Finally, A Sensible Financial Emergency Bill Out of Lansing...

[corktownyuppie]

It doesn't matter one iota whether you call what happens in Detroit an Emergency Manager, or a Financial Manager, or City Council, or Jesus Christ. Well, maybe that last one would make a difference, but he clearly wasn't into the whole money thing [[render unto Caesar and all that).

Detroit is flat [bad word]ing broke. Detroit spends, every single day, piles more money than it brings in or can bring in. The people who work for the City are in denial and have been for decades. Not too many months from now, Armageddon hits and pay is cut, people are laid off, whole departments are closed, and not a soul is going to give one half of a [different bad word] about the rants from the City Council when that happens.

This is all true.

There are essentially 5 different "Detroit" components in conflict:

- People who live here
- People who work for the city
- People who lent money to the city
- People who are retired and receiving city pension/medical benefits
- People who were elected to represent the city

They're not all going to make it through this, and it's going to be ugly. It doesn't matter whether or not we go through an EM or a bankruptcy judge. Both entities will likely look to the restructuring work done as per the city/state agreements done yesterday and use them as a model to help guide the process. I think an EM will be faster and far less expensive [[leaving more money on the table for everyone to work with), but I know a bankruptcy process will also solve some of the political dynamics that poison the process.

I'm actually optimistic for two reasons:

[[1) When the bankruptcy court starts really dropping the hammer, it might might motivate a last-second deal among all the parties. Maybe.

[[2) Either way, Detroit emerges from the whole thing with restructured major debts and having shed tons and tons and tons of needless expense. The process might take 5 years, but still...5 years ain't nothin. We've been waiting for this day 30+ years. What's 5 more years, especially, as local leaders get their asses handed to them in the process.

Finally, for people with economic power and secure jobs, start hoarding cash. It's going to be bargain basement time for a few years while we're stripping away all this excess cost structure.

From the perspective of an investor, Detroit has 3 major risks: [[1) Crime, [[2) Uncertainty, [[3) High Costs and Low Services. As department after department gets totally decimated, people who have the resources to deploy capital and resources quickly and efficiently will replace a bloated city government. Uncertainty will gradually be replaced with certainty. High Costs and Low Services will be replaced with Low Costs and Low Services. The only major risk left will be crime, and we have already proven that with enough resources, can quickly become a non-issue.

The end result out of all this 10 years from now will be healthier Detroit with all the weeds pulled and good, healthy soil from which to grow. In the process you will piss off thousands of retirees [[many of whom no longer live in Michigan), many of the citizens [[many of whom are already pissed anyway), all the elected officials [[who deserve to go down with the ship), and tons of lenders.

Everyone will lose in different degrees, including me and my family, who have financial ties to the city's solvency...but you will have completely destroyed the political culture that has held the city back for decades. Is it worth it to go through 5 years of wanton destruction, including 60-70% unemployment in order to be able to finally start over and build a healthy city?

Well...a) we don't have a choice, it's gonna happen either way...and b) Yes. Totally worth it.

[Honky Tonk]

This is all true.

There are essentially 5 different "Detroit" components in conflict:

- People who live here
- People who work for the city
- People who lent money to the city
- People who are retired and receiving city pension/medical benefits
- People who were elected to represent the city

They're not all going to make it through this, and it's going to be ugly. It doesn't matter whether or not we go through an EM or a bankruptcy judge. Both entities will likely look to the restructuring work done as per the city/state agreements done yesterday and use them as a model to help guide the process. I think an EM will be faster and far less expensive [[leaving more money on the table for everyone to work with), but I know a bankruptcy process will also solve some of the political dynamics that poison the process.

I'm actually optimistic for two reasons:

[[1) When the bankruptcy court starts really dropping the hammer, it might might motivate a last-second deal among all the parties. Maybe.

[[2) Either way, Detroit emerges from the whole thing with restructured major debts and having shed tons and tons and tons of needless expense. The process might take 5 years, but still...5 years ain't nothin. We've been waiting for this day 30+ years. What's 5 more years, especially, as local leaders get their asses handed to them in the process.

Finally, for people with economic power and secure jobs, start hoarding cash. It's going to be bargain basement time for a few years while we're stripping away all this excess cost structure.

From the perspective of an investor, Detroit has 3 major risks: [[1) Crime, [[2) Uncertainty, [[3) High Costs and Low Services. As department after department gets totally decimated, people who have the resources to deploy capital and resources quickly and efficiently will replace a bloated city government. Uncertainty will gradually be replaced with certainty. High Costs and Low Services will be replaced with Low Costs and Low Services. The only major risk left will be crime, and we have already proven that with enough resources, can quickly become a non-issue.

The end result out of all this 10 years from now will be healthier Detroit with all the weeds pulled and good, healthy soil from which to grow. In the process you will piss off thousands of retirees [[many of whom no longer live in Michigan), many of the citizens [[many of whom are already pissed anyway), all the elected officials [[who deserve to go down with the ship), and tons of lenders.

Everyone will lose in different degrees, including me and my family, who have financial ties to the city's solvency...but you will have completely destroyed the political culture that has held the city back for decades. Is it worth it to go through 5 years of wanton destruction, including 60-70% unemployment in order to be able to finally start over and build a healthy city?

Well...a) we don't have a choice, it's gonna happen either way...and b) Yes. Totally worth it.

Nothing's going to change for a LONG time, other then lawyers involved with this are going to get richer from the drawn out court battles. People who chose to dig in for the long term are the ones going to get hurt, as property values and personal safety continue to decline. Of course, you can always continue to keep sinking your money into the Detroit Phoenix that's going to rise out of the ashes, one day, maybe.

[corktownyuppie]

People who chose to dig in for the long term are the ones going to get hurt, as property values and personal safety continue to decline.

Important note to investors: invest for income...investing for capital growth is an iffy proposition.

[313WX]

Important note to investors: invest for income...investing for capital growth is an iffy proposition.

FWIW, I think most investors are aware of that.

As far as investing for income in anticipation of this new Detroit, one will still have to come to terms that they're going to be losing money for a while, whether they're renting out property or running a small business.

[corktownyuppie]

FWIW, I think most investors are aware of that.

As far as investing for income in anticipation of this new Detroit, one will still have to come to terms that they're going to be losing money for a while, whether they're renting out property or running a small business.

Really? I don't disagree that you're seeing that in some parts of the city, but I'm curious if that's true everywhere that I haven't been looking. In Corktown, you can buy a place for 8x annual gross rent, and with interest rates where they are right now, you can get a 20+% cash-on-cash return. And that's even with a 15-year mortgage and a 20% down payment. Numbers get even better with a 30-year mortgage. I'm not trying to be a slappy to inflate property values, but I'm just saying that at prices I'm seeing around here, you're definitely in the ballpark of nice bargains.

[313WX]

Really? I don't disagree that you're seeing that in some parts of the city, but I'm curious if that's true everywhere that I haven't been looking. In Corktown, you can buy a place for 8x annual gross rent, and with interest rates where they are right now, you can get a 20+% cash-on-cash return. And that's even with a 15-year mortgage and a 20% down payment. Numbers get even better with a 30-year mortgage. I'm not trying to be a slappy to inflate property values, but I'm just saying that at prices I'm seeing around here, you're definitely in the ballpark of nice bargains.

But outside designated renaissance zones [[Corktown may be one), there comes the factors of taxes and insurance [[not to mention scrappers).

I'm sure you're far more knowledgeable than me about the finances, but I know there's a reason much of the property in Detroit still remains unsold, even with the low prices and interest rates.

[mwilbert]

Nothing's going to change for a LONG time, other then lawyers involved with this are going to get richer from the drawn out court battles..

Well, betting that legal processes will take a while and that lawyers will make money from them is safe. But you should see changes in the city's cash flow position rather quickly--if nothing else the city would probably immediately stop paying interest and principal on its billion dollars of GO debt.

[corktownyuppie]

But outside designated renaissance zones [[Corktown may be one), there comes the factors of taxes and insurance [[not to mention scrappers).

I'm sure you're far more knowledgeable than me about the finances, but I know there's a reason much of the property in Detroit still remains unsold, even with the low prices and interest rates.

Well I agree. There's a reason you can't give much of the property away. At this point, I'd say 70-80% of the property is only a bargain if you have the kind of money where you can develop an entire block at a time [[eliminating blight) and provide your own private security [[eliminating crime). The odd thing is that reality is becoming more and more possible as property devalues.

The other 20-30% of the property is truly bargain basement for those familiar with the neighborhoods. Could be that I'm living in the ivory tower, but I don't know of a single vacant or abandoned home in the historic part of Corktown. Nor am I aware of any incident of scrappers stealing copper, though, again...could be that I'm just unaware. There's no question that there's a difference between driving around 7 and State Fair vs. Michigan and Trumbull, though.

Detroit is such a bizarre city to analyze real estate. You could write a whole book on it for a college course.

[313WX]

Nothing's going to change for a LONG time, other then lawyers involved with this are going to get richer from the drawn out court battles. People who chose to dig in for the long term are the ones going to get hurt, as property values and personal safety continue to decline. Of course, you can always continue to keep sinking your money into the Detroit Phoenix that's going to rise out of the ashes, one day, maybe.

Agreed.

But boy...you better be in for the long haul [[and only invest downtown) or you will be sorely disappointed.