NEW YORK, July 23, 2013 — Mr. President, you must stop spending money we do not have and our children may never be able to earn. Put simply, you should not punish our babies by saddling them with staggering costs of ill-conceived “bailouts” such as the one mooted for Motor City.
A True “Teachable Moment”: the Possible Bailout of Detroit
How sweet it is to spend someone else’s money. On July 20, 2013, former “Car Czar” Steven Rattner made a plea to consider Federal support for the Detroit area in “The New York Times”:
“No one likes bailouts or the prospect of rewarding Detroit’s historic fiscal mismanagement. But apart from voting in elections, the 700,000 remaining residents of the Motor City are no more responsible for Detroit’s problems than were the victims of Hurricane Sandy for theirs, and eventually Congress decided to help them.”
“…When President Obama rescued the auto companies, his decision was politically unpopular. By the time of last fall’s presidential election, a majority of Americans had swung in favor of the move. History could repeat itself.”
If Rattner sharpened focus by assuming that a material portion of his own wealth might be deployed in the riskiest portion of any bailout, there is no doubt he would curb his professed enthusiasm.
Who knows how deep the financial hole underneath Motor City may be? Financial statements concerning Detroit make those of pre-bankruptcy Enron seem paragons of transparency.
Who has verified the assumptions concerning Detroit’s employee retirement and health benefit obligations?
Who can define with accuracy how much it will cost to clean up decades of environmental trouble likely residing in area soils and groundwater?
Above all, why should babies living outside Detroit sign up to support a rejuvenation plan lead by experts whose record of accomplishment in other stimulus efforts is, to be charitable, open to robust debate?
Citizens of Detroit did not stumble into a once in a century mega-storm. They feasted for decades on borrowed largesse fed to them by an incompetent and corrupt imbroglio of tainted public officials, conflicted union leaders, and arrogant local managers who bankrupted General Motors and Chrysler.
Instead of rushing to “fix” the crisis of the moment, we should wait to see whether Kevyn D. Orr (Detroit’s most impressive emergency manager) can chart a sensible path for renewal through Chapter 9 Bankruptcy proceedings.
While we wait, perhaps we should also pause to reconsider Rattner’s “success” with the largest private sector problem child in Detroit: General Motors.
Is General Motors Just a “Potemkin Village” in a False Recovery Narrative for the American Economy?
Common shares of General Motors go from strength to strength. Is their undeniable rally rooted in sustainable reality?
In the land where “hard” accounting numbers actually matter, few who look under the hood at publicly available financial statements conclude that General Motors enjoys a robust existence or a bright future. As we noted earlier this year, the theory that post-bankruptcy General Motors has generated strong, reliably growing “free cash flows” is indefensible.
Perhaps numbers matters less than dreams and their followers.
Considering whether General Motors actually has been saved and whether Detroit should be bailed out, we would do well to re-examine Rattner’s 2010 tour de force “Overhaul.”
Writing of a 2009 visit to a “Depression-era assembly plant” in Detroit, Rattner noted:
“I also found myself looking at the workers, a mix of old and young, male and female, black and white. I was well aware of Detroit’s 22 percent unemployment rate (it would reach 29 percent) and its lack of virtually any new jobs, never mind high-paying ones for manufacturing workers. These workers, I realized, were dependent on us, their futures in our hands. If we failed, and the automakers collapsed, they would be jobless, perhaps for the rest of their working lives.”
Is there any way to keep Detroit afloat outside of bankruptcy if General Motors somehow succumbs again to mounting adversity in an environment where interest rates, gasoline prices and retiree obligations all continue to rise in cost while asset prices, household net worth, and incomes all fall?
The Accelerating Death Spiral of Modern Economic “Futilism”
We eke along in July 2013, kidding ourselves that America’s economic engine is purring, when she is not even idling. We have embraced economic “know-nothingism;” facts matter little, we “party on” and blame problems on someone else, or as Motown’s Michael Jackson so artfully sang “on the Boogie”.
For decades, America has not been a manufacturing or private sector powerhouse. We are instead expert at concocting illusions of progress via an unholy alliance among vested interests. Daily “talking points” are determined in Washington, D.C.; financed in New York City and packaged for wider consumption in Los Angeles. Along the way, hoary academics and well-financed think tanks sing hosannas to the powers who butter their bread.
The illusions that failed to mollify the Russian masses and the tricks that sated the Roman peasantry while the Vandals sharpened their knives are now in wide use once again. A nation that founded itself with care, reserve, and substance in 1776 settles in 2013 for sloppiness, braggadocio, and sizzle.
That smoke you see and that heat you feel is the dying fire of realistic growth potential. America’s leaders trash what truly makes for progress. Republicans and Democrats alike are systematically destroying arguments for storing a portion of the vast wealth that swirls outside borders inside our own.
If you can look our babies in their darling eyes, eat your cheap bread, enjoy your whirring circuses, and worry not concerning hard, deeply troubling facts.
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