Tag Archives: Detroit

Cognitive Dissonance



Maxwell Fisher House 1
 

The Maxwell Fisher house on Woodward Avenue, in the style of H. H. Richardson; two doors South from Mack Avenue in Detroit near the end of the nineteenth century, (photo, Burton Historical Collection, University of Michigan/Detroit Public Library).

Very little is known about Mr. Fisher other than he was a prosperous merchant or professional of some kind. He does not appear to be related to the Fisher brothers or their ‘Body by Fisher’ branch of General Motors.

This is the entry parlor of Mr. Fishers’ house, (click on for big): it could be a stage set for ‘The Magnificent Ambersons’.

 
Maxwell Fisher House 3
 

Elegant clutter was the fashion in the late- nineteenth century Victorian period. The combination of precision machinery and high levels of craftsmanship resulted in large amounts of expensive doodads to fill the parlors of the well-to-do in Detroit and elsewhere. Note the gas-lamp overhead fitted with electric bulbs and the free-standing electric light fixture to the right, the figure holding the pole. The woodwork in this room would be difficult- if not impossible to reproduce today due to the absence of skilled craftsmen … and because the chestnut seen here is largely unavailable, the trees wiped out by a fungus from 1910 onward.

Mr. Fisher previously occupied a house on Woodward Avenue near the corner of Duffield Street:

 
Maxwell Fisher House 4
 

Unknown photographer, Burton Historical Collection of Detroit Public Library. According to the 1880 Detroit city directory, Fisher’s address was 375 Woodward Avenue. Whether he lived here for a time before moving uptown or his business was in this house is unknown. After 1900, the middle reaches of Woodward Avenue began to change, with mansions replaced with cheap retail and commercial buildings. Note the hulking concrete box on the right. When this photograph was taken, around 1910, Fisher’s building had been converted to a rooming house called ‘The Berkley’, with various small businesses on the lower floors.

The really big story isn’t that Detroit has declared bankruptcy, it’s been bankrupt for decades.

 

Detroit Goes Bankrupt, the Largest City to Do So in U.S.

DETROIT — Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, has filed for bankruptcy, an official said Thursday afternoon, the largest American city ever to take such a course.

The decision to turn to the federal courts, which required approval from both the emergency manager assigned to oversee the troubled city and from Gov. Rick Snyder, is also the largest municipal bankruptcy filing in American history in terms of debt.

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager who was appointed by Mr. Snyder to resolve the city’s financial problems, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

 

The problem is nobody can figure out why … or what happens next? Careful! The cognitive dissonance can leave you with whiplash, (NY Times):

 

Last Car Plant Brings Detroit Hope and Cash

Bill Vlasic

DETROIT — There is a section of Detroit’s east side that sums up the city’s decline, a grim landscape of boarded-up stores, abandoned homes and empty lots that stretch all the way to the river.

And in the middle of it stands one of the most modern and successful auto plants in the world.

More than 4,600 workers staff Chrysler’s sprawling Jefferson North factory nearly around the clock, making one of the most profitable vehicles on the market, the Jeep Grand Cherokee.

 

Hard to see one car factory giving much hope to anyone other than Fiat.

Everyone knows Detroit is a hell hole, a grim landscape of boarded-up stores, abandoned homes and empty lots … albeit with one good car factory. It’s also a hell hole with soon-to-be excellent highways:

 

 

I-94 Expansion: Controversial SEMCOG Vote Passes, Will Widen Freeway Through Detroit

A proposed freeway widening that would cut through Detroit’s most up-and-coming neighborhood had residents and transit activists howling for alternatives — with little recourse.

SEMCOG, a regional governance board encompassing seven counties across Southeast Michigan, met Thursday afternoon to approve the 2040 Regional Transportation Plan. That vision will ultimately allocate $36 billion in funds over 25 years to the area’s roads, freeways, highways, buses and proposed light rail, including extensive work on I-94 and I-75. The plan was passed, despite impassioned public comment begging for alternatives, and a motion to temporarily remove the most controversial aspects of the transit plan.

The SEMCOG transportation plan being voted on Thursday would allocate around $2.7 billion for the I-94 expansion between I-96 and Connor, and $1.3 billion for the I-75 widening. The project could stretch over the next decade and be done in pieces as funding becomes available, the Detroit News reports.

 

You might think the battles over urban freeways were won long ago but you would be wrong. The US highway enterprise is a gigantic, mindless robot that nobody knows how to turn off! The Federal Department of Transportation funds the bulk of the cost of ‘improvements’ with the state and localities picking up the generally modest balances. The US government has unlimited borrowing capacity and — thanks to the Federal Reserve and generalized deflation — can borrow at the lowest possible cost. As a consequence, hundreds of millions of good dollars are set to be thrown after bad … good dollars squandered every year for ten years on useless freeways that could certainly be spent more productively elsewhere within the city.

Feed the cars, starve the public: after fifty-years, citizens in Michigan still don’t understand that freeways and automobiles are what bankrupted Detroit in the first place and are set to ruin the state … along with the rest of the country. People refuse to grasp what is plain and obvious under their noses: that freeways must be paid for with loans, the cars must be paid for with loans as well … the loans themselves must be paid for with still more loans! There are no returns from the use of the cars or the freeways, new loans must be obtained in order to roll over the old ones as they come due. Debt burdens are modest in the beginning of the borrowing cycle but the steady increase of debt needed to roll-over and service maturing debts over decades leaves obligations that are monstrous at the end.

In Detroit, more loans cannot be had; stupendous debts are beyond what Detroit can ever hope to repay. This is the end, the city is bankrupt. Blame is fixed on the unemployed, the racial- and otherwise victims of city disintegration, on government workers; their salaries, healthcare and pension costs. The real cause are the billions wasted on unproductive cars and highways beginning in the early 20th century.

The freeways, autos and cheap gasoline enabled the emptying out of the Detroit in the first place, just as they did in other areas of the country. The beneficiaries were a limited handful real estate developers and bankers; the ordinary citizens and their grandchildren were — and are — saddled with repayment obligations that stretch on into the far-distant future. These are obligations that cannot possibly be met by anything other than more loans … more debt.

 

“The problem with socialism is that eventually you run out of other people’s money to spend”

— Margaret Thatcher
 

Thatcher fails to mention what other people’s money is spent on … non-remunerative waste … and why the spending process ends in failure. Like the decor in Maxwell M. Fisher’s foyer, there is really no purpose to any of it except to fill space and waste time.

Where 375 Woodward likely used to be, (click on for big). Note that Detroit streets were re-numbered in 1921. The I-75 freeway due to be remodeled is in a gigantic trench that cuts off downtown Detroit from the rest of the city.

 
Maxwell Fisher House 5
 

Debts are one reason for Detroit bankruptcy, another is the city’s relentless and expanding ugliness. There are other places in the United States that are like this … highway interchanges in fallen neighborhoods … there are few to the same scale or degree. Here is a setting for homicide, no kindness or mercy here, only danger and decay … a place that must be sped through as rapidly as possible in a steel box, from nowhere to nowhere else. Only a vendor on the corner and a handful of fleeing pedestrians add a bit of humanity.

 
Maxwell Fisher House 6
 

The freeway under Woodward Avenue: a monstrous, anti-human space, fit only for contractor dollars and machines. Like much else in post-war Detroit, everything here was bankrupt as soon as it was built.

 
Maxwell Fisher House 2
 

A collective failure of imagination: here is where Maxwell M. Fisher’s Richardsonesque mansion used to stand. Like much of the rest of Detroit, the buildings were swept away leaving parking lots and junk. These places have nothing to offer now or in any conceivable future … because Detroit lacks a palpable future, it repels investment … a reason why the city is bankrupt.

The bankruptcy business is not confined to Detroit, The Wheels Are Coming Off the Whole of Southern Europe, (Ambrose Evans-Pritchard):

 

None of Euroland’s key actors seems willing to admit that the current strategy is untenable. They hope to paper over the cracks until the German elections in September, as if that is going to make any difference.

 

All of Europe is made up of different versions of Detroit, the South is bankrupt … the North is rapidly catching up.

 

A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5pc this year. It has told journalists privately that the final figure may be -7pc. The Greek stabilization is a mirage.

 

Greece is bankrupted by its automobile fleet which does not earn the country a penny, instead, the fleet must be subsidized with massive amounts of euro-denominated debts that cannot possibly be repaid. Greece can no longer borrow, it must beg or cajole from other bankrupt countries. The country cannot roll its debts, it holds its creditors hostage while its citizens live in deepening poverty. This is so that Greece’s (remaining) drivers can continue to be subsidized.

 

Italy’s slow crisis is again flaring up. Its debt trajectory has punched through the danger line over the past two years. The country’s €2.1 trillion (£1.8 trillion) debt – 129pc of GDP – may already be beyond the point of no return for a country without its own currency.

Standard & Poor’s did not say this outright when it downgraded the country to near-junk BBB on Tuesday. But if you read between the lines, it is close to saying the game is up for Italy.

 

Like Greece, Italy is bankrupted by its automobile fleet as well as by its domestic auto manufacturers, which cannot produce value for their customers. Customers aping Detroit and going broke leaves fewer remaining to buy cars; overcapacity leads to failure.

 

Indeed. The International Monetary Fund has just slashed its growth forecast for Italy this year to -1.8pc. The accumulated fall in Italian output since 2007 will reach 10pc. This is a depression. Yet how is the country supposed to get out of this trap with its currency overvalued by 20pc to 30pc within EMU?

 

If Italy depreciates any euro-replacement it would find itself unable to import fuel; conservation by monetary means.

 

Spain’s crisis has a new twist. The ruling Partido Popular is caught in a slush-fund scandal of such gravity that it cannot plausibly brazen out the allegations any longer, let alone rally the nation behind another year of scorched-earth cuts. El Mundo says a “pre-revolutionary” mood is taking hold.

 

Spain is bankrupted by its massive, non-earning automobile fleet just like Greece and Italy. The Spanish people borrowed billions in order to create their version of Detroit in Spain and are now stuck with the bill. Government corruption is the Victorian clutter in the Spanish parlor.

 

A magistrate has obtained the original “smoking gun” alleging that Premier Mariano Rajoy accepted illegal payments as a minister. The Left is calling for his head but so are members of the Consejo General del Poder Judicial, the justice watchdog.

Like Greece before it, Portugal is chasing its tail in a downward spiral. Economic contraction of 3pc a year is eroding the tax base, causing Lisbon to miss deficit targets. A new working paper by the Bank of Portugal explains why it has gone wrong. The fiscal multiplier is “twice as large as normal”, or 2.0, in small open economies during crisis times.

 

The Portuguese have a choice; to jettison the non-remunerative cars or to jettison themselves. Like all the others they choose to keep the cars and put themselves through the wringer. Meanwhile, the country continues to unravel; the cars will ultimately go, anyway.

 

What is new is that Vitor Gaspar, the high priest of Portugal’s shock therapy, has thrown in the towel. He blames the fainthearted for refusing to slash with greater vigour. Needless to say, he still refuses to accept that a strategy of wage cuts and deflation in a country with total debt of 370pc of GDP was always likely to fail.

 

The austerity plan preserves the automobiles by sacrificing everything else. Look @ Detroit, the model for the rest of the world! Detroit’s citizens are robbed while billions are spent on roads and useless car factories. At some point, a vulnerable bit of (fuel) infrastructure will break and the autos will be stranded.

 

The Portuguese press is already reporting that the European Commission is working secretly on a second bail-out, an admission that the wheels are coming off the original €78bn EU-IMF troika rescue.

This is a political minefield. Any fresh rescue would require a vote in the German Bundestag, certain to demand ferocious conditions if this occurs before the elections.

 

Whatever fuel is not used by the Portuguese can be guzzled by the Germans.

 

Do they violate this pledge, and shatter market confidence? Or do they admit for the first time that taxpayers will have to foot the bill for holding EMU together? All rescue packages have been loans so far. German, Dutch, Finnish and other creditor parliaments have never yet had to crystallize a single euro in losses.

 

At some point the Europeans must admit for the first time that the bill for holding the automobile-first regime together is unaffordable …

 

All this is happening just as tapering talk by the Fed sends shock waves through credit markets, pushing up borrowing costs by 70 basis points across Europe. Spanish 10-year yields are back to 4.8pc. These are higher than they look, since Spain is already in deflation once tax distortions are stripped out. Real interest rates are soaring.

By doing nothing to offset this, the ECB is allowing “passive tightening” to occur. Mario Draghi’s attempt to talk down yields with his new policy of forward guidance is spitting in the wind. The ECB needs to turn on the monetary spigot full blast – like the Bank of Japan – to head off a slide into deflation trap and enveloping disaster by next year. This is not going to happen.

 

The monetary spigot is not succeeding in Japan, it cannot succeed because nothing real is created, because the spigot cannot offer crude oil @ $20 per barrel to keep brand-new Grand Cherokees on brand-new roads. Turning on the spigot requires collateral that no longer exists. The ECB is trapped along with the rest of the European establishment. It’s only collateral is a bunch of used cars and waste …

The monetary spigot supported Germany for a little while but that country is also bankrupt for the same reason as Greece, (Wolf Richter):

 

Blinded By Optimism, German Economy Now Below Stall Speed

The financial crisis was brutal for Germany, but the recovery was steep, and in 2011, the gloating started. They called it the German “success recipe,” a system that was somehow superior to any other. It would keep the economy growing even as Eurozone mayhem was breaking out all around. That optimism has endured, and stocks have hit new highs in May, but the German economy has diverged sharply from that scenario.

… the Eurozone bought 36.6% of Germany’s exports and the non-euro area 20.0%. While periphery countries have been struggling for years, with demand collapsing in some, it’s France that Germany is most worried about. It buys about 10% of Germany’s exports, more than any other country, but it’s slithering deeper into a full-blown economic crisis with unemployment at record highs, with the auto industry – a key export sector for Germany – in a death spiral, and with consumer demand flagging. Even exports to the rest of the world skidded 1.6%. It was the worse May decline since 2009.

 

France becomes bankrupt which dooms Germany. Exported automobiles never provided value for the customers, both exporters and customers have become little versions of Detroit.

Success can never ‘come from nothing’, what is gained by tycoons is lost elsewhere. What is lost is capital, once gone it is gone forever, what is ‘gained’ is debt … money being the (worthless) residue of destroyed capital.

What happens after bankruptcy? Highest-order wishful thinking suggests that more of the same processes that brought Detroit to ruin will bring Detroit and the rest out of it! Since this cannot possibly succeed, the outcome is an endless, grinding bankruptcy process that remains in place until the various little version of Detroit run completely out of gas.