[Peace-discuss] Applying the Shock Doctrine in Detroit

[David Johnson via Peace-discuss]

  Applying the Shock Doctrine in Detroit

by Dianne Feeley
December 5, 2013

The fix was in from the beginning -- that's pretty much what U.S. 
Bankruptcy Judge Steven Rhodes announced in his December 3 ruling that 
gives state-appointed Detroit Emergency Manager Kevyn Orr the green 
light to take the city into bankruptcy. Even while chiding Orr's lack of 
"good faith" in the negotiations with unions and other creditors before 
filing for bankruptcy last July, Rhodes agrees with Orr's claim that the 
city no longer has the resources to provide basic services. That 
(alleged) reality trumps the Michigan Constitution guaranteeing the 
integrity of public workers' pensions, the city's control of its assets, 
the dubious legality of the Emergency Manager law itself, and all other 
considerations. Detroit, the judge mused, should have filed bankruptcy 
years earlier.

The bankruptcy procees, Rhodes further ruled, will proceed without 
interruption while his decision is appealed. Next Orr will develop a 
"plan of adjustment" by early 2014 and reopen negotiations with those 
who are expected to take a haircut. In reducing those obligations, Orr 
would supposedly free up that money to rebuild the city's deteriorating 
infrastructure. Millions are already being used to pay consultants for 
their restructuring proposals, including Orr's own former law firm Jones 
Day.

Rhodes would then approve or modify the results sometime in late spring 
or early summer of 2014. While stating that Chapter 9 of the federal 
bankruptcy law permits the raiding of pension funds despite the state's 
constitutional ban on doing so, he announced that he would not 
necessarily "rubber stamp" Orr's plan. The big question for the 
shock-doctrine restructurers may be how far pensions can be cut for 
retired city workers -- many of whom barely get by as it is, and in the 
case of uniformed personnel (fire and police) do not collect Social 
Security -- without the risk of a political or social explosion.


Detroit's "Emergency Manager" Kevyn Orr. Photo by Rebecca Cook, Reuters.

Even if the pensions of city workers are only slightly trimmed rather 
than stolen outright, Rhodes' decision sets a frightening precedent for 
state workers in Michigan. Other states, such as Illinois, also have 
constitutional guarantees that can now be overrun if the decision were 
to stand.

When the full text of Rhodes' 140-page opinion is released within a day, 
it will lay out the objections to the bankruptcy eligibility and refute 
them. Rhodes agrees with Orr's assessment that the city owes $18.5 
billion in long-term debt, of which $3.5 billion is for retiree pensions 
and $5.7 billion for retiree health care. Of course workers have 
contributed to the pension plan, and the city has put aside money for 
both over the years. (Orr, however, skipped the city's 2013 contribution.)

Also counted in the debt is $5.7 billion for Metro Detroit's water and 
sewerage bill, even though that debt is considered a "secured" debt, 
completely covered by user fees.


Photo by David Guralnick.

One might wonder why long-term debt features so prominently in the 
discussion. After all, most homeowners have a long-term debt (their 
mortgage) but don't count that total amount when they are figuring up 
their yearly cash flow. One might also wonder why the banks--who have 
stiffed the city with huge fees, variable interest rates and taken 
advantage of lowered bond ratings to jack up interest--are not 
castigated for their role. But the banks are first in line for 
repayment, under the pretext that their loans are properly "secured" 
through pledged tax revenues. Orr has stated that secured loans would be 
paid in full.

To understand the politics behind this bankruptcy one has to understand 
the essence of capitalism. It is the expropriation of assets --- land, 
nature's resources and workers' capacity to produce --- that produces 
wealth. Detroit's assets are on the chopping block. After so many years 
of corporate downsizing and relocation, after so many years of 
renovating the downtown at the expense of the neighborhoods, this is a 
deepening austerity. The pillage is on.

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