Saturday, December 14, 2013

Bankruptcy in Detroit – Do not be fooled

The media coverage for the Detroit bankruptcy promotes Governor Snyder’s plan to default on Detroit debt and pension contracts by repeating the debt total over and over. Detroit has debt of $18 billion, $18 billion, $18 billion. Repeating the amount helps dramatize the notion there is no choice except to yield to terms handed down by a Federal Bankruptcy judge after considering proposals from an appointed city manager.

The state legislature of Michigan has the authority to govern every square inch of the state that includes Detroit. All states define and delegate their authority to govern the cities in carefully written enabling legislation, and also for all other sub state units of government. State legislatures grant authority to tax, borrow and spend and they can change it or take it away, anytime they want.

When there is no hope that a private company will ever be able to pay creditors, companies can expect to be dissolved and disappear in a bankruptcy. The state of Michigan and the city of Detroit cannot disappear and the state always has taxing authority that assures it can raise revenue to pay its bills. Michigan is not bankrupt.

Bond holders have a written contract that includes the state’s full faith and credit or some other written guarantee of payment. Pension holders have contracts and state constitutional guarantees of payment. Even if the state legislature will not vote new taxes and the state treasurer cannot borrow from anyone, the legal obligation for the state to pay is delayed, not cut or eliminated; that is unless the governor is successful in having his state’s contracts and laws overruled by a Federal judge.

Michigan’s elected state officials could have intervened long ago or during the many years in between as the auto industry abandoned Detroit. They continue to have complete authority and ability to solve Detroit’s financial problems, however divisive that might be. Instead the governor and the state legislature are choosing to pass the buck. They want an un-elected Federal bankruptcy judge to intervene and set Michigan budget priorities for them.

America’s high school students always learn the United States Constitution makes the Federal government supreme within its jurisdiction but powers not delegated to the United States by the constitution, nor prohibited by it, are reserved to the states. Governor Snyder and Judge Rhodes assert federal bankruptcy law can be used to wipe out state constitutional protections for pension holders and to meddle in statewide finances. If Federal bankruptcy law takes precedence over something as basic as state financial contracts, then no independent powers are reserved for the states. It forces states to accept the same relationship to the Federal Congress that Detroit has to Michigan: a subordinate relationship.

There is no previous example of a Federal Judge willing to apply federal bankruptcy law to a state as I have read several times because no one else has had the nerve to do it. Professional integrity typically brings restraint, especially for judges who want us to think they are wise and intelligent. Judges with their own agenda have been around a long time, but the impression keeps growing that judges are appointed expecting to be a part of a national political agenda.

Detroit continues to disintegrate because the automobile industry left Detroit. Long ago from the 1940’s to the 1960’s when Walter Reuther was president of the United Auto Workers union he tried hard to have the auto industry and corporate America take responsibility for more than their profits. He wanted companies to care about and take responsibility for their communities and the people working for them.

There was broad national political support to bail out debt ridden General Motors and Chrysler, but I am not hearing even token political support to maintain the pensions of wage earners and working people, only excuses and a media campaign for a power grab by appointed judges to do the dirty work. Walter Reuther would be sick and so should you.

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