Obama promised he wouldn't let Detroit fail... well yesterday it failed
Detroit files for bankruptcy.
Detroit filed bankruptcy Thursday, hopefully ending a long, terminal slide into insolvency. The city has been long beset by lost jobs, urban decay, and massive liabilities for public employees. Despite the inherent problems, Obama pledged to keep Detroit afloat. Today, that pledge failed.
The slid into bankruptcy has been a long one, with Obama pledging in 2012 that he would not allow Detroit to go bankrupt. That promise apparently only applied to the auto industry.
The city faces more than $18 billion in debt, accrued over years of lost jobs, high public wages and benefits, and urban blight. The city has the highest murder rate in over 40 years, and at least 78,000 abandoned buildings. Some areas are almost entirely deserted.
Creditors are understandably upset at the decision. It is very possible that municipal bonds could be affected by the filing, which the possibility alone makes the national municipal bond market weaker. After all, if Detroit can reduce its bond obligations, then so might other cities in financial troubles.
This could in turn, lead to higher borrowing rates for distressed cities, pushing some cities over the edge.
Other creditors, such as the public pension fund will also be drawn into the fight. Public pensions have been called out as one of the major burdens affecting the city.
The details of the bankruptcy filing remains secret, but it is expected that the city will try to work out individual deals with creditors that are willing to negotiate.
"There were no other viable alternatives," Snyder told reporters during a press conference when he authorized the filing.
City officials say they hope the city will emerge from bankruptcy quickly, hopefully next year.
Meanwhile, city Mayor, Dave Bing, who had no power in the bankruptcy decision because of a change in state law, said "As tough as this is, I didn't want to go in this direction," Bing said. "Now that we are here, we have to make the best of it. If it is going to make citizens better off, this is a new start for us."
For now, creditors, and the people of Detroit, can expect difficult times ahead, but there may be light at the end of the tunnel for the city, if the proceedings go smoothly. However, given the size of the city's liabilities, that may be a bit optimistic.
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