Detroit Files for Bankrupcy, Fulfilling a 1944 Prophecy

 

The Huffington Post  reports and the National Review comments on the fact that at long last Detroit has formally filed for bankruptcy. Click here.

Now comes the best part. Back in 1944, Detroit’s Mayor Jeffries, speaking in a congressional hearing,  predicted that putting freeways into cities, specifically Detroit, would make it not only easier for suburbanites to come into the city to work, but also for city dwellers to move to the suburbs, with the result that this would lead to abandonment of Detroit by its residents, and be the “ruination of Detroit.” Mayor Jeffries’ quotation may be found in Robet M. Fogelson’s book, Downtown: Its Rise and Fall, 1880-1950, at p. 117.

So it was written, and so it has come to pass.

Follow up. The causes of Detroit’s downfall, according to the city’s 16-page filing involved several factors that contributed to the city’s financial woes, including a long-dwindling tax base, population flight, financial mismanagement and overall decay of a city that once had more than 2 million residents and was the world’s hub of auto manufacturing. Nobody seems to wonder out loud why that Detroit population fled in such enormous numbers, what role redevelopment (and its abuses at which Detroit has been a champion) played in destroying swaths of low-cost housing but not replacing them.* As for that “financial mismanagement and  overall decay” of the city, we must recommend that you read at least Chapter 6, the part devoted to Detroit and subtitled See the U.S.A. In Your Chevrolet, pp. 217-225, in Mark Steyn’s book, After America. Steyn is an insightful and devastatingly funny writer, and candidly a pessimist. Still, his depiction of Detroit on its way to its fall, and his thesis that Detroit did it to itself  is not to be missed.

And last but not least, how can one mention the decline (and now fall) of Detroit without mentioning the assorted abuses of the city’s eminent domain power (e.g., Foster v. Detroit) and the wretched Poletown case** in which a divided Michigan Supreme Court approved the condemnation of a functioning, well maintained, and integrated community of Poletown in order to raze it and turn over the land to General Motors for a new Cadillac plant.*** Hundreds of homes, scores of businesses and churches and a major hospital were thus destroyed at a cost of some $200 million to state and federal taxpayers, to say nothing of years of tax abatement for GM. Ditto in the case of Detroit v. Vavro (same thing — what’s good for General Motors is good for Chrysler). But in spite of all that both General Motors and Chrysler, as well as Detroit went bankrupt, but nobody was held accountable for this disaster. As the inimitable Mark Steyn put it, if the British/Canadians were to cross the border, capture Detroit a la the War of 1812, and did to that unfortunate city what its duly elected Democratic and union functionaries had done, they’d be on trial in the Human Rights Court in the Hague. 

There is bound to be much ink spilled on the subject of Detroit’s decline and fall, and we are certain to revisit this subject in the future. So stand by, folks. There is more to come, although we have a hunch that you won’t hear much (anything?) from the media about Detroit’s misuse and abuse of eminent domain that contributed greatly to its woes.

Second Follow-up. We are confused. CNN reports that an effort was made to get a state court order to enjoin Detroit from filing for bankruptcy in federal court, on state constitutional grounds. But the request for the injunction came minutes too late — the federal bankruptcy case had already been filed, rendering the state proceeding moot. However, CNN also reports that Detroit was forbidden by a state court from filing for bankruptcy. So we propose to get a night’s sleep and hope that by tomorrow morning all this nonsense will be sorted out.

Third follow-up. It’s now “tomorrow morning” and we think we understand what happened. The city filed for bankruptcy first (if only by minutes) and once the federal bankruptcy court acquired jurisdiction we don’t see how a state judge could oust it of its constitutionally-based jurisdiction. Federal supremacy clause (Article VI, Clause 2 of the U.S. Constitution) — look it up. So what that state judge did was to order the city to withdraw its bankruptcy petition. Nice try. We are no bankruptcy maven, but it seems to us that once a federal petition for bankruptcy is filed, all lawsuits against the bankrupt entity are stayed, and we don’t see how a footling state court judge can rule otherwise and thereby de facto overrule the federal court applying federal bankruptcy law.

 Fourth follow-up. We hear that the federal bankruptcy court in Detroit has decided to proceed with the city’s bankruptcy action, notwithstandig a state trial court’s ruling that under the state constitution, the city could not seek the protection of federal bankruptcy law. So it would appear that, at least up to now, the federal court agrees with us. Stay tuned.

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*   This is no place to go into the demographics of this phenomenon, but we should mention that — though Detroit has been the “worst case scenario” as by degrees it slid into becoming America’s urban basket case, there are lots of other cities that have experienced similarly catastrophic declines in population and financial condition but have not [yet] filed for bankruptcy, and are not [yet] getting the ink they deserve.

**   To give the Michigan Supreme Court credit where credit is due, it eventually overruled the Poletown case in the more recent case of Wayne County v. Hathcock. But that, alas, turned out to be a case of too little – too late.

***   Full disclosure: your faithful servant was one of the lawyers representing the Sisters of Mercy whose Poletown hospital fell victim to Detroit’s bulldozers.

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