By now you’ve heard about the bankruptcy filing and woes that Detroit is facing. This article from the Wall Street Journal mentions that the city has worked out a plan to pay creditors back 75¢/$1. That’s a 25% reduction, but I’d imagine that the various financial establishments can manage to cover some of their losses since they’ve been stockpiling money in the Federal Reserve anyway … well at least the larger banks. That is because the Federal reserve has been sending the banks some $85M/month to help their balance sheets and to help them be able to lend money, thanks to Uncle Ben.
I only intended to focus on one specific part of this article, and that is the fact that they are planning on paying creditors back $340M in debt, and the fact that there are about 700,000 people living in that city. That would mean that $485 from each of the people that work there would completely payoff that debt! That’s fantastic, aside from the fact that 36% of the population is below the poverty level. Poverty level in 2011 according to the Bureau of Labor and Statistics is $22,811 for 2 adults and 2 children. Personally that’s barely enough to scrape by on for 4 people IMHO. Then $485 / $22,811 = 2.1% of folks living in poverty in that city.
I don’t believe that this once great city made this decision on a whim, and I am sure that it wasn’t an easy decision to make for Governor Rick Snyder. The same can usually be said about personal bankruptcy for most people. Guess I’m a pessimist when it comes to people, at least I try to be.
Final thoughts: If the city is that desperate for monies, is this a viable option so that their bankruptcy filing is worth it? After all, it’s a one time hit to bring the city back to $0 on this portion of their indebtedness. That still doesn’t cover the ongoing costs for services that are necessary for the city as a whole, but even if it’s $243 one year, and $242 the next year, they’d still be much more squarely on their feet within 24 months. This unfortunately doesn’t address their total $18B in debt.