May 312013

By Mark Binelli, NY Times, May 29, 2013

ONCE a year, business and political leaders from metropolitan Detroit travel to an island resort that bans all motorized vehicles and talk about the regional economy.

For me, memories of childhood vacations at that resort, Mackinac Island — the ferry ride, the fudge shops, the horse-drawn carriages — are primarily olfactory. In the unlikely event I’m ever again hit with the dueling scents of confectioner’s exhaust and horse manure, it would probably trigger some kind of Proustian flashback.

For years, Michigan’s business community seemed bent on flashbacks of its own, to the days when the Big Three automakers towered arrogantly from the safe confines of an insular culture. But now its buzzwords are “innovation,” “entrepreneurship” and a “21st-century global market.” This week’s Mackinac Policy Conference has positioned itself as a sort of Midwestern Davos, with a roster of marquee speakers, including Michelle Rhee, Jeb Bush and the hosts of “Morning Joe.”

The topic on everyone’s mind will be the fate of Detroit, which was placed under state control in March by Gov. Rick Snyder. The governor, a Republican, is attending the conference, and four of the candidates running for mayor in November are scheduled to speak there today — among them, the front-runners: the excellently named former police chief Benny Napoleon, and Mike Duggan, who has a serious shot at becoming the first white mayor of Detroit in 40 years.

That would be a compelling story in normal circumstances. But this year, racial dynamics pale beside the surreal spectacle of candidates campaigning for a job that basically no longer exists.

Detroit, with at least $15 billion in long-term debt, is teetering on the brink of municipal bankruptcy, and is slated to remain under state control for at least 18 months. During this period, the mayor and City Council retain their titles, but little else. (This might explain Mayor Dave Bing’s announcement that he would not seek re-election; neither will four of the nine City Council incumbents.) Instead, the emergency manager appointed by Governor Snyder, the bankruptcy lawyer Kevyn D. Orr, will continue to rule Detroit with sweeping powers that include the ability to privatize city services, sell off municipal assets and alter union contracts.

To critics, emergency managers are unelected dictators, most often installed in poor, majority black cities. Last fall, Michigan voters repealed the emergency manager law in a ballot referendum. But Governor Snyder rammed through a new version during the lame-duck session of the G.O.P.-controlled State Legislature — a flagrantly undemocratic move, seemingly driven less by ideology than fear of what a Detroit bankruptcy might do to the credit ratings of the surrounding suburbs and the state.

The hope is that Mr. Orr, who worked as a lead attorney on Chrysler’s managed bankruptcy, will be able to prevent Detroit from entering Chapter 9. Yet in one of his first acts, he signed off on the hiring of his own former law firm, Jones Day, to help restructure Detroit’s long-term debt — despite the fact that Jones Day already represents some of the very banks holding said debt, including JPMorgan Chase and Bank of America.

Indeed, the least surprising development to anyone following Detroit’s woes has been Wall Street’s continued ability to squeeze money out of a city that can’t afford to keep its streetlights on or police its neighborhoods (there were almost as many murders in Detroit last year as there were in New York, a city with 11 times the population; Detroit officers are working 12-hour shifts with 10 percent pay cuts; and private businesses recently kicked in $8 million to buy the department new squad cars and ambulances).

In recent years, Detroit’s water department has paid Wall Street banks hundreds of millions in termination fees alone in order to get out of bad municipal bond deals. (The city utility is so broke, it issued new bonds in order to pay the fees to get out of the old bonds!)

According to a recent Reuters article, since corporate bankruptcies have declined, investors specializing in “distressed” hedge funds have begun circling troubled municipalities, with no city “attracting more attention than Detroit.” One financial adviser quoted in the story sounded a note of caution to the would-be vultures, noting that unlike a corporation, “you can’t liquidate a city.”

But apparently no one informed Mr. Orr, whose spokesman, Bill Nowling, told The Detroit Free Press that the collection of the Detroit Institute of Arts, including works by van Gogh and Matisse, was being listed as an asset in the event of bankruptcy. “Creditors can really force the issue,” Mr. Nowling said. “If you go into court, they can object and say, ‘Hey, I’m taking a huge haircut, and you’ve got a billion dollars’ worth of art sitting over there.’ ”

Why stop there? Perhaps as part of a settlement, Mr. Orr can negotiate with the Detroit Symphony Orchestra to play at creditors’ annual shareholder luncheons, or work out a deal wherein laid-off autoworkers perform free annual tuneups on the limousines of bank executives. Better yet, he could tear a page from the Chrysler turnaround — which, of course, ended with the company’s being purchased by Fiat. See where I’m going with this? Italians love art, they love cars, and they know how to monetize old ruins!

In a different world, Mr. Orr might instead consider more aggressively challenging the city’s creditors, or lobbying for the sort of federal cash infusion received by the faltering banks and auto companies. Unfortunately, such scenarios aren’t likely to come up during today’s Mackinac panel on Detroit’s turnaround — moderated by the vice chairman of a bank.

Mark Binelli is a contributing editor at Rolling Stone and the author of “Detroit City Is the Place to Be.”

 May 31, 2013  Posted by at 3:25 am Uncategorized Tagged with: , , ,  Add comments