Detroit: Part 2 — The grandest bargain

Abstract

Founded in 1701 as a French fur-trading post, Detroit, Michigan, evolved from a port in the 18th century to a major manufacturing centre at the end of the 19th century. At the dawn of the 20th century, the city turned from making wagons and train cars to churning out automobiles and perfecting assembly line production. Detroit became the ‘Arsenal of Democracy’ during World War II and reinvented itself as Motown after the war. But starting in the mid-1950s, after two and a half centuries of continuous expansion, Detroit’s economy was decimated in a mere 65 years by racial tensions and ‘white flight’; loss of jobs, population, tax base and reputation; and municipal leadership unable to recognise and manage a tsunami of debt. And while the private sector began reinvesting in downtown in the late 1990s, the absence of competent public-sector leadership allowed the debt to bloom into insolvency. US law — unlike that of other industrialised nations — allows municipalities to declare bankruptcy to wipe out most debt. Although there are many financially distressed American cities, few have declared bankruptcy. Detroit’s is the largest to date and was made more complicated by the involvement of an ‘emergency manager’ — an intervener appointed by the Governor of Michigan and granted extra-governmental powers. The first article provided historical background, described public-sector bankruptcy, and introduced the most important players in the bankruptcy drama. This second part outlines the legal process of municipal bankruptcy; introduces the creditors who fought to preserve their financial position; discusses the threat to the Detroit Institute of Art’s collection; and describes the ‘Grand Bargain’ without which the bankruptcy would have descended into the mire of endless lawsuits. The final article will lay out the aftermath of this titanic drama — the effect on reinvestment, and the ‘lessons learned’ by the cast of players and the community as a whole — and describe the substantial obstacles that remain to creating a robust and sustainable future for Detroit in the 21st century and beyond.