Michigan Gov. Rick Snyder and Detroit Emergency Manager Kevyn Orr defended their plan for the beleaguered city’s bankruptcy Friday, reiterating their opposition to a state or federal bailout and resisting pressure to meet bondholders’ demands.

Kevyn Orr, Detroit’s emergency manager, reiterated that general-obligation bondholders will get no new deal, adding that taxes are already at the state limit and won’t grow. …

“The state nor the federal government should just simply write checks to take care of liabilities,” said Mr. Snyder. “I haven’t asked and I don’t intend to ask.”

Mr. Snyder said the plan is intended to prioritize improving basic services in Detroit, where functions like ambulance services and police responses have become slow. Mr. Orr agreed and said he is focused on fixing Detroit, not on the implications the restructuring could have on the broader municipal-bond market.

“Hope is not a plan,” said Mr. Orr about making hard choices for Detroit’s future.

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Detroit’s City Council has come under fire for spending time this week writing, voting and passing a resolution supporting a federal investigation into George Zimmerman instead of focusing on its own financial blunders and ballooning crime rate. …

The unanimous vote by the members of the Detroit council on a crime that took place six states and hundreds of miles away came just two days after the Motor City’s latest gun-related death – its 176th homicide of the year.

Tuesday’s resolution called for a federal investigation to see whether civil rights charges are warranted against Zimmerman.

The measure, sponsored by Councilwoman JoAnn Watson, jump-started a discussion in Detroit over what some called the city’s lack of leadership and the need for city officials to first patch up problems in their own backyard.

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Detroit’s financial crisis hasn’t derailed the city’s plans to spend more than $400 million in Michigan taxpayer funds on a new hockey arena for the Red Wings.

Advocates of the arena say it’s the kind of economic development needed to attract both people and private investment dollars into downtown Detroit. It’s an argument that has convinced Michigan Gov. Rick Snyder and Kevyn Orr, the emergency manager he appointed to oversee the city’s finances, to stick with the plan. Orr said Detroit’s bankruptcy filing won’t halt the arena plans.

“I know there’s a lot of emotional concern about should we be spending the money,” said Orr. “But frankly that’s part of the economic development. We need jobs. If it is as productive as it’s supposed to be, that’s going to be a boon to the city.”

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Free markets and limited government are to blame for the largest municipal bankruptcy in U.S. history. That is the new meme to explain Detroit’s plight.

Former Michigan Governor Jennifer Granholm blames “free trade” for the decline of Detroit’s auto industry and thus the city itself.

New York Times columnist Paul Krugman suggests that “for the most part the city was just an innocent victim of market forces.” …

In many ways, Detroit is a model of tax-and-spend liberalism. The city’s per-capita tax burden is the highest in Michigan. Detroit has the country’s highest property taxes on homes, the top commercial property tax and the second-highest industrial property tax.

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Bankruptcy, which will radically cut payments to bondholders and retirees, is the only chance to start over. Yet, if a Detroit bankruptcy succeeds, other cities will be tempted to follow suit. Dozens of other large urban areas have similarly massive pension and debt obligations, with commensurately denuded services and exorbitant taxes — leading to a vicious cycle of depopulation that makes everything worse. Detroit has lost more than 60 percent of its population since 1950.

The moral hazard increases if the federal government steps in to help. The Obama administration is therefore firmly opposed to any “bailout,” recognizing both the political toxicity of the word and the fiscal consequences of a Detroit precedent that invites other cities to line up with a tin cup. Washington cannot afford a nationwide federal bailout of insolvent cities.

However, under pressure from the public-sector unions, whose retirees will necessarily be victimized, the administration will likely offer “assistance” — which implies whatever kind of non-cash payments, indirect funds from other ongoing federal programs and enterprise-zone tax subsidies that it can get away with.

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So Detroit files for bankruptcy. What does this mean? Pay close attention because it may be coming to you soon, Los Angeles, Baltimore, Chicago, Philadelphia. In 2011, Moody’s calculated the unfunded liabilities for Illinois’s three largest state-run pension plans to be $133 billion. (It is expected to be even larger this year.) That’s the size of six Detroit bankruptcies — give or take a few hundred million.

Of Detroit’s debt of at least $18 billion, about $7 billion is secured by collateral like casino revenues and utility taxes. That means creditors — read: big banks — will get paid. Of the remaining $11 billion dollars or so in unsecured debt, about $9 billion is owed to retirees and current municipal workers, people like firefighters and police officers. These debts come in the form of promised pension checks and health care benefits, all backed by a false, unsecured promise. These are the people who are likely to lose out.

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At night, Stockton, Calif., becomes a ghost town. Streets lined with boarded-up buildings and rubbish-strewn parks are mostly empty except for drug dealers and their customers, says Dave Macedo, president of the local firefighters’ union. Even in daylight, shootings break out with regularity, and the city of 300,000 was ranked the 10th most dangerous in the country in 2012. “It’s the wild, wild West out there,” says Macedo. Or rather, the wild, bankrupt West. …

Like California, Michigan’s constitution prohibits changes to pension benefits, which creates complex legal conflicts. On Thursday, just 20 minutes after Detroit filed for bankruptcy, Ingham County Circuit Court Judge Rosemarie Aquilina found the Chapter 9 filing to be unconstitutional on the grounds that it violated pension protections included in a state-constitution amendment. That ruling, along with other lawsuits seeking to stop the bankruptcy, was halted by a Michigan Court of Appeals on Tuesday in response to a motion filed by Attorney General Bill Schuette. And on Wednesday, the federal judge overseeing the bankruptcy also froze all state-court lawsuits against the city. But the battle of state constitution vs. federal law still looms.

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When Greece ran into financial trouble three years ago, the problem soon spread. Many observers were mystified. How could such a little country set off a continental crisis? The Greeks were stereotyped as a nation of tax-dodgers who had been living high on borrowed money for years. The Portuguese, Italians and Spanish insisted that their finances were fundamentally sound. The Germans wondered what it had to do with them at all. But the contagion was powerful, and Europe’s economy has yet to recover.

America seems in a similar state of denial about Detroit filing for bankruptcy. Many people think Motown is such an exceptional case that it holds few lessons for other places. What was once the country’s fourth-most-populous city grew rich thanks largely to a single industry. General Motors, Ford and Chrysler once made nearly all the cars sold in America; now, thanks to competition from foreign brands built in non-union states, they sell less than half. Detroit’s population has fallen by 60% since 1950. The murder rate is 11 times the national average. The previous mayor is in prison. Shrubs, weeds and raccoons have reclaimed empty neighbourhoods. The debts racked up when Detroit was big and rich are unpayable now that it is smaller and poor.

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The federal government has habitually promised benefits without making adequate provision to honor them. Social Security already pays more in benefits than the payroll tax brings in, and its trustees say its finances will only worsen. Privately, President Obama conceded what researchers at the left-leaning Urban Institute reported: that for every dollar Americans pay into Medicare, they will ultimately receive about $3 in benefits. Obamacare commits us to trillions in additional future spending.

Washington gets away with this because the U.S. Dollar is still the world’s reserve currency and we own the printing press. How long can that last?

The first step in solving any problem is acknowledging you have one, and then accurately defining it. Only then can you start looking for real solutions.