Tuesday, July 23, 2013

Financial Reality

Vasu Reddy From Chicago

Last week the newspapers highlighted that the City of Detroit has declared bankruptcy.  It’s a major city that is renowned for it its car manufacturing; being the home of the biggest car manufacturers in the world including GM, Ford and Chrysler along with many other auto businesses, and their suppliers and support services. This is the motor city which is the capital of auto manufacturing in the world, and just went bankrupt.

Detroit not only lost its good credit, but also a major portion of its population.  Only in America this happens that a major city is allowed to follow the natural course of correcting its financial abilities, and Detroit declaring bankruptcy should not be regarded as a shameful event, rather the nation facing the reality with changes to population, jobs, infrastructure and a slew of financial and accounting issues that are a fact of life.

It is quite commonplace for individuals and companies to face bankruptcy and restructuring the balance sheet to get back into facing normalcy of the day, after going thru tough economic times.  It is also fact that not having the foresight forces bankruptcy, and the country allows for restructuring and reentry into a normal financial status after a period of time where you are allowed to restructure the balance sheet, and start fresh and start contributing to the economy once again.

What is a cultural shock is to read about a major city like Detroit declaring bankruptcy.  It probably is a long time coming for this city and perhaps a few more big and small cities that have lost a large portion of their tax revenues and also population.  Detroit is still a great city with a big suburban population which is still very much blustering with people and jobs, it is just that the city of Detroit that has lost its people and revenues beyond a reasonable rate to sustain its cost structure.

The news papers cover the story in front pages and display the empty streets and boarded-up homes, and lost population.  They also highlight the imbalance with the balance sheet and the city no longer able to pay its bills, and also highlight all the wrongs of the situation now.  No one wants to take into account that a major or minor city cannot go bankrupt overnight.  The support for borrow and spend attitude of the people in power goes from Washington to states, major cities, small cities and small towns and villages.  Everyone wants everything on earth and the best services to be provided, but no one is willing to pay for the benefits that they are asking the cities or states and the country.  The gap between incoming revenues and outgoing expenses along with the demand for services (along with growing dependence on the state and national support for services for the new population) only gets wider and wider as people don’t want to pay for the demand for services by the new population, along with the old commitments that are already on the books.  It should come as no shock to people who are leading the city to bankruptcy, and everyone wants services but don’t want to pay for them.  As drastic as bankruptcy sounds, Detroit declaring bankruptcy should be an an eye opener for both people and administrators.  You cannot have a good thing going on forever and not account for it or pay for it.  No free lunch.

As bad as it sounds about a major city going bankrupt, it should serve as an eye opener for managing the resources and also the people.  Jobs, relocation, immigration, changes to economy, demographics, management and whatever else is required to manage the resources of the entire nation needs to be in focus, rather than a single city facing bankruptcy.  All People in the country, politicians and the administrators; all as a group needs to start to look at this as an exercise to live within available means.

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Past Perfect

Vasu Reddy from Chicago vasureddy@aol.com It has already happened. Past is already on the books, recorded, and can’t be changed.   It ...