Saturday, July 20, 2013

Detroit In Bankruptcy! Root Causes!

I retired from AT&T after 40 years. Afterwards, I  became a retirement Consultant. I speak to my clients every day about their retirement investments. This week, I spoke to someone about Detroit.

Ed and I spoke about Detroit's bankruptcy. He said he visited a friend in Detroit and now he totally understands why Detroit is bankrupt and he doesn't think there is any chance for Detroit's recovery. Ed is a very successful businessman from Chicago and has substantial wealth. 

Ed visited one of his former colleagues (and friend) from Detroit who also has substantial savings. His friend had previously lived in Detroit and being nostalgic, decided to purchase a home that had once been in a wealthy neighborhood. He purchased it for less than half price. His friend thought he had a great deal in the purchase of his new Detroit home. He purchased it for $200K. Two years earlier, it was listed for $500K. The area had been a wealthy, upper middle class neighborhood. The houses were statuesque.

When Ed visited, he was shocked. He recognized that all the homes in the previously upscale neighborhood were built with quality. They had been large, stately mansions. However, two thirds of the homes were vacant. Many of these vacant homes were ravaged. They were once stately, but now, they were raided. Their copper pipes and contents of the home were vandalized. As new investors attempting to rebuild, their homes were raided on a nightly basis. Ed's friend said he was also vandalized and was forced to hire security to watch his home at night as it was being rebuilt. Ed's friend was spending twice the home's worth just to get it back in shape.

Ed said he thought there was NO HOPE for his friend's success in rebuilding his home. No One could rebuild under these conditions. Ed knew that there were several investors attempting to rebuild but they didn't have a chance. They were doomed to bankruptcy. Detroit was doomed to disaster.

Ed begged his friend to cut his losses. He begged him to leave Detroit. His friend said he wasn't giving up. Ed lamented that housing wasn't the only problem.

Ed said that Big Business was a huge problem. He said the biggest problem with Detroit was the fact that the jobs that once made them a success were now being exported overseas or to other states. The Car Companies, even though they receive huge government support, did NOT bring their jobs back to Detroit. Instead they went to the suburbs or to other states. There was absolutely NO COMMITMENT to bringing jobs back to Detroit. 3/5ths of the jobs LEFT Detroit all to go offshore or to suburbs or other states. No One looked to save Detroit jobs.

Ed also said many people in political positions were not fighting to save Detroit. Instead, there were fighting to save their own salaries. He lamented that this was particularly a problem for those in political positions and in government jobs. He said those in political offices earned pensions for working a 2 year job. People who served as a Congressman or Senator earned a pension for each job. Those in various Federal and State positions were doing the same. These were the people in power. Of course none of them would do anything to do away with any of their job titles or pensions.

Finally, he said, the people in Detroit didn't have any pride in Detroit. Those in the neighborhoods were decimating those few people attempting to revive Detroit. But the problem was two fold. It wasn't only the people looting the homes of the re-builders, it was ALSO those businesses purchasing the Copper Pipe and other building materials from the looted homes. He was almost crying at this point. WHY WERE THE SMALL BUSINESS PEOPLE who had so much to gain from the rebuilding of Detroit BUYING the obviously Stolen Materials (like Copper Pipe) from the Looters?

Ed doesn't think there is any hope for Detroit.

I think there has to be a solution. However, before there can be a solution, the people of Detroit, the people of Michigan and the people of America MUST UNDERSTAND the Issues.

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