Tuesday, April 22, 2014

A Boston lawyer will assist with Detroit's bankruptcy


This is the complete text of an article that was published today (April 22, 2014) on the website of the United Press International.  Most people know this organization by its' acronym, U.P.I.

Both of the links in the following paragraphs were in their original article.
A U.S. bankruptcy judge has tapped Martha Kopacz of Phoenix Management Services of Boston and former New York Lt. Gov. Richard Ravitch as consultants for Detroit's bankruptcy plan.

Ravitch helped New York get through its fiscal crisis in the 1970s and was assigned by the court to help evaluate that city’s debt-cutting plan.  Kopacz, as a paid expert witness, will be asked to decide if the city's bankruptcy plan is feasible and whether the assumptions that underlie its forecasts are reasonable, according to the court filing.

Kopacz said her firm’s estimated fees are $800,000 to $1.2 million for 4 or 5 people working up to 60 hours a week and factoring in a 10% discount.  They will be expected to submit a report June 24 and Kopacz will be available to depose other parties involved in the city's bankruptcy case.

Judge Steven Rhodes took up Ravitch's offer to help the city for free, but did not agree to employ his non-profit Ravitch Group, which he formed with three colleagues.

Ravitch said he will look at the finances of the city and will determine how they were derived, ensuring that the Detroit's finances are sustainable post-bankruptcy.

“You don't solve an economic problem by borrowing money,” Ravitch said. “That's lesson 1, lesson 2 and lesson 3.”

Detroit has claimed that bankruptcy was a necessary step, after years of declining population and the disappearance of manufacturing jobs.  The city has been unable to pay back its debts and is still providing minimum levels of service, such as police and fire protection.

The bankruptcy case is set to come up in July between the city and its creditors.

**********

If I may, I'd like to repeat something that former New York Lt. Gov. Richard Ravitch said.

“You don't solve an economic problem by borrowing money."

I cannot emphasize strongly enough how sensible this advice is.

I also cannot emphasize strongly enough that this advice can be implemented by cities as easily as it often is by families, after converting it grammatically from negative language to positive language.

You solve economic problems by encouraging the growth and development of the businesses in your city (or your state, or your country).

I also cannot emphasize strongly enough how terrible the consequences will be for every city and town that ignores this advice.  Families who ignore this advice see the consequences, too, but they usually feel the pain of the consequences much faster than cities, so families usually (but not always) learn new and better habits much faster than cities.

Some cities, like the City of Detroit, did ignore this advice and are now suffering for their foolish policies, enacted and implemented over decades.

This is a link to another essay of mine, called We're ignoring 200-year-old wisdom.  I published it in November 2012.  This essay mentions the consequences of other cities that, like Detroit, also ignored this very sensible advice.  The person who gave the very wise advice two centuries ago was Benjamin Franklin, who was possibly the most important American who never became President.

The City of Detroit followed some very foolish advice.  It tried to get more tax revenue by raising taxes on the wealthiest city residents.  This advice always fails, because the wealthiest residents of any city, any state, and any country will, when taxed too heavily, simply spend a small percentage of their very large collection of financial assets and use them to move out of that city, that state, or that country.  I published an essay called Taxes, the wealthy, and the freedom to flee, in March 2013, which details this inevitable process.


Cities, states, and countries, ignore this advice at your own risk

That includes the City of Boston and the State of Massachusetts.  I live in Massachusetts, and I am not happy with the financial situation in my own state because my own governor is also ignoring this very sensible advice, which means that if these policies continue, my own state will also suffer the financial consequences of those foolish policies.

My governor, who smirks instead of smiling.

In order for any city, any state, and any country to have financial success and political stability, it must encourage the growth and development of its' middle class, people who have marketable job skills and who work for the companies that are owned by wealthy people.

Do not encourage wealthy people to leave by taxing them too heavily.  When they leave, they will not continue to operate their companies, so the middle-class people who work for them will lose their jobs.

This is a link to an essay that I published in November 2012 called America grew with the help of craftsmen.   The crafts that are mentioned in this essay became so valuable to the earliest Americans, there are now many people who are named for those crafts.  Those jobs helped this nation grow and succeed in a financial sense, and the people who worked at those jobs, people who loved those crafts and worked hard to improve them, now have descendants who are part of today's middle class, still working hard at the crafts they love and still trying to use the income from those middle-class jobs to feed their families.

Cities, states, and countries: If you make it easy for wealthy people to own and run businesses in your jurisdictions, then your jurisdiction will have financial success and political stability.

If, on the other hand, you make it hard for business owners to run their businesses in your jurisdictions, they will leave, and you will not be able to blame anyone but yourselves.

Link to an essay that I published in March 2013 called Chile's economy is growing faster than ours.

Link to an essay that I published a few weeks later, called Some ideas for growing the United States economy.  This essay compared Chile's policies with ours and concluded by offering the same advice.  Any city, state, and country that wants financial success must adhere to reasonable policies.

In other words, you don't solve an economic problem by borrowing money.  If you are a mayor, a governor, or a president, you solve economic problems by doing everything in your power to encourage the growth, development, and the permanent location of the businesses in your city, state, or country.

That means encouraging a free and minimally-regulated marketplace, too.

Link to the second essay I ever published on a blog, called Freedom of choice in the marketplace, published in June 2012.  This essay shows, in detail, that in any truly free market, consumers also have the freedom to flee from products that they do not want to buy, which gives the producers of those products a real economic incentive to produce and to market things that people want to buy.  This means that consumers have inherent protections against harmful products.

Poison will not kill many rats, and bad products will not harm many consumers for the same reason.  The first consumers who bravely try a new product will tell his or her friends whether he or she liked it.

Free markets in any city, state, and country will always produce economic success in that city, state, and country.

Always.


Updates, arranged in the order that I added them


April 18, 2016

This is the first paragraph of an April 16, 2016 review of a book titled "To Broke and Back", about Detroit's bankrupcty.
Early in Detroit’s municipal bankruptcy case—the largest in U.S. history—federal bankruptcy court judge Steven Rhodes rejected a settlement that would have paid two banks $165 million.  The banks had loaned money in a complex deal to enable Detroit to keep paying bloated municipal pension obligations.  It was “too much money,”  Rhodes declared.  If the city won’t stop making bad deals on its own, the judge said, then the court would force it to stop.  It was precisely this type of judicial head-slap that Detroit needed.  As Nathan Bomey chronicles in the excellent Detroit Resurrected, 50 years of mismanagement and magical thinking had made the Motor City insolvent, with unfunded retiree pension and health-care liabilities totaling an astounding $9.2 billion—about nine times Detroit’s annual budget.

December 1,, 2016

These are the first three paragraphs of a July 19, 2013 National Review article.
With Detroit filing for Chapter 9 bankruptcy, everybody knows major root-canal cutbacks are coming.  Cutbacks of out-of-control government spending, pensions, and health benefits. Major cutbacks.  We know that.

We also know that the downfall of Detroit is again proof positive that the public-union collective-bargaining model has utterly failed.  Unions just loot the benefit lock box at taxpayer expense.  That was the message of Governor Scott Walker’s victorious crusade in Wisconsin.  If any good comes out of the Detroit debacle, it will be the spread of that message across the country.

But there’s another important point here.  If Detroit is to truly recover, a growth program of tax-free investment incentives must be part of the process.  Specifically, Detroit should be made a tax-free enterprise zone, along lines proposed years ago by the late Jack Kemp.

August 29, 2017

These are the first four paragraphs of a CNBC story published today.  All of the links in these paragraphs were in their story.
A deserve for tiny homes has been sweeping the nation, spurred in part by the high cost of owning and the desire to live simpler, with less.

In Detroit, the fad is serving a different purpose:  An opportunity for low-income residents to become homeowners, reports Jeffrey Brown of PBS NewsHour.

Led by Cass Community Social Services, the local project is one of many efforts to help rebuild the metro area after it became the largest U.S. city to file for bankruptcy in 2013.  The non-profit bought 25 vacant lots from the city for $15,000, total, and intends to spend $40,000 to $50,000 building a tiny home on each, with the help of a volunteer workforce.

The homes will range from 250-square-feet to 400-square-feet.  But the cramped quarters don't appear to be a turn off.  Hundreds of low-income earners have already applied to live in the seven tiny homes that are fully built.
Note 1: I don't approve of the use of the word "deserve" being used as a noun in the first paragraph, but I didn't change it because I follow some self-imposed standards as a writer.  One of them is that when a writer that I'm quoting uses bad grammar, I allow that writer to use bad grammar.  I reserve the right, as a writer, to refuse to quote someone, for any reason, including the frequent use of bad grammar in one published written work, even if that written work is published by CNBC.

Note 2: I do approve of the use of private funds to build low-income housing in a low-income area, such as Detroit.  If it is well-managed, this effort may result in these people being homeowners who feel like they belong to a physical comminity and who may thus have a reason to maintain it.

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