Motown Blues: Detroit’s Demise into Bankruptcy
The following is an excerpt from our recent research piece "Motown Blues: Detroit’s Demise into Bankruptcy" The full report can be found here: http://www.pathlightinvestors.com/motown-blues-detroit%E2%80%99s-demise-bankruptcy
Despite the reaffirmation of Detroit’s greatness by its luminaries Kid Rock and Ted Nuget, Detroit filed for bankruptcy on July 18th. This action marked the largest American city to file for bankruptcy. Detroit holds long-term debts (including pension obligations) estimated to be north of $18 billion. Briefly, I will touch on how Detroit got to its precarious situation, but more importantly, we will look at the prospects of bankruptcies in other cities and municipalities. Detroit’s problems are not isolated, and understanding the potential impact of this bankruptcy is important.
How D-town got here
The crisis has been brewing for decades. Fifty years ago the city was rich. GM, Ford, and Chrysler cranked out nearly all the cars sold in America. Detroit was home 1.8 million people. Today only 700,000 remain. Many are poor and poorly educated—82% have no more than a high school diploma. The city sprawls over an unmanageable 140 square miles (enough to swallow Boston, San Francisco, and Manhattan). Delivering services to barely-populated neighborhoods would be hard even if the city government were well-run, which it is not (The Economist, July 27, 2013).