Lloyd Blankfein, who grew up in New York when it suffered economic stagnation and neared financial collapse, drew on his city’s experiences to provide an optimistic message for insolvent Detroit.

“When I got out of school, in New York City you felt that it was a ghost town,” Blankfein, the chief executive officer of Goldman Sachs Group Inc. said yesterday at an event in Detroit. “That is a dim memory for people my age.”

Blankfein, 59, was in Detroit with billionaire Warren Buffett to announce a program to support small businesses in the city. Detroit, which once thrived as the center of the U.S. auto industry, is seeking to become the largest U.S. municipal bankruptcy as pension promises overwhelm the city’s shrinking population.

“The resources in terms of the people, the businesses, the history, the culture, are all here to have a great city in the future,” Buffett, 83, said at the event. “It will require probably some sort of plan to readjust the debt of the past and ongoing expenses.”

Detroit has more than $18 billion in obligations, while the population shrunk to about a third of the 1.8 million that lived there in the 1950s. Michigan’s largest city is still home to General Motors Co., the automaker rescued by the U.S. Buffett’s Berkshire Hathaway Inc. is among GM’s top investors.

Blankfein grew up in a public housing project in Brooklyn and graduated from Thomas Jefferson High School when it was dominated by gangs. He went on to earn undergraduate and law degrees from Harvard University.

1975 Crisis

Goldman Sachs, based in New York, will provide capital for as much as $15 million in loans to small businesses in the Detroit area, according to a statement today. The bank will also help provide education and other assistance as part of its 10,000 Small Businesses initiative. The Goldman Sachs program is also active in cities including Chicago, Cleveland, Houston and New York, according to the statement.

In 1975, New York City faced a fiscal crisis when more than $4.5 billion in short-term debt that had been used to pay for operating expenses came due and the city couldn’t pay its creditors. Banks responded by refusing to accept the city’s credit. The state stepped in, creating a Financial Control Board to provide oversight of the budget. It limited the city’s borrowing power to long-term capital projects.

After shrinking in the 1970s, New York’s population has expanded in each subsequent decade. The figure stood at about 8.2 million as of 2010, according to the U.S. Census Bureau.

Bond Yields

Yields on Detroit general obligations, rated nine steps below investment grade by Moody’s Investors Service, are almost double those of New York City securities, graded two levels below top-rated debt.

Detroit general obligations that are insured by Assured Guaranty Municipal Corp. and due April 2028 last traded Nov. 15 with an average yield of 6.85 percent, data compiled by Bloomberg show. That compares with an average yield of 3.31 percent on Nov. 25 on New York City general obligations maturing August 2026.

In New York, the median household income was $51,270, and 19 percent of the population was below the poverty level, the most recent Census data show. More than a third of Detroit’s population is in poverty, and median household income is about half that in New York. Blankfein’s compensation was $26 million for 2012, including long-term incentives.

“Detroit wasn’t a great city, it was the greatest industrial city in the country, probably the world,” Blankfein said. “I would not bet against it, I’d bet for it, and that’s what we’re doing here.”