Detroit’s Financial Woes Have Michigan Political Elites Accepting Failure As The #1 Option


“I see NOTHING! I know NOTHING!” -Sergeant Hans Schultz

Fire hydrant in metro Detroit crudely fixed with duct tape.
Fire hydrant in metro Detroit crudely fixed with duct tape.  A symbol of Michigan economic policy since 1978

Since Detroit’s financial woes that have accumulated from 50 years of mismanagement and corruption caused it to officially file Chapter 9 bankruptcy last week every journalist and pundit has chimed in on the subject.  They all point the finger to white flight, racism, post-industrialism, labor unions, corruption and the list goes on and on.

Unfortunately, they don’t point the finger at root of the problem.  That problem is Michigan itself and the 35 years of failed leadership and the failure of an electorate that fails to elect quality leadership.

Michigan has become the morbidly obese guy you see at Walmart with an amputated foot, heart disease and renal failure wearing a colonoscopy bag and carrying an oxygen tank in a man purse while shopping in a scooter chair because out of his own arrogance, he ignored his doctor’s advice 35 years ago to take better car of himself.

In other words, Michigan, like that Wal-Mart shopper, is dying a slow agonizing death from the black death of an arrogant ignorance that either accepts a broken status quo or wants to turn a blind eye to it like Sergeant Schultz from the TV show, Hogan’s Heroes.

While white suburbanites and their elected officials want to point the finger at incompetent black leaders for Detroit’s collapse, they are turning a blind eye to the blight, crime and and infrastructure problems that are rotting their own communities. Detroit’s financial problems are only precursor of what will happen statewide and what is already happening in some communities across Michigan.

The freeways in southeast Michigan are filled with miles potholes and broken concrete that make the freeways of the former Soviet Republic of Moldova look like a model of freeway construction. Matter of fact, the Director of the Michigan Department of Transportation this week admitted that his department was so broke that they didn’t have enough money to cut down the six foot high weeds growing on the service drive of I-696 in suburban Detroit.  His spokesman, Drew Buckner said,  “the state does not have the cash right now to clear all the weeds”

Its not just roads and freeways, schools districts across the state are collapsing or being forced to merge and teachers are being laid off as the tax base continues to erode. Michigan’s best and brightest have been departing the state in droves for decades leaving only unskilled assembly line workers, farmhands, government workers, welfare recipients and old age pensioners.

The Carter-Reagan recession of the late 1970s and early 1980s that brought global competition to the front doorsteps of American auto industry is what gave Michigan the equivalent to a stroke as these companies were caught with their proverbial pants down.

In the 35 years since that recession, Michigan’s politicians have used Band-aid solutions when it came to fixing road, diverted money from federal highway grants to bailout an underfunded school aid fund, did other accounting tricks that sound like they were formulated by former Enron accountants.

“If something’s hard to do, then it’s not worth doing” -Homer Simpson

For 35 years, political elites in Lansing have taken up a Homer Simpson posture of,  "If something's hard to do, then it's not worth doing"
For 35 years, political elites in Lansing have taken up a Homer Simpson posture of, “If something’s hard to do, then it’s not worth doing”

Rick Snyder’s approach to this worsening crisis is what we’ve come to expect from not only from our elected officials but from corporate America. It’s myopic, lacks vision, benefits only a few in the short term and solves nothing.  It’s perfect example of how Michigan has lost it’s sense of innovation and sense of creativity.

Sadly, political elites in Michigan have just given up and have accepted failure as their number one option.  Can you imagine if these people were in charge of NASA during Apollo 13, Jim Lovell, Ken Mattingly and Fred Haise would floating in space for all eternity instead of being alive and contributing to society.  But then again what should we expect from a guy like Snyder who ran Gateway computers into the ground not once but twice.

In my travels across the United States since the financial crisis began, I have found business owners in the Northeast and in the South asking, “What if?” when confronted with a problem.  That is “What if?” as in “What if we do this way?”

This is the polar opposite of the attitude of both business and political leaders in Michigan, who take the attitude, “That’s not the way we’ve always done it” and that is if they will even comment.   Usually the political types in Lansing just take up a Homer Simpson posture of,  “If something’s hard to do, then it’s not worth doing” and then move on to some sham legislation that has no meaning and is unenforceable but makes the electorate believe they are sticking it to President Obama.

Detroit’s demise is a perfect example of this.  If Detroit Emergency Financial Manager Kevyn Orr, Michigan Treasurer Andy Dillon and Governor Rick Snyder were so concerned about Detroit’s long term debtor Detroit’s long term viability, why didn’t they bring litigation against UBS for manipulating the LIBOR Index which is responsible for nearly a third of Detroit’s long term debt? If litigation against UBS wasn’t an option, why weren’t other options explored such as refinancing the debt? After all, the LIBOR is down to under 1%.  This alone could save Detroit billions of dollars in interest on the debt.

You would think that since all of these men have handled multi-billion transactions, they would have the brass cojones to take on the banks.  After all, UBS admitted to rigging the LIBOR index and even paid a fine to both the U.S. and British governments.  It would be pretty hard to fuck up a lawsuit against them.  JPMorgan agreed to forgive nearly 50% of debt of Jefferson County, Alabama after it was determined that Jefferson County, like Detroit had been a victim of controversial credit swaps.

Banks don’t want lawsuits from homeowners, let alone high profile lawsuits from municipalities.  I know because I deal with them everyday.  I can’t tell you how many times I have walked into a court house to testify for my homeowner clients only to have a lender either withdraw a foreclosure action against my client or settle just because I’m sitting outside a courtroom.

The Obama administration and congress have both said publicly that they would not help Detroit with a TARP bailout and Michigan leaders have accepted this on it’s face but as anyone who has ever been involved sales knows, no doesn’t always mean no.

If the political elites in Michigan and Detroit were serious about helping Detroit, they would call Washington’s bluff and send a delegation to Beijing.  My sources in the Hong Kong and Shanghai financial markets have repeatedly asked me why officials from Detroit or the state of Michigan have not approached the Chinese government.  My sources in Asia tell me, the Chinese are very eager to help Detroit because had it not been for American Motors and Chrysler teaching the Chinese modern manufacturing in the mid-1980s, they would not be the economic superpower they are today and they no problem returning the favor.  The Chinese would also be willing to help Detroit structure their debt like they with several African countries and even help them rebuild Detroit’s crumbling infrastructure.   Critics in Michigan say Detroit doesn’t offer any natural resources like Angola, Tanzania, Morocco and Zambia.  That’s not true, Detroit sits at the mouth of the largest body of fresh water in the world.  Detroit also controls the world’s largest water system and that is worth something.

Sure, the White House and Congress will have a hissy-fit if officials from Detroit went hat in hand to Beijing but at the end of the day it would force Washington’s hand. The U.S. Government would be forced to either help save Detroit and Michigan or publicly declare that the American Empire is dead.

So why aren’t the political elites thinking outside the box?  The answer is a simple one.  The Michigan electorate has not expected results from their elected officials and they received exactly what they have expected.

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