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warenee THE GRAND DETROIT BANKRUPTCY
Frank Borman, a US Astronaut and later a CEO of an airline company in mid seventies, once commented that “Capitalism without bankruptcy is like Christianity without hell.” This fine observation pointing towards lacunae in the capitalist regime has several underpinning examples in the past and now includes the bankruptcy proceedings of Detroit. Once, a booming hub for automotive manufacturing, a prime location as a transportation route along the Great lakes and a center for technological innovation, the city of Detroit has endured devastating economic changes. The city is under a debt of $18.5 billion. Its population is now half of what it was in the 1950s, as majority of the working population has been forced to leave the city primarily due to lack of employment, among other issues. At the beginning of this year, Detroit’s official unemployment rate was 18 percent, more than twice the national average. Is It The First Time? In India, laws are not clear even for firms to file for bankruptcy; however, in the US even a city can do so. In fact, this is not the first time a city has filed for Chapter 9 bankruptcy in a US court. The thing that makes it very different is its magnitude; prior to Detroit’s $18.5 billion, Jefferson County held the record with its $4 billion bankruptcy filing. Closer inspection suggests that there are other differences besides the magnitude of the disaster. While Jefferson County accumulated $3.14 billion in sewer debt, Detroit’s major debt is in the form of pension and health care related liabilities. The following Chart shows the distribution of Detroit’s humongous debt. A Little Relevant History: After WW-II, Detroit invested heavily in infrastructure, siphoning the pension funds to pay for those improvements. This was followed by an auto industry recession in 1950s, which collapsed its finances, leading

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