Tuesday, August 6, 2013

Detroit Michigan's Bankruptcy. Is it the solution or the problem?

No matter your point of view - whether you're from Michigan, have visited Michigan or have friends in Michigan - Detroit’s “Proposal For Creditors” was humbling.

18.3% unemployment.

Fewer than half of Detroit’s residents over the age of 16 are working.

Per capita income is $15,261.

Over 36% of the population is below the poverty line.

For fiscal year-end 2012, the accumulated general funds deficit was $326.6 million. If not for the recent debt issuance, this was projected at $700 million for fiscal year-end 2013.

Over $9 billion of unfunded life, health and retirement plan benefits.

$18.5 billion of debt.

Our city is insolvent.

Giving additional context to the data set are a number of stated, qualitative observations: bad governance, dysfunction, scandal, suffering, cultural divide and entitlement.

An immense land area that has become desolate, unwieldy and too big to manage or govern.

Detroit's infrastructure, including facilities, grids, fixtures, equipment, vehicles and information systems are antiquated, have not been adequately maintained and continue to deteriorate rapidly.

Given such a construct, bankruptcy is an appealing option indeed.

But is Detroit’s fate really isolated to Detroiters? Could it be a harbinger of what’s to come? is Michigan like most other States? Was Detroit just the next domino to fall in America’s myopic culture?

No matter the source or the exact statistic, no matter the relevance to other numbers, America’s profile is disconcerting.

The U.S. national debt is almost $17 trillion.1

The U.S. federal deficit is more than $800 billion and is projected to exceed $900 billion by fiscal year-end 2013. In other words, we will spend $900 billion we don’t have – in this year alone. 2

U.S. total debt is almost $60 trillion. 3

Total personal debt is almost $16 trillion. 3

Total U.S. unfunded benefit liabilities equal more than an audacious $125 trillion. 3

Really…what’s the point of keeping score anymore?

In the 1830’s, President Andrew Jackson called our national debt a “national curse.” At that time, our debt was less than $40 thousand dollars. Talk about infinitely wise beyond his years…

Over 15% of Americans live in poverty.4

It is estimated over 100 million working age Americans do not have a job.5

Half of all Americans have less than $10,000 in savings.6

Over 40% of US families spend more than they earn.6

The average credit card balance per U.S. adult with a credit card is $5,047.7

The average consumer has 4 credit cards, and 1 in 10 have more than 10 credit cards.8

An estimated 1 in every 100 U.S. households will claim bankruptcy.6

There were over 1.2 million bankruptcies (business and personal) filed in America in 2012 alone.9

The American Society of Civil Engineers gave the U.S. an overall grade of D+ for its infrastructure. They estimate a $3.6 trillion investment will be necessary by 2020.

Our nation is insolvent.

Well…it would be if not for our Federal Reserve and their unfettered ability to print money. But at what cost? And does anyone really believe we can circumvent the inevitable?

Further, it seems every national news program or piece of content underscores the same cultural fabric suffocating the city of Detroit: unsustainable benefits, pork-barrel spending, tired infrastructure, guns, corruption, border security, middle class, jobs, jobs, jobs.  The somber reality is that Detroit - and Michigan - are merely a microcosm of America.

In his recent Op-ed about Detroit’s bankruptcy, Steven Rattner said, “America is just as much about aiding those less fortunate as it is about personal responsibility.” Agreed. However, the problem, of course, is that while we continue to engage in the former, we have brazenly disregarded the latter.

If bankruptcy is debt’s cleanser, how much cleaning supply do we have? Moreover, who ultimately pays for it? Granted, these life-saving operations had far-reaching human and political impact but it begs the more important question facing us today - how long can we aid those who are not personally responsible?

While I am not trained in psychology, it seems fairly intuitive that rewarding people for bad behavior only encourages more bad behavior.

There are many great ideas and plans for Detroit post bankruptcy - and I'm very optimistic about Detroit and Michigan's future - but perhaps none address the root causes. As we have learned, this only serves to exacerbate the problem. Undoubtedly, systemic illness requires treating the body as a whole. 

Whether it is our expectations, metrics, and/or values that require contemplation, the time has come for legitimate change. No more self-serving campaigns. No more self-fulfilling prophecies.

It was only a few short years ago when America was on the precipice of financial collapse. Irrespective of your position, and there is no shortage of finger-pointing and blame to go around, one thing should be clear – we are all culpable – and bankruptcy is not the solution.

It is true Americans buy cars from bankrupt car companies. We also fly on bankrupt airlines, eat from bankrupt food producers, safeguard with bankrupt insurers and now live, work and play in bankrupt cities. Given America’s perspective on success is “how big” and “how much,” it is no wonder why we are living a life we simply can no longer afford.

Not only has the stigma of bankruptcy faded – much to President Jackson’s chagrin – but our curse has become our proxy. Ironically, like many things that come full circle, our destiny may yield a modern day society closer to 1830 than 2013.

We live in a place where casino billboards are seemingly being posted in every state, home ownership is the basic standard by which we measure the American Dream and debt is requisite for “getting ahead.” We are driven by immediate gratification, and we seek refuge by pushing our burdens onto someone else. While there are no good answers, honest insights and tough decisions remain our only viable, long-term hope.

The path to healthiness, as with most serious addictions, unfortunately involves enduring much pain and suffering. However, if America is as resilient and resolve as she has always been, we will be stronger for it.

As life would have it, the source of our greatest strengths often becomes the source of our greatest weaknesses. Detroit, like its American brethren, has fallen victim to its own circumstances. Detroit has always been the most American of cities – hard working, self-made and diverse. From industrialization to suburbanization, civil rights to civil unrest, passion to complacency, aspiration to greed, opportunity to inequality, prudent leverage to irresponsibility – that which made Detroit famous has also forged its failure.

But this is America’s story. 

No matter where you call home, we should all hear sirens in the background – a red light flashing in the distance. With a power source that will eventually die if not cured at the source.

1) US Treasury Office
2) Congressional Budget Office
3) Federal Reserve
4) National Poverty Center
5) Forbes
6) Progressive Debt Relief
7) Fox Business
8) FTM Daily
9) USA Today
10) NPR

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