Bankruptcy filing and Detroit woes

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. :-(

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2 Responses to Bankruptcy filing and Detroit woes

  1. Im not sure how the bankruptcy is going to work but I do see Detroit bouncing back. Its a major city and a landmark to the US. Things should’ve and could’ve been done differently a long time ago but they weren’t so they need to just try and start over. The math always seems simple but we know that its the simple things that the government and policy holder make harder to understand. I hope the city turns it around soon. If only everyone had the $485 but remember some people don’t work and some of those people are kids.

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