The Life and Death of Great Cities

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“Funny how time changes…rearranges everything.”
~ The Supremes

“You can’t go wrong with property in Central London,” is an expression you hear often on the banks of the Thames. “You can’t go wrong with property in central Detroit” has the same number of syllables. Eight out of nine words are exactly the same. The final one, though, makes a big difference. It changes the meaning, from delusional faith to desperate comedy.

Detroit was once one of the world’s great English-speaking cities. But then, Kaifeng, China, was once a great city too. A thousand years ago, it was the world’s most important city. While London had only 15,000 soggy inhabitants…Kaifeng was the capital of the Song Dynasty, with more than a million people. At the time, Detroit didn’t even exist.

Today, London is a great city…Kaifeng is a now a small, grimy, poor city…not even a provincial capital…without an airport. But look at Detroit:

A friend reports:

“Detroit is a contrarian utopia — needles, drug baggies, gangs on street corners, boarded up businesses, empty office buildings, vacant mansions. For Sale signs everywhere. It is a hellhole. Wayne County, Michigan, home to Detroit, lost more people from the beginning of 2005 to the end of 2006 than any U.S. county except the four counties in Louisiana and Mississippi devastated by Hurricane Katrina, according to Census figures released in March. Since 2001, Michigan lost more jobs than any other state in the Union.

“Away from downtown, things are not much better. Lots of homes in the burbs have been on the market for 2, 3, and 4 years with NO offers, and not even so much as a low-ball offer. Larger existing homes in Macomb County can be purchased for about 40% less than replacement cost. “

There was a time, of course, on the chilly shores of Lake Michigan, when you could say “you can’t go wrong buying property in central Detroit” with a straight face. In the early 20th century, Detroit was on top of the world, the capital of the auto age. The internal combustion engine was developed at first for boats and the Great Lake region was a natural place for an industry manufacturing boat engines to emerge. There was already a thriving carriage-making center, too. From those beginnings, Detroit soon became the Motor City, home to the biggest new industry since the invention of the mechanical loom. Even during wartime, the assembly lines didn’t slack off — instead, they sped up, working around the clock to provide trucks, jeeps, tanks, to armies all over the world. War or peace, everyone seemed to want more and more vehicles. How could you go wrong buying property in the city that made them?

There were once dozens of automakers in Coventry, England, too. Now, there are only a handful in the whole country and every one of them is foreign-owned. America’s automakers consolidated sooner in Detroit. They are still operating and still in American hands, but probably not for long.

We remember, in our own lifetimes, when the first funny-looking cars came into the U.S. market from Germany and Japan. Cheap and stingy on fuel consumption, the little autos gained a beachhead in the United States during the oil crisis and inflation of the ’70s. I bought a Honda Accord in 1975. My father, a Pearl Harbor veteran, saw the thing and was appalled. “Those people tried to kill me for three years,” he said.

Congress wanted to protect the U.S. automakers in the worst possible way — by placing a per-car tariff on imports. Both the Japanese and the Germans responded by moving up-market so as to make more profit per car sold. Soon, the foreign automakers were going head-to-head with America’s big luxury models too — and winning. And now, the motor city is sputtering and threatening to conk out completely.

But investors are an arrogant and opportunistic lot. Some speculators look upon Detroit and think they see an overturned liquor truck; they imagine they should help themselves before the cops come. After all, cities have good times and bad times. Detroit might be suffering nothing more than a cyclical setback in the life of a great city. People thought Harley Davidson was finished too…and look how it’s come back. Now, it’s worth more than GM.

Let the U.S. auto industry go broke, say the optimists, as soon as possible. Then, new, more vigorous entrepreneurs, without all GM’s and Ford’s baggage, can climb into the drivers seat. And Mo’town will rock and roll again.

If you believe that, you should get on a plane to Detroit now. Whole skyscrapers change hands for less than the price of a 3-bedroom apartment in Mayfair. The 65-story David Stott building, for example, is on the market for $3.5 million. For less than a million you can buy a 12,000 square foot Italian renaissance-style mansion, complete with an intricate, hand-carved walnut main staircase and imported wood paneling throughout.

“That may seem like a bargain,” says a CNBC reporter, “considering the 1915 limestone house sits on over 2 acres and is just 3 miles from the city center. But then again, this is Detroit, Michigan.”

Speculators hope that Murder City might once again become Motor City. But they should ask instead why it is that last year, as rental rates across the United States rose an average of more than 6%, in Detroit, rents couldn’t even climb 1%.

Investors might do better to look at Liuzhou, China, where GM is producing its new Wuling Sunshine mini-van. In 2002, China made a million cars and trucks. By 2020, it’s expected to produce 15 million units, more than the United States. How can Detroit stage a comeback with that kind of competition?

Instead, maybe, the city will join the ranks of the dead, along with Ctesiphon, Mesa Verde, Persepolis, Kish, Harappa, Babylon, Sodom, and Gomorrah. Soon, its apartments and mansions may sell for no more than places in Mapungubwe, Tiahuanaco, Tyre, Nineveh, Troy, Golconda and hundreds of other defunct metropolises.

Meanwhile, back in the modern world, financial services is where the money is. And London and New York is where the financial service industries are. Is there any better game to be in? And is there a better place to be than in the capital cities of this new, new money-shuffling commerce? Not in 2007. Business is booming. All over the world, companies are getting set up, financed, bought out, refinanced, IPO’ed, taken private, merged, acquired, re-IPO’ed and leveraged in more ways than you can count. It will be a cold day in Hell when the Chinese can compete in this industry.

London and New York are on top of the world — just like Detroit once was. Just like Kaifeng once was. Prices can only go up, right?

Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.

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