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S&P states the obvious

Thursday, Feb 27, 2014

* Standard & Poor’s Ratings Services is releasing a report today which will hopefully stifle the goofballs who continue to compare Chicago to Detroit

“We believe Chicago can largely control its own fate, whereas Detroit cannot, nor will it be able to for some time. In our view, this may be the key difference between the two cities and may be what will allow Chicago to work through its problems rather than follow Detroit’s path on the road to bankruptcy,” concluded the report, titled “Will Chicago Suffer Detroit’s Fate?” […]

“We saw … a comparison people were making (but) our criteria made it look starkly different,” Ridley said. “People wanted to draw comparisons, where we didn’t necessarily think there were comparisons that made sense from a credit standpoint.”

The report notes that Chicago has a much higher median per-capita income, higher housing values, a lower unemployment rate and a much slower rate of population decrease over the past six decades. It also points to the 22-year tenure of former Mayor Richard M. Daley and the city’s long-range financial plans, which it lists as signs of stronger management than the Motor City, where the entrance to the mayor’s office has been something of a revolving door in recent years.

Chicago also set more money aside for financial rainy days, has more cash on hand and has a far greater ability to meet its debt obligations despite a reluctance to increase taxes.

* More

S&P added that it believes “the magnitude of Chicago’s budgetary issues does not put it in the same league as Detroit.”

* Maybe Eden Martin, who favors allowing Chicago to declare bankruptcy, will read the report today. Then again, maybe he’ll just echo this guy

Civic Federation President Laurence Msall said the report is another reminder that state lawmakers need to pass pension changes for Chicago. “We should take little solace that we are not the largest bankrupt city in America,” Msall said.

- Posted by Rich Miller        


34 Comments
  1. - train111 - Thursday, Feb 27, 14 @ 9:48 am:

    but…but… but

    Drudge says ………

    Fun to see a right wing nut-job talking point thouroughly blasted out of the water.


  2. - Norseman - Thursday, Feb 27, 14 @ 9:49 am:

    From Martin’s and Masall’s perspective, facts should not interfere with the narrative they want to portray.


  3. - A guy... - Thursday, Feb 27, 14 @ 9:50 am:

    I guess according to S&P they miss the days of the long-tenured leadership era of Coleman Young. Not. When Chicago and Detroit had similar options in the late 60s, Chicago made good decisions, Detroit made horribly bad ones. Residents stayed, sports teams stayed, corporations moved in instead of out, and the city maintained its transportation and industrial advantages. Lotta luck. Lotta skill. Lotta stubborn Chicago pride. Using the same formula, we can lick the issues in front of us now. It appears S&P and Msall agree on that.


  4. - wordslinger - Thursday, Feb 27, 14 @ 9:57 am:

    The “Detroit” drumbeat will continue. It’s an easy hook, regardless of whether it has any basis in reality.

    I’m curious that S&P felt the need to chime in with a special report. I wonder where that came from?


  5. - Walker - Thursday, Feb 27, 14 @ 10:06 am:

    The chattering investment class warriors must have been upsetting the self-proclaimed defenders of marketplace reality.

    When are the smarter members of their own organizations going to call out Msall and Eden Martin for their partisan buffoonery?

    Their organizations exist to help grow a healthy Chicago and Illinois, not to unfairly badmouth us all for political purposes.


  6. - Pensioner - Thursday, Feb 27, 14 @ 10:08 am:

    Considering what SP did or failed to do during the housing bubble with credit default securities, no one should really care what they do or say. Totally not credible.


  7. - From the 'Dale to HP - Thursday, Feb 27, 14 @ 10:08 am:

    Hits keep on coming for the Tribune Editorial Board too. They’re one of the biggest and loudest supporters of this hyperbole.


  8. - Grandson of Man - Thursday, Feb 27, 14 @ 10:09 am:

    “Using the same formula, we can lick the issues in front of us now.”

    I feel this optimism also, although we have tough sledding ahead, with the city pensions and the choices that will be made. I hope but am not holding my breath that some of the union ideas will be implemented in pension reform. I do agree with Mayor Emanuel, that property owners should not have to shoulder too large of a burden. I would like some sort of compromise.

    I read this morning that Detroit pensioners plan a large protest this weekend. One pensioner in the story reportedly nets $1,500 per month, and this will be cut by 34%. Ouch!

    http://www.freep.com/article/20140224/NEWS01/302240125


  9. - A guy... - Thursday, Feb 27, 14 @ 10:20 am:

    Grandson, I share your optimism. Until everyone feels a similar stake in the game, they don’t always sit at the table and get dealt in. I think everyone knows now that it’s time to get very serious about the various constituencies they all represent. It’s a more high profile issue now and the general public is paying enough attention to provide motivation and restraint when necessary. If any side is too greedy, they’ll get called on it. If anyone is uncooperative, they’ll be poked. I believe our state and city will find a solution. There’s more riding on it now and an angry electorate might make the biggest difference. There might be lower turnout, true, but those who do come are armed this time.


  10. - anon - Thursday, Feb 27, 14 @ 10:21 am:

    The facts haven’t persuaded our conservative friends that climate change is real. So why would they pay attention now to the clear differences between Chitown and Motown?

    Walker makes a good point about Msall and Martin who chronically warn the sky is falling, instead of seeking constructive ways to address problems to improve the City.


  11. - Fan - Thursday, Feb 27, 14 @ 10:24 am:

    Ah yes, this goofballs and nutjobs just need a little more fairy dusting is all.


  12. - TheDopeFromHope - Thursday, Feb 27, 14 @ 10:27 am:

    That Chicago is not Detroit is true. That Chicago is on the same road Detroit was years ago is also true.

    Coleman Young’s plan was to “persuade” the successful to leave Detroit because most of them were not his supporters. Is that the Dems’ plan for Chicago and Illinois as well?


  13. - Commander Norton - Thursday, Feb 27, 14 @ 10:36 am:

    I see what they mean, saying that decades of Daleys brought more stability to Chicago than Detroit enjoyed with its many troubled mayors. But does anyone else find it disturbing that a private company is opining rather authoritatively that long-term machine governance beats a more active and democratic polity where there’s a good chance an incumbent will be ousted?


  14. - RonOglesby - Thursday, Feb 27, 14 @ 10:44 am:

    The key here is to realize two things, not just one of them:

    1- Chicago is not Detroit and not even close
    2- But if Chicago doesn’t deal with the issues facing it “control its own fate” it can become Detroit like.

    one side likes to argue its the road to detroit no matter what. The other side argues that it isn’t even possible…

    The reality is that it IS possible, though not a forgone conclusion, Chicago can correct itself. But if it doesnt. if it keeps kicking the can down the road it may lose the ability to “control its own fate”. And right now there sure doesnt seem to be a lot of changes happening in chicago to increase growth and population and revenue.


  15. - Louis G. Atsaves - Thursday, Feb 27, 14 @ 11:02 am:

    If Chicago can largely control its own financial fate and has adequate management in place, then how did it get itself into the financial mess it is currently in? The circular logic here escapes me.

    Is Chicago the next Detroit? No. But let’s not do cartwheels over the S & P analysis.


  16. - wordslinger - Thursday, Feb 27, 14 @ 11:05 am:

    –If Chicago can largely control its own financial fate and has adequate management in place, then how did it get itself into the financial mess it is currently in?–

    Lack of political will and courage.


  17. - VanillaMan - Thursday, Feb 27, 14 @ 11:07 am:

    Anyone thinking that S&P’s report somehow puts an end to concerns over Chicago’s future as it continues its decline over the past decade is delusional.

    There have been major changes within Chicago over the past decade which do not point it into a direction found in World Cities, but instead are more representative of Regional Cities.

    1.) Major Chicago banking no longer owned by Chicagoans.
    2.) Major Chicago real estate no longer owned by Chicagoans.
    3.) Major tax-producing organizations which dominated the top ten payrolls in Chicago have been replaced by major tax-consuming organizations. For profit has been replaced by not for profit as Chicago’s biggest employers.
    4.) Over a million citizens have moved out of Chicago. In the US, only Detroit has experienced losing a million citizens. Around the world, only London has experienced losing a million.

    S&P does not have a good record of producing reports that can be considered definitive on these issues.

    I use the Federal Reserve Bank’s overview of Chicago’s situation over what S&P says.


  18. - VanillaMan - Thursday, Feb 27, 14 @ 11:14 am:

    Chicago’s problems cannot be solved by politics or government. If it could - it would have.

    The problems are the result of Globalization, a lack of start-ups to replace dying industries, and a lack of interest by Chicagoans and the City’s supporters to realize they cannot live off its rich 20th Century heritage.


  19. - ejhickey - Thursday, Feb 27, 14 @ 11:15 am:

    “The report notes that Chicago has a much higher median ”

    In 1960, Detroit had the highest per-capita income in the U.S., higher than Chicago. in 1960 the idea that Detroit could declare bankruptcy was unthinkable.


  20. - Bill White - Thursday, Feb 27, 14 @ 11:19 am:

    21st century manufacturing initiatives are part of the solution for Chicago. And as I recall there was a recent announcement about that:

    http://www.whitehouse.gov/blog/2014/02/25/manufacturing-innovation-institutes-putting-america-forefront-21st-century-manufactu


  21. - In the Middle - Thursday, Feb 27, 14 @ 11:40 am:

    Pensioner @10:48

    Not credible? They used a traditional model to arrive at the AAA status on those subprime securities. It proved wrong. This doesn’t mean S&P should forever be dismissed as worthless.


  22. - wordslinger - Thursday, Feb 27, 14 @ 11:56 am:

    –They used a traditional model to arrive at the AAA status on those subprime securities. It proved wrong.–

    C’mon, read the subpoenaed emails from S&P raters and the pressure their superiors were putting on them to give high ratings to land business. A sample:

    –* In one email, an S&P analytical staffer emailed another that a mortgage or structured-finance deal was “ridiculous” and that “we should not be rating it.” The other S&P staffer replied that “we rate every deal,” adding that “it could be structured by cows and we would rate it.”–

    http://online.wsj.com/news/articles/SB124890898142691729?mod=sphere_ts&mod=sphere_wd&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB124890898142691729.html%3Fmod%3Dsphere_ts%26mod%3Dsphere_wd


  23. - Pensioner - Thursday, Feb 27, 14 @ 12:16 pm:

    In the Middle at 1140am… “They used a traditional model to arrive at the AAA status on those subprime securities.” What have you been smoking? They used the model that generated the most income, greed. A moron could see those securities were worthless.


  24. - lake county democrat - Thursday, Feb 27, 14 @ 1:22 pm:

    Like I said yesterday, it’s all about the middle class. Detroit’s middle class is entirely in the suburbs (as are many of the businesses, though some are starting to move back downtown). The report is explicit: “Chicago has a much higher median per-capita income, higher housing values, a lower unemployment rate and a much slower rate of population decrease over the past six decades…” The only thing that can turn Chicago into Detroit is middle class flight, and the surest way to start that is to redistribute school and police resources (that’s not to say you shouldn’t *increase* those resources in the areas they are needed, but that presumes a political courage which is nowhere in sight).


  25. - Plutocrat03 - Thursday, Feb 27, 14 @ 1:31 pm:

    The observation that Chicago is in charge of it’s own fate, does not address if the city leadership has the will or skill to make the fiscally responsible decisions needed to start improving it’s future prospects.

    Aren’t some of the commentator’s applauding the S&P remarks the same who blasted negative forecast by Moody’s by trashing the bond rating industry? You can’t cherry pick only the opinions you like.


  26. - wordslinger - Thursday, Feb 27, 14 @ 1:35 pm:

    –Aren’t some of the commentator’s applauding the S&P remarks the same who blasted negative forecast by Moody’s by trashing the bond rating industry–

    I don’t think S&P got $750K to write this analysis like it did to rate subprime mbs issues. Still, I’ve been making the same points on the Chicago/Detroit comparisons for some time. It ain’t news to me.


  27. - Anon - Thursday, Feb 27, 14 @ 2:06 pm:

    Chicago is clearly not Detroit.

    But does Chicago have the potential to become Detroit? That’s what I am more interested in.

    Detroit was not always Detroit, you know.


  28. - Anonymous - Thursday, Feb 27, 14 @ 2:08 pm:

    Chicago got into this mess largely due to the law of unintended consequences. The original Mayor Daley got the 2.5 multiple for property tax assessment classification written into the 1970 constitution in order (all other counties must assess on a non-discriminatory basis) to keep taxes down for cook county residents, i.e., voters. Now, 44 years later, the City of Chicago has the lowest tax rate of any municipality in Cook County. So why can’t Chicago fix its pension problem? The answer is, that it can - except for the calamitous political consequences of the increased property tax burden on voters, and the potentially more calamitous consequences of the attendant tax increase on business and industry. Hence, Cook County has started to moderate the assessment differential, but it’ll be a loooong time before anyone will have the courage to tap Chicago’s property tax base to fix that problem. I wonder how many of our “graduated” income tax advocates are equally interested in removing the property tax subsidy for residential property owners in Cook County and bearing the full cost of Chicago’s true pension costs?

    But back to the thrust of the OP - there is no comparison whatsoever between Chicago and Detroit.
    Just cheap debating points.


  29. - Rich Miller - Thursday, Feb 27, 14 @ 2:56 pm:

    ===Detroit was not always Detroit, you know. ===

    It has been a shell of its former self for at least 30 and maybe 40 years. C’mon.


  30. - Buzzie - Thursday, Feb 27, 14 @ 3:37 pm:

    John Tillman, John Tillman where are your comments?


  31. - Yellow Dog Democrat - Thursday, Feb 27, 14 @ 5:44 pm:

    Other S&P news you might have missed:

    Seattle not as liberal as Portland.

    Austin not as weird as New Orleans.


  32. - In the Middle - Thursday, Feb 27, 14 @ 5:44 pm:

    Pensioner @12:16 has nothing but ad hominem attacks. Love it. Read up, my friend.


  33. - Pensioner - Thursday, Feb 27, 14 @ 8:48 pm:

    @In the Middle - Thursday, Feb 27, 14 @ 5:44 pm:

    Didnt say a thing about Middle. Based on your analysis I suggest YOU do the reading. Good day.


  34. - Pensioner - Thursday, Feb 27, 14 @ 8:55 pm:

    …unless of you course it was you doing the rating. One has to admit a systemic flaw when the rater is paid by the ratee. If the resulting rate is not sufficient, the ratee moves to a different agency. Subsequent analysis has shown the CDOs insufficiently capitalized to be worth a AAA rating. Based on your comment your skin is a bit thin, unless,as I said, you did the rating.


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