Even the bankruptcy of a major city in the richest nation in the world is an acceptable absurdity in the minds of idiotized publics accustomed to the rules of savage capitalism.
By Jerry White,wsws.org
(The addenda provide further information on this topic, including the official view of the establishment, as filed by the New York Times.)
Corporate lawyer Kevyn Orr: another black face eagerly doing the dirty work for the establishment.
The emergency manager overseeing the financial restructuring of Detroit filed a petition in federal court Thursday afternoon throwing the devastated industrial city of 700,000 residents into Chapter 9 bankruptcy. Republican Governor Rick Snyder, who appointed Wall Street bankruptcy attorney Kevyn Orr as the city’s emergency manager last March, immediately approved the filing.
The largest municipal bankruptcy in US history paves the way for an unprecedented attack on the pensions and health care benefits of city workers, the further slashing of essential services, and the sell-off of public assets to pay the banks and bondholders who hold the city’s debt.
Announcing the filing, Emergency Manager Kevyn Orr stood side-by-side with the city’s Democratic mayor, David Bing, a multi-millionaire who has slashed the city workforce by 20 percent since taking office in 2009. Both cynically claimed that the bankruptcy would have little effect on daily life and would lead to improved services for city residents.
[pullquote] It’s understood by all establishment players that the corporate media should never question the grotesque policies and events emanating from the logic of “free enterprise.” [/pullquote]
The Obama administration signaled its support for the bankruptcy filing, issuing a statement Thursday declaring: “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities.”
Orr has already approved a corporate-backed plan to shut off services to neighborhoods deemed too poor or under-populated for profitable private investment, while handing over public lighting, transportation, garbage collection and other services to for-profit companies. His “turnaround” team has appraised everything from the city’s water treatment plant and masterpieces at the Detroit Institute of Arts to Belle Isle Park and the animals at the Detroit Zoo for possible sale to private investors.
Above all, the bankruptcy filing clears the way to gut the pensions and health care benefits of the city’s 31,000 current and retired employees. By throwing the city into the bankruptcy courts, Orr intends to circumvent Michigan’s constitution, which declares public pensions to be a “contractual obligation” that “shall not be diminished or impaired.”
Orr rushed the bankruptcy filing to preempt lawsuits filed by pension trustees and public-sector unions seeking to block bankruptcy on the grounds that it would lead to unconstitutional pension cuts. Attorneys for Snyder reportedly asked the lawyers representing the pension funds for a five-minute delay before they sought a temporary restraining order to block the bankruptcy filing. During those five minutes, Orr’s attorneys filed the bankruptcy petition in Detroit.
At Thursday’s press conference, Orr gloated that the bankruptcy filing put an “automatic stay on all litigations,” adding, “We don’t have any time for more delaying tactics.”
Under a plan Orr previously outlined, pension trust funds would receive as little as 10 cents for every dollar owed to 21,000 retirees for a lifetime of labor. Orr wants to eliminate cost-of-living adjustments for retirees who receive as little as $500 to $1,000 a month, with no additional Social Security payments. He also intends to impose an immediate freeze on future pension payments and shift retirees to Medicare or privately controlled health care exchanges set to begin next year under the Obama administration’s Affordable Care Act. The city’s current 9,700 workers will also see a huge reduction in health benefits and the loss of employer-paid pensions.
The Metro Detroit and Michigan AFL-CIO union federations and individual unions responded to the bankruptcy filing with predictable cowardice, insisting that workers take no action to defend their jobs and pensions and complaining that Orr had rebuffed their “good faith” negotiations.
“From the beginning, we have attempted to participate in discussions and offer a restructuring plan,” Dan McNamara, president of Local 344 of the Detroit Fire Fighters Association, said. “It is a shame that now we will have to be in front of a bankruptcy judge when all along we have been expecting to have meaningful meetings with Emergency Manager Kevyn Orr.”
Carl Anderson, president of Local 488 of the Utility Workers Union of America, sent an email to his members telling them to remain on their jobs. “It’s quite a shock,” he told the Detroit Free Press. “I thought it would not be until the first of the year once (Orr) talked to everybody and got everything in order. I thought it would take more time to get all the concessions.”
The only contractual obligations that will be honored by Orr are the billions of dollars in principal and interest demanded by the major Wall Street banks and bondholders. Orr has already made a settlement with UBS, Bank of America and Merrill Lynch Capital Services on $340 million in credit default swaps, giving them 75 cents on the dollar.
While private employers in the steel, auto, airline and other industries have long used the bankruptcy courts to tear up labor agreements, slash wages and escape pension obligations, the bankruptcy of Detroit is being used by the Obama administration and Wall Street as a test case to destroy the pensions and health care benefits of tens of millions of teachers, firefighters, public hospital workers and other state and municipal employees around the country.
“Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say,” the New York Times wrote Thursday, citing Karol K. Denniston, a lawyer involved in the bankruptcy of Stockton, California. “If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities. Detroit is going to be a huge test kitchen.”
At the press conference, Orr complained about unaffordable pension obligations, repeating what has become a constant refrain by the corporate-controlled media and Wall Street analysts, who incessantly speak of a nationwide crisis over “legacy costs.” In his self-serving and distorted overview of Detroit’s slide into insolvency, he cited “pension obligations” as the cause for the city’s increased borrowing.
In reality, the bankruptcy of Detroit, the former center of global auto production, is an expression of the protracted crisis and decay of American capitalism. At the center of this decline has been a decades-long process of deindustrialization, which has devastated former industrial centers such as Detroit, Chicago, Pittsburgh and scores of other cities.
The dismantling of US industry has gone hand in hand with tax cuts for big business and the rich and the increasingly dominant role of the most parasitic forms of financial speculation. As the accumulation of wealth by the ruling elite has become ever more detached from the creation of real value, a financial aristocracy has arisen whose operations are borderline-legal or outright criminal.
The tipping point for Detroit was the 2008 financial crash, which led to a wave of foreclosures, mass unemployment and a sharp decline in tax revenues and state and federal aid. The Wall Street banks have directly benefited from the indebtedness of the city, which pays a quarter billion dollars—or 20 percent of its annual operating budget—to service its debt.
Bankruptcy was not an inevitable process, but rather a deliberate policy. While handing over trillions of dollars to the Wall Street banks and driving up the stock market by pumping virtually free cash into the financial markets, the Obama administration has rejected any measures to bail out Detroit or other threatened state and municipal governments.
On the contrary, the Democratic president has used the financial crisis as an opportunity to carry out an historic restructuring of class relations, first through the destruction of the wages of auto workers in the 2009 auto bailout, then through the destruction of some 600,000 federal, state and municipal jobs, and now by means of a wholesale attack on pensions and health benefits.
While some “anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on future borrowing,” the Times noted, “others, including some Detroit business leaders who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy seemed the only choice left.”
While Orr insists there is no money for pensions or essential services, hundreds of millions in public dollars will be used to subsidize the development of an upscale housing, commercial and entertainment district covering about 7.2 out of the city’s 139 square miles. This includes $286 million in public funds for a new sports arena for the owner of Little Caesar’s Pizza and the Detroit Red Wings hockey franchise, Mike Ilitch, whose net worth is estimated at $2.7 billion. To make room for the arena, hundreds of low-income workers and seniors are being evicted from their downtown apartments.
The bankruptcy will bring devastation to the working class, but it will mean a huge windfall for Ilitch, Quicken Loan billionaire Dan Gilbert, and the gangs of bankruptcy lawyers, hedge fund operators and private speculators who will descend on Detroit to cash in on the carve-up of the former Motor City.
Jerry White is a senior political analyst with wsws.org, information arm of the Social Equality Party.
ADDITIONAL COMMENTARY by JERRY WHITE—
The social devastation of Detroit
18 July 2013
A vast social crime is being carried out in Detroit. Emergency Manager Kevyn Orr, appointed by Michigan Governor Rick Snyder to exercise a dictatorship over the city’s finances, is implementing an historic attack on the working class that will have devastating consequences for hundreds of thousands of people.
The destruction of Detroit workers’ pensions and health benefits, along with the gutting of fire protection, street lighting, sanitation and other elementary services, marks a new stage in the restructuring of American class relations that began with the financial collapse in 2008 and the multi-trillion-dollar bailout of the banks. The devastation of working class Detroit is setting a precedent for the entire country.
Bankers, bondholders and politicians are debating among themselves whether this operation can best be carried out through the bankruptcy courts, or whether greater reliance should be placed on the unions, which are more than willing to help impose these attacks on Detroit workers. A decision is expected this week. If Detroit declares bankruptcy, it will be the largest city to do so in US history.
Regardless of the tactic employed, the basic strategy is the same. Under Orr’s plan, pension trust funds will receive as little as 10 cents for every dollar owed by the city to retirees. Cost-of-living adjustments will be eliminated, future pension payments frozen, and retirees shifted to Medicare or privately controlled health care exchanges under Obama’s health care “reform.”
As a result, 30,000 active and retired workers will see their income and health coverage drastically reduced. These measures go well beyond the savage austerity cuts imposed on workers in Greece and other heavily indebted European countries.
It is of no consequence to the financial elite that Michigan’s constitution says public pensions are a “contractual obligation,” which “shall not be diminished or impaired.” Brushing this aside, Orr argues that federal bankruptcy laws trump state constitutional protections.
The only “contractual obligations” that will be honored are the billions of dollars in principle and interest demanded by the biggest Wall Street banks and bondholders. Orr has already made a settlement with UBS, Bank of America and Merrill Lynch Capital Services on $340 million in credit default swaps, giving these institutions 75 cents on the dollar.
According to some estimates, state and local governments nationwide have $1 trillion to $3 trillion in unfunded pension liabilities. If Wall Street is successful in robbing the workers of Detroit, the floodgates will be opened for the destruction of pension and health care benefits for tens of millions of teachers, firefighters, hospital workers and other state and municipal employees around the country.
The financial plan outlined by Orr for Detroit redefines the very structure of a modern city. Large portions of Detroit’s physical infrastructure—long neglected and allowed to decay—will be shut down.
Orr, a Wall Street bankruptcy lawyer, has approved a corporate-backed plan to cease services to areas of the city deemed too poor or under-populated for profitable investment. Meanwhile, hundreds of millions of dollars in public resources are being made available to subsidize the development of an upscale housing and entertainment district that will cover only 7.2 out of the city’s 139 square miles.
Transportation, garbage collection, street lighting and other essential services will be privatized, and public treasures, ranging from the masterpieces at the Detroit Institute of Art to the animals at the Detroit Zoo, may be put up for sale to private speculators and investors.
The dismantling of Detroit is the result of the protracted decay of American capitalism. The rise of the Motor City in the first half of the 20th century coincided with the growth of American industry and its global ascendancy. Its collapse follows decades of deindustrialization, the rise of the most parasitic forms of financial speculation, and the explosive growth of social inequality.
The first half of the last century also saw convulsive class struggles, the formation of industrial unions, and the attainment by American workers of significant social gains.
From the late 1970s onwards, however, the ruling class has waged unrelenting class war, carried out with particular vengeance in Detroit. As one congressional report during the Chrysler bailout of 1980 put it, the city was “known to have some of the most inefficient and troublesome workforces available.”
This war on the working class of Detroit was carried out with the collusion of the United Auto Workers. The UAW and other unions responded to the global integration of capitalist production by collaborating with the employers to suppress opposition to a drastic lowering of labor costs and the downsizing of industry. While workers have been driven back to conditions not seen since the 1930s, the UAW has integrated itself into the structure of corporate management and become a major shareholder and partner in the exploitation of workers.
At the head of the financial aristocracy that stands to benefit from the social counterrevolution which finds its sharpest expression in Detroit is the Obama administration. It oversaw the forced bankruptcy of Chrysler and General Motors, under which auto workers’ wages were cut in half and their benefits slashed, providing a model for what is now being carried out in Detroit. The Obama White House, which has from day one served as an instrument of Wall Street, sees the financial meltdown of the city as an opportunity to launch a new stage in its assault on the working class.
Social opposition by the working class in Detroit, as in countries around the world, is growing. The powerful traditions of social solidarity and class struggle have not disappeared. But this opposition must take a conscious political form.
The Socialist Equality Party and its mayoral candidate, D’Artagnan Collier, are fighting to mobilize the working class of Detroit to force out financial dictator Orr and replace the bankers’ City Council with a Council of Workers. This is part of the struggle to unite the working class and arm it with a revolutionary program to end the outmoded capitalist system and replace it with socialism.
Billions in Debt, Detroit Tumbles Into Insolvency
Fabrizio Costantini for The New York Times
The abandoned Brewster Wheeler housing projects, right, and the General Motors headquarters in downtown Detroit.
DETROIT — Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, filed for bankruptcy on Thursday, the largest American city ever to take such a course.
Multimedia
Kevyn D. Orr, emergency manager, at a news conference on Thursday about the filing.
Fabrizio Costantini for The New York Times
An abandoned hydrant. City services have been cut before; fears are that the bankruptcy filing may lead to more cuts.
The decision, confirmed by officials after it trickled out in late afternoon news reports, also amounts to the largest municipal bankruptcy filing in American history in terms of debt.
“This is a difficult step, but the only viable option to address a problem that has been six decades in the making,” said Gov. Rick Snyder, who authorized the move after a recommendation from the emergency financial manager he had appointed to resolve Detroit’s dire financial situation.
Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.
For Detroit, the filing came as a painful reminder of a city’s rise and fall.
“It’s sad, but you could see the writing on the wall,” said Terence Tyson, a city worker who learned of the bankruptcy as he left his job at Detroit’s municipal building on Thursday evening. Like many there, he seemed to react with muted resignation and uncertainty about what lies ahead, but not surprise. “This has been coming for ages.”
Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. 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 Detroit’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 Detroit’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.
“For a struggling family I can see bankruptcy, but for a big city like this, can it really work?” said Diane Robinson, an office assistant who has worked for the city for 20 years. “What will happen to city retirees on fixed incomes?”
But others, including some Detroit business leaders who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy seemed the only choice left — and one that might finally lead to a desperately needed overhaul of city services and to a plan to pay off some reduced version of the overwhelming debts. In short, a new start.
“The worst thing we can do is ignore a problem,” said Sandy K. Baruah, president of the Detroit Regional Chamber. “We’re finally executing a fix.”
The decision to go to court signaled a breakdown after weeks of tense negotiations, in which Mr. Orr had been trying to persuade creditors to accept pennies on the dollar and unions to accept cuts in benefits.
All along, the state’s involvement — including Mr. Snyder’s decision to send in an emergency manager — has carried racial implications, setting off a wave of concerns for some in Detroit that the mostly white Republican-led state government was trying to seize control of Detroit, a Democratic city where more than 80 percent of residents are black.
The nature of Detroit’s situation ensures that it will be watched intensely by the municipal bond market, by public sector unions, and by leaders of other financially challenged cities around the country. Just over 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s.
Leaders in Washington and in Lansing, the state capital, issued statements of concern late Thursday. A White House spokeswoman said President Obama and his senior team were closely monitoring the situation.
“While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities,” Amy Brundage, the spokeswoman, said in a statement.
The debt in Detroit dwarfs that of Jefferson County, Ala., which had been the nation’s largest municipal bankruptcy, having filed in 2011 with about $4 billion in debt. The population of Detroit, the largest city in Michigan, is more than twice that of Stockton, Calif., which filed for bankruptcy in 2012 and had been the nation’s most populous city to do so.
Other major cities, including New York and Cleveland in the 1970s and Philadelphia two decades later, have teetered near the edge of financial ruin, but ultimately found solutions other than federal court. Detroit’s struggle, experts say, is particularly dire because it is not limited to a single event or one failed financial deal, like the troubled sewer system largely responsible for Jefferson County’s downfall.
Instead, numerous factors over many years have brought Detroit to this point, including a shrunken tax base but still a huge, 139-square-mile city to maintain; overwhelming health care and pension costs; repeated efforts to manage mounting debts with still more borrowing; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction.
All of that makes bankruptcy — a process that could take months, if not years, and is itself expected to be costly — particularly complex.
“It’s not enough to say, let’s reduce debt,” said James E. Spiotto, an expert in municipal bankruptcy at the law firm of Chapman and Cutler in Chicago. “At the end of the day, you need a real recovery plan. Otherwise you’re just going to repeat the whole thing over again.”
The municipal bond market will be paying particular attention to Detroit because of what it may mean for investing in general obligation bonds. In recent weeks, as Detroit officials have proposed paying off small fractions of what the city owes, they have indicated they intend to treat investors holding general obligation bonds as having no higher priority for payment than, for instance, city workers — a notion that conflicts with the conventions of the market, where general obligation bonds have been seen as among the safest investments and all but certain to be paid in full.
Leaders of public sector unions and municipal retirees around the nation will be focused on whether Detroit is permitted to slash pension benefits, despite a provision in the State Constitution that union leaders say bars such cuts.
Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say. A rush of municipal bankruptcies appears unlikely, though, and leaders of other cities will want to see how this case turns out, particularly when it comes to pension and retiree health care costs, said Karol K. Denniston, a bankruptcy lawyer with Schiff Hardin who is advising a taxpayer group that came together in Stockton after its bankruptcy.
“If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities,” Ms. Denniston said. “Detroit is going to be a huge test kitchen.”
Around this city, there was widespread uncertainty about what bankruptcy might really mean, now and in the long term. Officials said city workers were being sent letters, notifying them that city business would proceed as usual, from bills to permits. A hot line was planned for residents and others with questions and worries.
For some Detroiters, recent memories of bankruptcies by Chrysler and General Motors — and the re-emergence of those companies — appeared to have calmed nerves. But experts say corporate bankruptcy procedures are significantly different from municipal bankruptcies.
In municipal bankruptcies, for instance, the ability of judges to intervene in how a city is run is sharply limited. And municipal bankruptcies are a form of debt adjustment, as opposed to liquidation or reorganization.
Here, residents are likely to see little immediate change from the way the city has been run since March, when Mr. Orr arrived to oversee major decisions. A bankruptcy lawyer, he is widely expected to continue to run Detroit during a legal process. Mayor Dave Bing and Detroit’s elected City Council are still paid to hold office and are permitted to make decisions about day-to-day operations, though Mr. Orr could remove those powers.
Mr. Orr has said that as part of any restructuring he wants to spend about $1.25 billion on improving city infrastructure and services. But a major concern for Detroit residents remains the possibility that services, already severely lacking, might be further diminished in bankruptcy.
About 40 percent of the city’s streetlights do not work, a report from Mr. Orr’s office showed. More than half of Detroit’s parks have closed since 2008.
Monica Davey reported from Detroit, and Mary Williams Walsh from New York.
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If no one is willing to accept reduced pension benefits, public salaries, existing services, etc., then perhaps the residents of Detroit should take responsibility for paying for what they do want by voting to raise their own sales, income and property taxes. As for the allegation that this is a racial issue, perhaps city residents would do well to get the chip off their shoulders and take responsibility for running a once great place into the ground. No one “did” this to Detroit.
This is so sad. A great American city — one of the most American American cities — is on the ropes. And what’s even sadder are all the comments spreading blame and snark. When did we all get so mean? When did we start only seeing things through the lens of finding someone (else) to blame? Detroit’s problems started long ago and are not particularly political in nature. The auto industry’s failure to initially meet the challenge from overseas…the export of manufacturing jobs to cheaper venues…a precipitous drop in population…it’s a long and complicated story. You can find Democrats to blame, you can find Republicans to blame, you can find people of every race and creed to blame. Does that make anyone feel better? Does that help the people of Detroit, who are really in the soup?