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Reuters: Let the Feds Bail Out Detroit

WASHINGTON — A Reuters writer suggested that the U.S. government should bail out the beleaguered city of Detroit, which has fallen far from grace from its heyday as “The Motor City.”

detroit sign [1]Reuters published an analysis [2]┬áthat announced the city could exit bankruptcy when Detroit’s 170,000 creditors will vote on a potential deal [3] to get out of bankruptcy.

The state of Michigan, the city of Detroit, and other philanthropic foundations like the Knight and Ford foundations, will contribute to the bankruptcy deal. They will help reduce salaries of city employees, contribute money and help Detroit balance their books, which are burdened by their retirement payment system.

The last bailouts, the U.S. banks on Wall Street and for the U.S. automakers, have not been viewed favorably by some, so this probably will not materialize. The Obama administration has kept the city’s bankruptcy at arm’s length [4] lately. The writer could only say, “This is a mistake. The federal government should use Detroit as an opportunity to take a more active role in state and municipal pensions. Unless the American economy experiences unprecedented growth, future federal bailouts of state and municipal retirement benefits are inevitable.”

One other quote from the analysis read:

“The sooner the federal government acts, the lower the cost to taxpayers because the financial hole will only get bigger. In both the mortgage and European debt crises, the world saw how much damage an unacknowledged, but expected government guarantee can cause.”

“Debts became unmanageable and creditors looked to the central government for bailouts. The lack of clarity caused uncertainty and wreaked havoc on financial markets. Rather than staying on the sidelines or engaging in backdoor bailouts, this time the federal government should take a more active role in shoring up state pension finances.”