A Different Plan for Detroit

A different plan for Detroit than what the power to be are recommending?  Yes there is a different plan that can succeed for Detroit.  For weeks, Emergency Manager Kevyn Orr and Governor Rick Snyder have pushed back at critics that the bankruptcy was the only plan to save Detroit.  Au contraire, Messrs Orr and Snyder.  The plan currently in place begins the process of lining up winners and losers and if not done just right the biggest loser in the long run will be Detroit and it citizens.  This is quite a gamble, the risk is very high with the return maybe not equal.

The following is a turnaround proposed by turnaround specialists at Salvus Harbor Financial LLC: Turnaround and Recovery Plan for Detroit Michigan

For questions or more information on turnarounds and successful restructuring click this link to go to Salvus Harbor Financial :

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Why Kevyn Orr is all wrong for Detroit

I don’t know Kevyn Orr personally.  I have never met the man, but I know he is not the man for Detroit, and Governor Rick Snyder should listen up as to why.  Allow me to also point out that I do not care what political party or ideology one has, I am only about the business of fixing things.

I am a believer that words and actions are powerful and meaningful.  This is how I conclude that Mr. Orr is not suited for The Motor City.  Specifically there are four main reasons that make him unsuitable for the job of turning Detroit around.  These observations come from his video on the State of Michigan web site (http://www.michigan.gov/detroitcantwait/0,4839,7-293–297207–,00.html) and what he and Governor Snyder have said.

  1. Mr. Orr is an attorney specializing in bankruptcy.  Detroit does not need a bankruptcy attorney unless this process really isn’t a turnaround as much as it is a satisfaction of a problem for the governor and the rest of the State of Michigan. – i.e. let’s just make this headache go away.  Detroit needs a turnaround specialist
  2. According to Mr. Orr’s video, he is a simple guy who grew up in Florida and has ties to Detroit because he went to school at Michigan and says of Detroit, “we have to do this together” and then describes how the laws of receivership and reorganization and emergency manager give him the power to make it happen.  Later he tells someone who questions him about a particular issue (in the sprit of “we need to do this together”), that “he is in charge”.  Turnaround specialists don’t talk this way and don’t work this way, they don’t begin the process by “drawing lines in the sand”.
  3. Mr. Orr appointed his CFO for Detroit, Jim Bonsall, who started July 21.  He filed Detroit’s bankruptcy on July 18.  The timetable makes no sense.  There appears to have been an agenda from day one.  It does not appear turnaround was in mind, only restructuring, a code word for picking winners and losers; and sometimes that has to happen, just not this early in the process.  In turnarounds, bankruptcy is a last resort, not a first resort.
  4. Mr. Orr claims to have successfully represented Chrysler in its bankruptcy specifically regarding the work in terminating a significant number of Chrysler dealerships.  Somehow, I don’t believe the nearly 800 dealers that lost their franchises and the myriad of bondholders who lost their investment (to name a few of the losers) think the Chrysler restructuring was a success.  Besides, Chrysler is no longer an American car company, it is an Italian car company – that doesn’t sound too successful – necessary maybe, but successful?

To date, what I have heard from Mr. Orr is more about power and “take charge” making decisions that are protected by laws, but in essence, it begins the process of picking winners and losers, essentially transferring the misery.  When he is done in Detroit, he will likely leave the city counting it as another success despite leaving behind the collateral damage, the damage that comes from picking winners and losers.

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Detroit 1 Detroit 0

How decisions of winners and losers cost Detroit,  the Motor City its victory while the Motor Industry scored.

 This story could have been longer and more detailed, but Detroit has no time for this, so the short and more pointed story is in order.

 Introduction

 Why do I care what happens to Detroit Michigan?  Why don’t I., like so many others, just let Detroit go, let the free market settle the issues it’s facing?  There are a number of reasons for this, namely reasons that everyone, even those like me who don’t even live in Detroit can relate to.

 It was May 1980 and entering the Detroit Bank Building I went up a dozen floors and began my banking career as a commercial credit analyst at Detroit Bank & Trust.  Many call the past few years the Great Recession, but several months after joining the bank, the prime interest rate hit 21 ¼ %, inflation was nearly 12% and unemployment was over 10% – the proverbial trifecta of economic disasters.

 For a couple of years we did everything to keep companies afloat, many of them family owned tool and die and production shops and other providers serving the Big Three.  Some couldn’t make it, those that did were bruised and beaten, but came through stronger.  The sense that we all survived this time gave all of us, bankers, borrowers, customers, even politicians a sense of victory and this feeling has never left me.

 After working with many smaller businesses, I was shifted to major accounts and assigned to the Chrysler account.  I was assigned after the bailout (the first one) was approved, but still in the middle of its implementation. There were many tense moments during that time with Chrysler just it was at American Motors and its partner Renault.

 I learned a lot from the way the Chrysler deal was done and how it could have been done in the present day – but that is for another story.  The basic premise of how Chrysler was handled and what it did for Detroit is still applicable today in the present circumstances. 

 I lived in Detroit for three years before being transferred to Western Michigan, but did, and now do live in Toledo, a city that has similar characteristics.

 I also remember Detroit Axle, Highland Park, Mound Rd., Detroit Assembly – all plants and the Chrysler corporate headquarters that hummed with action while I lived in Detroit and that are now gone.  Sometime harkening back to the “good old days” is worthwhile.

 Detroit can be saved and should be – not torn apart or sold off, but turned around.

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Drill Baby Drill – Why Bother? Part II – Changing the ownership of American Oil

American oil in a word is – OURS.  We Americans give up our ownership of this valuable part of America because the federal government, custodians of American land and trustees of our collective interests, have used a system of selling these rights to private companies – the oil and gas companies.  This is not a slam against Washington or the oil and gas companies, since for years this has been quite successful.  But the world has changed, and it’s time for us to change; especially how our rights are sold and/or transferred.

 Here is how I understand the current system works; and this is subject to correction.  The federal government through The Department of Interior leases land to gas and oil companies both onshore and submersed lands on the Continental Shelf.  These are lands owned by Americans that the federal government is responsible to getting the greatest rate of return for its citizens.

 Through a series of very detailed and meticulous calculations, the Department of Interior determines the value of various lands for lease and offers them, based upon an estimated amount of oil and gas beneath the surface.  These leases are sold at auction.  Oil companies bid for these leases that include a cost for the lease and a royalty for any oil or gas produced from the leases.  And the money goes to the federal government. Continue reading

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Drill Baby Drill – Why? Part I: Putting the Safety on the Trigger

As of this writing gas prices are quite high and appear to be on their way to record highs. Everyone is concerned and they seem to not know what to do – especially our elected leaders. For decades going back to the early 1970’s when the OPEC oil embargo started up one of the deepest recessions and more important one of the longest downturns in recent history we have searched for an energy plan. And yet we have never had a comprehensive nor a practical policy on how to protect the country for the harmful impacts of oil prices.

Why are oil prices so important? Not just because they are high, but since 1973 they have been the trigger to every recession in the United States. Look to the following graphs. They are broken in two since gasoline prices have risen so much in the last several years that the early years are lost in the analysis (as can happen with graphs). Can you tell when the recessions were? They are listed below the graphs. 

November 1973, January 1980, July 1981, March 2001

 

  

December 2007

In every case, the recession parallels the sharp increase in gas prices (excepting late 2011/early 2012, but economic data is still coming in and frequently “corrected”)

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The Danger of Recessionary Habits and Time

Not long after this recession hit I was hearing all the politicians and news people proclaiming this current recession as “the worst since the Great Depression”.  Even our president and other economic advisors proclaimed this as the worst.  Of course I scoffed at this since I did not believe it even measured up to the recession in 1980/81.  I felt like an old timer saying this, since many I was saying this to had not yet been born.  How do I know this and why?

 I graduated from business school in March of 1980 and began my finance career in commercial banking in May 1980.  Six months after entering the commercial lending world, the prime interest rate hit its high of 21½ %.  Unemployment was high and the worse was the inflation rate which was 12%.  I believed it was this inflation rate that made it worse – I am still not totally convinced it was not.  Some have said “what about the interest rates – wasn’t that the worse?”  Of course it was, but compared to our current day recession it is equal.  Say what?  You must be kidding?!? 

 At 21% we were lending, we had to just to keep companies afloat.  Today, although somewhat better, the banks are still not lending money; so the interest rate does not matter.   3% or 21% – if you are not lending, the rate doesn’t matter. A lot of the current population did not live during this time and has not “tasted” the scourge or inflation; at least as it is measured now.  I think we are living it, it’s just not being reported as such and that makes it worse.  Ah… that is for another article.

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Dear PBO #6 – Housing Part 2

Below is my letter to the President regarding the economy; it is in summary form.  To see full details click the Dear PBO page and go to the September 20 letter.

Dear Mr. President

 Back in July I wrote to you concerning the housing crisis.  As you may recall I indicated bankers needed to take a greater role in what they helped create and not place the entire burden on those who were losing their homes.

 As I have studied the issue further I believe there is still another alternative to helping those in trouble, helping the bankers get back to doing what they do best and speeding the recovery of the housing market.  It starts with the government but ends with the marketplace. Continue reading

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Dear PBO #5 – Leadership

Below is my letter to the President regarding the economy; it is in summary form.  To see full details click the Dear PBO page and go to the August 15 letter.

Dear Mr. President

 There has never been an economic recovery that did not extraordinary leadership from the White House.  A president cannot make the economy turn by itself, it takes business leadership to take on risk again, but a president can make sure the risk plain is tilted towards risk taking.  Sometimes this requires doing things you may otherwise not want to do. Continue reading

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Dear PBO #4 – A Fix for Real Estate

Below is my letter to the President regarding the economy; it is in summary form.  To see full details click the Dear PBO page and go to the July 15 letter.

Dear Mr. President

 Real estate is by far one of the largest assets a family will have and for many it’s a piece, if not the biggest piece, or their net worth.  The stupidly of lenders to loan money to people who could not afford the homes they purchased have hurt all of us including many of the original borrowers who purchased a home they thought they could never get in their lives.  Even more sinister is the pain caused to current homeowners whose values have been decimated and whose net worth has sharply been reduced; through no fault of theirs. Continue reading

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Dear PBO #3 – Small Business Hiring and Interest Rates

Below is my letter to the President regarding the economy; it is in summary form.  To see full details click the Dear PBO page and go to the June 30 letter (dear pbo-3) along with the analytical attachment.

Dear Mr. President

As promised last week, I would give you some thoughts on tax credits and interest rates regarding small and mid sized businesses.  For small business, getting them to use tax credits will need a monumental approach.  Remember, all in the name of fiscal policy – the way to change behaviors.

Let’s first examine tax credits.  This needs to be really big.  Why?  Many businesses and for that matter unemployed workers have gotten “used” to the recession and its “recessionary daily life”.  This is the most dangerous position of all since it leads to no consumer spending – the real fuel of any economic recovery.

Provide a sliding scale tax credit for hiring new workers – a 25% tax credit of the salary of any new hire to any company for up to three years. 

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