty much also a black white divide. That's changing. Whites' ideas about racial residential segregation have shifted and middle class blacks are entering the suburbs in large numbers. In 2012, 40 percent of the black residents of the three county Detroit metropolis lived in the suburban ring, not in the city of Detroit. Racial integration is slowly emerging here.
At the same time, the post-Civil Rights years have been tragic ones for blacks economically, especially for black men. On almost all economic indications - earnings, employment, personal income and household income - blacks in metro Detroit are further behind whites now than in 1970. This is not because of increased racial discrimination. Rather blacks - especially black men - were concentrated in those manufacturing jobs that once paid quite well but have disappeared due to greatly increased labor productivity. Women in general and black women in particular have fared better than men in this new labor market because of the expansion of employment in the health care sector. Joseph Stiglitz makes some very important points about increasing economic inequality.

[Wesley Mouch]

Not sure about mutual. Of course I have seen reverse racism but mostly ignore it. It is a mental defense mechanism.

No, not race. But control.

The suburbs don't want Detroit's problems. And Detroit doesn't want suburban influence on its affairs.

Both sides want to keep the existing political boundaries in place.

[mwilbert]

Yes, it's true. But I think our brand of suburban triumphalism leaves that in the blind spot. I hear the argument that it's Detroit's problem. Or that the way southern Warren is going to seed is an example of the pernicious influence of Detroit.

The truth has been known for a long time, and the truth is that the rot is eating away at the foundations for the region. Regions that work together prosper. Regions that are divided, or where one part of the region says, "It's their problem. At least we're not them," have essentially lowered their sights.

This is exactly right. In another context, it would be called "the soft bigotry of low expectations." A metropolitan area is an economic and social unit, and southeastern Michigan isn't what it ought to be partly because it doesn't have a properly functioning core city. While the suburbs can and have taken on some of those functions, the result is a kind of mutant metropolis, which at least empirically doesn't work as well as a normal one.

[iheartthed]

This is exactly right. In another context, it would be called "the soft bigotry of low expectations." A metropolitan area is an economic and social unit, and southeastern Michigan isn't what it ought to be partly because it doesn't have a properly functioning core city. While the suburbs can and have taken on some of those functions, the result is a kind of mutant metropolis, which at least empirically doesn't work as well as a normal one.

You could put it this way: when Detroit was the economic engine of southeast Michigan, the metro area was one of the most critical economic centers in the world. When that concentration of economic power left Detroit, it paralleled the decline of Metro Detroit as a critical world economic center.

[Lowell]

Yes, it's true. But I think our brand of suburban triumphalism leaves that in the blind spot. I hear the argument that it's Detroit's problem. Or that the way southern Warren is going to seed is an example of the pernicious influence of Detroit.

The truth has been known for a long time, and the truth is that the rot is eating away at the foundations for the region. Regions that work together prosper. Regions that are divided, or where one part of the region says, "It's their problem. At least we're not them," have essentially lowered their sights.

Exactly and underlined by the 2000 and 2010 censuses. Almost every inner ring and Woodward corridor community lost population. We are like a hollow tree with the rot spreading outward. Too bad the chipmunks frolicking in the lush outer canopy don't realize that it is their problem too.

[sumas]

No, not race. But control.

The suburbs don't want Detroit's problems. And Detroit doesn't want suburban influence on its affairs.

Both sides want to keep the existing political boundaries in place.

First I want to say I appreciate the many threads that concern Detroit issues and peoples input. I have weighed in here and there on one facet or another on small issue by small issue.

It is agreed Detroit problems are complex. As a Detroit resident and home owner, life long Detroiter [[did leave for awhile) would like to see a regional government, way more cost effective.

[Wesley Mouch]

Exactly and underlined by the 2000 and 2010 censuses. Almost every inner ring and Woodward corridor community lost population. We are like a hollow tree with the rot spreading outward. Too bad the chipmunks frolicking in the lush outer canopy don't realize that it is their problem too.

I believe they do realize it -- at least to some degree. But what can they do? What are their options?

And what do Detroiters want from the suburbs?

If you find an answer that satisfies both, you'll be getting somewhere.

[Hermod]

I believe they do realize it -- at least to some degree. But what can they do?

To tax themselves more than they currently do to have excess funds available to dump into the bottomless pit that is the Detroit gummint.

And what do Detroiters want from the suburbs?

As much money as possible with no strings or control attached.

[BankruptcyGuy]

Joseph Stiglitz is a wonderful economist.

His assessment of winners and losers in a bankruptcy proceeding is inaccurate.

Derivatives are not given any priority in a bankruptcy. The distinction is between secured and unsecured creditors. An unsecured derivative counterparty [[there are some in Detroit's case) stands even with other unsecured creditors, in Chapter 7, 9, 11 or 13.

There was no deception in these swap transactions--these were plain-jane interest-rate swaps. Even the overreaching CFTC has found these to be unobjectionable.

The "high priority given to workers in municipal bankruptcies" may be surprising to the workers whose union contracts are terminable at the drop of a hat in a Chapter 9 bankruptcy. Are the vested pension benefits protected? Who knows? Certainly Dr. Stiglitz does not know either.

His commentary on causes of the bankruptcy and the decline of Detroit are well-reasoned, but there are other well-reasoned alternative.

Always good to read his stuff.

[corktownyuppie]

So many great thoughts and insights on this thread....and the NY Times is pretty much dead on about it. As mentioned, the divide used to be about race and class. Now it's becoming just about class, as many former Detroiters flee for better services in neighboring suburbs or counties.

I also agree with Wesley that the separation is mutual. Suburbanites don't want the problems. Local political leaders all but refuse to give up control.

The only addition I have to the conversation is that the mutual separation is unsustainable and will gradually die, if only because of financial necessity. The only reason why we were able to avoid a regional government system is because there was enough money to go around to afford paying for hundreds of municipalities. That is already shifting as we see the Detroit Zoo, the DIA, Cobo, and eventually the DWSD go into regional operations/control.

Suburban school systems are having to merge. Deadline Detroit had a phenomenal post on how it's not [[just) Detroit that was rich, happy, lazy, stupid, etc. It was all of Michigan, as demonstrated by two neighboring western Michigan tourist cities gear up for a war to avoid an inevitable sharing of resources.

The electorate of both Detroit and the neighboring suburbs are changing. Attitudes are changing. Yes, there are many...thousands and thousands...that will fight against collaboration and regionalization. And even if newly transplanted suburbanites aren't racing over to Dexter and Davison to go run some errands, it's safe to say that all of them are having to face skepticism, scorn, and even straight hostility from either their family or friends to move into the city.

...and yet they're doing it anyway.

In the long term, I think that Detroit will lose a lot of local control. And even the local control they have is going to shift away from the isolationist ideologies that are passionately held by a vocal faction. But in the process, they are going to gain a lot of resources to help with social problems. Neighboring suburbs are gradually finding out that those problems do spread, and -- even if it takes another 10-15 years -- they're not going to keep ignoring it.

The other option -- moving further away from the city center -- is also off the table as municipal financiers are going to require secured streams of revenue as preferred collateral to tax rolls.

Lastly, I don't for a second believe that the rich and the poor are just going to live side by side. But I do believe that they will be forced to work together politically rather than just separating to avoid each other.

It's already happening...look at the change in the kinds of candidates we're getting because of council by districts.

[professorscott]

One big problem in metro Detroit is the number of municipal governments, which creates a costly and overly parochial approach to government. For instance, let's look at Detroit and its northern suburbs compared to DC and its Virginia suburbs. I looked at two Google maps, one centered in downtown Royal Oak, Michigan and one centered in Fairfax County, Virginia, at the same "zoom level". This is what I found.

Google Map at 2 Mile zoom level, centered on downtown Royal Oak
3 Counties:
Wayne County
Oakland County
Macomb County

27 Municipalities:
Detroit
Ferndale
Pleasant Ridge
Hazel Park
Oak Park
Madison Heights
Berkley
Royal Oak
Clawson
Franklin
Beverly Hills
Birmingham
Troy
Bloomfield Township
West Bloomfield Township
Farmington
Sterling Heights
Harper Woods
Eastpointe
Royal Oak Township
Highland Park
Roseville
Fraser
Warren
Center Line
Redford
Livonia

Google map at 2 mile zoom level, centered at US 50 and VA 28 in Fairfax County, VA
4 Counties:
Arlington County
Fairfax County
Loudoun County
Prince William County

5 Municipalities:
Alexandria
Manassas
Manassas Park
Falls Church
Fairfax