Saturday, July 28, 2012

More On Why Sued-For LIBOR Losses May Be Substantial And More On Figuring Why Mayor Bloomberg Is Minimizing The Public's Loss

Noticing New York has been covering how various branches of New York state and local government may be suing over losses the tax-paying public has suffered due to the manipulation of the LIBOR rate, how, ironically, those lawsuits may embarrassingly coincide with the opening of the Ratner/Prokhorov basketball arena promotionally named “Barclays” to advertise one of the banks in the thick of the LIBOR scandal most likely to be sued, and how New York Mayor Bloomberg, though he admits he expects the city may be joining these lawsuits, has gone out on a limb to assert that the losses suffered by New Yorkers will be “de minimis,” even though fellow government officials are NOT backing Bloomberg up to assure us that losses will be minimal.– Whew, what a long sentence!– (For starters, see: Thursday, July 26, 2012, “Barclays” Center Opening Pending; Fellow Government Officials Don’t Back Bloomberg Re Minimizing NY Lawsuits Against Barclays Bank.)

Here is more about how the kind of LIBOR manipulation losses that people are likely to be suing for may be very substantial, not minimal at all. It’s an NPR “All Things Considered” “Planet Money” story about how just one Chicago derivatives trader, Dan Sullivan, says he suffered a million dollar loss in just one 24-hour period. (See: Losing With LIBOR: One Trader's Story, July 27, 2012, by David Kestenbaum.)

The million dollar loss described by the NPR piece wasn’t because Sullivan had lavishly put a huge amount of money at risk; it was because he was entitled to a “lottery ticket”-style payoff on his investment because he had correctly forecast and bet on some fairly long market rate odds. But his payday was taken away from him by the banks’ LIBOR rate falsification. Now does someone want to argue that Sullivan’s loss would have been cancelled or netted out as some sort of a “wash” by all the other financial transactions Sullivan was engaged in in his life? (See NNY’s prior article for this.) That’s not likely for this particular individual.

One point to be made about this concept that LIBOR losses may frequently be netted out against LIBOR manipulation related “gains,” sometimes for an approximate “wash” is that there may be those who lost, those who possibly experienced what is arguably a wash, and those who gained, but the only people who might be hopefully wishing to sit on the legal sideline are those in the “wash” category. Those who “lost” will want to sue. Those who “won” may wind up being sued against their will and those with an arguable “wash” may still find themselves in litigation: The compartmentalization that comes from lawsuits and legal relationships may not make it easy to view things as one big self-cancelling “wash” for those who might otherwise want it to be.

The NPR ATC story ends by saying that there are “a lot of others like” Mr. Sullivan “out there”:
Many of them are suing, and they say they lost more than he did. There are huge pension funds and hedge funds and city governments that bought these derivatives. A war is brewing in the courts.
Meanwhile, on July 19th, Bloomberg News (as conceptually distinct from Bloomberg the Mayor speaking on the same subject on that same day) reported about a potential LIBOR scandal “feeding frenzy of sharks” with everyone “everyone’s preparing for war” in the litigation area. (See: Feeding Frenzy Seen If Wall Street Sues Itself Over Libor, by Donal Griffin.)

Here is more about why New York Mayor Michael Bloomberg may be minimizing losses to New York and New Yorkers say (among other ways) through losses to the New York City and New York State pension funds.

Noticing New York has offered three possible theories why Bloomberg might be minimizing:
1. Bloomberg doesn’t want the LIBOR scandal to cast a pall over the opening of the Ratner/Prokhorov basketball arena promotionally named “Barclays” to advertise the centrally implicated bank whose name is becoming nearly synonymous with the scandal- Under Bloomberg New York City has directed close on to a billion dollars of NYC subsidy into the arena for a net loss in the hundreds of millions of dollars.

2. Bloomberg is a self-proclaimed friend of Robert E. Diamond, Jr., the former chief of Barclays who recently resigned over the LIBOR scandal.

3. Mayor Bloomberg is a friend of Wall Street, eager to ignore its excesses and let it continue in its unregulated abuses.
A news story rolling off the presses now pushes theory #3 more into the lead: Bloomberg just decided to endorse Tea Party candidate Scott P. Brown in the hotly contested Massachusetts Senate race. Brown is running against Elizabeth Warren, “one of the financial industry’s biggest critics.” Warren, with a deep understanding of Wall Street abuse, was a key player in instituting and seeking to make new regulation of the banks effective. (See: Bloomberg Endorses Republican in Heated Massachusetts Senate Race, by David W. Chen, July 26, 2012.)

Bloomberg spokesmen say that the Bloomberg endorsement and fund-raising for Brown isn’t about protecting Wall Street. Ostensibly it’s about Scott Brown and “gun control”: Bloomberg spokesmen are pointing out that Brown once voted against the gun lobby respecting not allowing permits issued by other states to override local prohibitions on carrying concealed guns.

Noticing New York often questions Bloomberg’s sincerity; for example when with changing times he buffed-up his environmental credentials. But, without questioning Bloomberg’s sincerity on the overall gun control issue: Bloomberg’s endorsement of Brown isn’t really about targeting Elizabeth Warren for her effective record of criticizing Wall Street and its excesses? Wouldn't Warren, a progressive Massachusetts Democrat, be better than Scott Brown on gun control issues when, as the New York Times reports, “Mr. Brown has generally received high ratings from gun rights organizations and has not pushed for renewing a federal assault-weapons ban or for tightening restrictions on gun shows”?

Come on now! No, it’s pretty clear, Brown’s gun control record is just a contrived cover for Bloomberg’s work to keep the banks unregulated and unaccountable. That probably puts the above point #3 in the lead for the reason that Bloomberg is also so eager to minimize the public’s LIBOR losses.

But maybe it doesn’t make any difference which exactly of those above three reasons explains why Bloomberg is minimizing the possibility of the public’s loses at the hands of Barclays and the other banks, because whether it's "Barclays" (Ratner/Prokhorov) arena boondoggling, Barclays bank president befriending or Barclays Bank LIBOR manipulations, all three of those explanations are probably essentially the same: Bloomberg supports a corporatist privilege for the 1% to manipulate, lie and scheme to scam the 99%.

Thursday, July 26, 2012

“Barclays” Center Opening Pending; Fellow Government Officials Don’t Back Bloomberg Re Minimizing NY Lawsuits Against Barclays Bank

Noticing New York earlier covered the fact that Mayor Michael Bloomberg has acknowledged that New York City may be suing Barclays Bank over its rate manipulation in the LIBOR scandal but minimized any possibility that the losses would be significant. Such lawsuits could be relatively contemporaneous with the grand opening of Bloomberg-supported, city-subsidized Ratner/Prokhorov basketball arena that will promote the “Barclays” name. (See: Friday, July, 20, 2012, “Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?)

The Noticing New York coverage suggested that Bloomberg might be going out on a limb when he stated, after being briefed on the subject by Mark Page, his budget director, that any losses for which the city might sue would be a “de minimis amount of money.”

At the moment that’s what the mayor has said but other government officials, including the office of John Liu, the city comptroller, aren’t backing Bloomberg up with any similar assessment that city losses will be “de minimis.”

The NYC Comptroller’s Office

A spokesman for Comptroller Liu informed Noticing New York that Liu’s office is “closely monitoring developments and are keeping all our options on the table as the financial scope of the suspected manipulations is determined.” That seems reasonable as the New York State Attorney General is conducting a joint investigation with the Connecticut Attorney General that could soon be joined in by other states’ attorneys general and has vowed to “follow the facts wherever they may lead.”

Following up on the mayor’s remarks I asked Liu’s office whether his office could confirm the mayor’s statement that any losses the city may suffer from the LIBOR manipulation will be “de minimis.” Asking Liu’s office for such a confirming assessment makes sense since Liu’s office monitors the city’s finances and is supposed to be looking over the mayor’s shoulder to ensure the mayor’s proper management of the same. In addition, given that pension funds are usually among the funds most quickly cited as likely to have sustained appreciable losses as a consequence of the rate manipulation and the Comptroller’s office has responsibilities for the city pension fund I asked whether Liu’s office could confirm that any losses for any of the other funds for which the Comptroller has responsibilities, including the city pension fund, will be “de minimis”?

A spokesman for Liu, characterizing the situation as “fluid,” stated that the office was unable to provide confirmation on either of these questions. When Bloomberg said that the city would only have “de minimis” losses did he mean just the city standing alone in the most technical sense or did he also mean the city pension fund and other technically separate city agencies that are nonetheless tied in with the city’s financial health? One can only guess. To be fair, the Comptroller’s office was altogether more cautiously timid than Bloomberg, not even willing to confirm that it has lawyers looking at the lawsuits that Bloomberg has already publicly proclaimed are possible.

The New York City Housing Development Corporation

The New York City Housing Development Corporation (“HDC”) is one city agency that could suffer losses due to the LIBOR scandal without those losses being technically considered losses suffered by the city itself. HDC is looking at issuing more bonds for a new residential building furthering Forest City Ratner’s envisioned Atlantic Yards mega-monopoly. Noticing New York gave recent testimony on the proposed bond issuance that, among other things, went into the connection of the proposed bond issuance to the LIBOR scandal issue. The new building would be on the same block as the “Barclays” Center and would be structurally and reputationally integrated with it.

Noticing New York contacted HDC and, like the Comptroller’s Office, HDC would not confirm that any losses suffered by HDC or its bondholders from the LIBOR manipulation will be “de minimis.” Mark Page, the city’s budget director with whom mayor Bloomberg conferred before characterizing any possible city losses as “de minimis” is on HDC’s board. If after talking with Budget Director Page Bloomberg meant to say that the city would not incur any significant losses in big picture terms he would presumably have been representing that HDC as part of that big picture was not expected to incur any losses. That would seemingly make it a no-brainer for HDC (which HDC board member Mark Page should have checked in with to make such an assessment) to confirm that all its possible losses will be “de minimis.” But it didn’t.*

(* Here is one semi-absurd possible background explanation to contemplate: HDC foresees possibly significant losses which the city budget director believes will be cancelled out for the city in big picture terms by ways LIBOR rate manipulation may have benefitted other city financial activities. There will be more on the complexity of calculating net losses later in this article.)

When HDC would not confirm that any losses suffered by HDC or its bondholders from the LIBOR manipulation will be “de minimis” I had a follow-up question to put to the agency the next day:
Can HDC confirm that if any losses suffered by HDC or its bondholders are substantial there will be no effect or reduction in subsidies available for HDC projects, including perhaps, but not limited to, subsidy for projects like the Forest City Ratner Building ("Building 2") that HDC held a hearing about last Wednesday?
HDC declined to provide me with a confirmation that any substantial losses suffered by HDC or its bondholders would not reduce available housing subsidies.

The Metropolitan Transportation Authority

The Metropolitan Transportation Authority (MTA) is another agency that, as a public authority, is technically distinct from the city itself. Nevertheless, its financial health and finances do interrelate with the city’s and, once again, NYC Budget Director Mark Page is on the MTA’s board to represent the mayor.

The MTA’s spokesperson previously confirmed to Noticing New York that the MTA’s legal counsel was reviewing options in relation to the LIBOR scandal, and would “vigorously pursue all available legal actions” and “do everything possible to protect the MTA.” Following up on the mayor’s assurance of “de minimis” NYC losses I asked whether the MTA could confirm tha any losses that the MTA or its bondholders may suffer as a result of the Barclays Bank LIBOR scandal will be “de minimis”. The MTA’s spokesman responded by saying, “the Mayor speaks for the City of New York” and then, observing the above noted distinction that the MTA’s public authority status makes it a technically separate financial entity, stated, “The MTA is a separate entity under the State of New York, and our debt is not a part of the City government’s debt. The City’s debt portfolio and the MTA’s debt portfolio have different characteristics.” Rather than confirm that losses will be minimal the statement provided by the spokesman is that, “The MTA is continuing to analyze the matter and is not yet ready to make a pronouncement about the extent of any potential loses.”

Bloomberg possibly did not mean to include the MTA in the big picture of whether New York City’s LIBOR losses will be “de minimis” but if he did, the absence of substantial possible losses in this bigger picture is not something the MTA is willing to confirm.

Agencies Providing Substantial Subsidized Financing to Atlantic Yards and “Barclays” Center

New York City, HDC and the MTA constitute three out of four of the local government entities providing substantial subsidized financing to the “Barclays” Center and the Atlantic Yards mega-monopoly in a variety of ways: tax-empt bonds, land value write-downs, deferred collection for purchase prices, direct cash, exemption from paying real estate taxes, etc. The forth such agency financing the “Barclays” Center and the Atlantic Yards mega-monopoly is Empire State Development the state agency (and public authority) that is the eminent domain-abusing mega-project’s lead sponsor.

Empire State Development

Following up on the mayor’s minimizing characterization I asked ESD whether it was willing to confirm that any losses that it (or other agencies for which it serves as umbrella) may suffer as a result of the Barclays Bank LIBOR scandal will be “de minimis”? I couldn’t get such a confirmation from ESD either. ESD’s spokesman responded that ESD stood by its previous response that “The matter is being reviewed by our counsel’s office and we cannot comment further at this time.”

I did not ask either the MTA or ESD whether substantial losses, if they occur, would affect the level of funds at their disposal to subsidize and finance New York City projects but it is a pretty safe bet that the MTA, ESD and HDC would all be affected in this regard if they incur substantial losses.

New York State Comptroller

The New York State Comptroller is similarly situate to the New York City Comptroller, given that the New York Sate Comptroller has responsibilities with respect to investment and management of the state pension fund. As I noted above, pension funds are usually among funds most quickly cited as likely to have sustained appreciable losses as a consequence of the rate manipulation.

When I first inquired about whether the State Comptroller was looking at suing Barclays over LIBOR manipulation the spokesperson for the State Comptroller provided a statement that The Comptroller's Office “is monitoring the situation as it unfolds. Until there is a determination as to the extent of the effect that any manipulation actually had on rates and the time period it occurred it is premature to make an assessment regarding the direct or indirect impact on the state.” When I asked for confirmation that the office was in touch with or reaching out to communicate with other state agencies (including any of those it supervises and regulates) about this subject I was told only that, “We will disclose information relating to LIBOR at the appropriate time.” One of the agencies over which the State Comptroller exercises oversight is ESD, mentioned above.

When Bloomberg went public with the fact that he envisioned the city would sue about LIBOR I asked whether the Comptroller would, given that fact, confirm like the MTA and ESD that it had counsel looking at the possibility of suing Barclays Banks in connection with the LIBOR rate manipulation scandal. They weren’t willing to do so.

And I asked whether the Comptroller could confirm that any losses for any of the other funds for which the Comptroller has responsibilities (including the state pension fund) will be de minimis. The office was not willing to do so.

Has the State Comptroller’s Office been contacted by legislators wanting assurance that that office is monitoring possible state losses and ready to sue as appropriate to protect state interests? I don’t know; they wouldn’t tell me that either.

State Attorney General’s Office and State Comptroller

In actuality, maybe I didn’t need to go to the State Comptrollers office to get these confirmations that they weren’t giving me. I haven’t yet been able to get the New York State Attorney General’s Office to exchange communications with Noticing New York about the LIBOR scandal, but Attorney General Eric Schneiderman was on the Brian Lehrer show yesterday talking about exactly this. Brian Lehrer asked Schneiderman about the Wall Street Journal’s report that Schneiderman was investigating whether New Yorkers have incurred losses as a result of the LIBOR rate manipulations (at about 12:20 in segment). Lehrer asked Schneiderman whether the state pension fund was a possible victim or what else might have lost money due to the fraud. Schneiderman said, “Anyone could have lost money” due to the artificiality of the rates (at different times rates were manipulated both up and down for the benefit of the bank) and said that it was a “broad investigation” and that “there are a lot of agencies that are involved” and said that it was a global issue with investigations all over the world. Prompted by Lehrer he said that figuring out who to sue was one of his challenges (there are fourteen banks involved.)

Schneiderman did make the point (as we will get to in a moment) that “the damages on this are tricky to assess.” Schneiderman didn’t specifically say he was in touch with the State Comptroller’s Office. Has Schneiderman been in communication with the Sate Comptrollers’s office about the pension fund while putting together his assessments? It is probably a sound instinct to think that he was.

What is true vis-à-vis the State Comptroller, the state pension fund and losses is likely also to be true vis-à-vis losses and the City Comptroller and the city pension fund.

New York City Economic Development Corporation, New York City Industrial Development Agency, New York City Capital Resource Corporation and Build New York City Resource Corporation

I asked the city development agencies functioning in consolidation with the New York City Economic Development Corporation (also the New York City Industrial Development Agency, New York City Capital Resource Corporation and Build New York City Resource Corporation) whether they had legal counsel looking at the question of suing Barclays Bank in connection with the LIBOR rate manipulation scandal, given that the MTA and the Empire State Development agency have now confirmed that they have legal counsel looking at the possibility of suing Barclays Bank in connection with the LIBOR rate manipulation scandal and given that Mayor Bloomberg said he considers it is possible the city will be suing.

I also asked whether EDC (and NYCEDC, NYCIDA, NYCCRC) could confirm that any losses suffered by EDC (and NYCEDC, NYCIDA, NYCCRC) or bondholders of the agencies due to LIBOR manipulations would be de minimis?

I received an interestingly qualified and technical response from their spokesperson about how and why the agencies would not be “directly” impacted:
“New York City Economic Development Corporation does not borrow and it has very few loans outstanding, all of which are at fixed rates of interest. New York City Industrial Development Agency, New York City Capital Resource Corporation and Build New York City Resource Corporation are conduit issuers. As conduit issuers they are not directly impacted by the questions relating to LIBOR quotations.”
It takes some financial bond structuring knowledge to understand the technical concept of “conduit issuer” being invoked here. What it means is that even though a government agency is the issuer of bonds for purposes of gaining the privilege of issuing bonds that are triple tax-empt (from federal state and city income taxes) the issuer structures that bond issuance as a non-recourse transaction pledging no more than the asset being financed (and its revenue) and allowing the agency that is technically the issuer to stand at a remove from the transaction, intending that it not itself be liable for payment on the bonds and theoretically insulated from any possible losses that may be incurred in connection with the transaction. In other words bond proceeds go to a developer and the developer agrees to pay back the bond holders and the “issuing” agency stands conceptually on the sidelines as a somewhat passive witness to that money going back and forth. Ergo, there is the idea that the “conduit issuer” is incapable of having “direct” losses. (Even though it stands conceptually on the sidelines the “conduit issuer” usually receives fees for lending its tax-empt status.)

Here is a legal nicety, a distinction with no practical difference: You can have two “conduit issuer” structures that are for all intents and purposes identical but in one case title to all of the financed assets and revenues would be held by a bond trustee, but in another title would be held by issuing agency but pledged to a trustee. In the first situation it would be easier to make a technical assertion that the “conduit issuer” was incapable of sustaining a direct a loss.

None of this is to say that a “conduit issuer’s” bondholders would not be sustaining losses if LIBOR was manipulated, nor that the developer wouldn’t sustain losses which might result from losses on invested bond funds, losses in connection with the project loan rate, or losses from a swap derivative intended to lay off risk. And this is not meant to say that even a “conduit issuer” would be immune from resulting lawsuits or absolutely free to ignore obligations to sue to make sure that the its bond resolutions and indentures were contractually honored. Indirect losses could involve incurring legal fees to protect bondholders. In a collapsing transaction the issuer might also find its fees don’t get paid. Some “conduit issuers” might hope that all losses associated with protection of its bondholders would be shouldered by the bond trustee and/or the outside professional who structured the transactions: But would that be the case?

One last thing: The implication that LIBOR has no possible influence on the determination of a fixed rate of interest might not be entirely correct.

Difficulty of Making a Quick Assessment (Like Bloomberg’s) of the Level of Damages

One of the reasons no one (other than Mayor Bloomberg) is jumping up to furnish assurance that LIBOR losses will be minimal is because it is so complicated to sort out where LIBOR losses will fall and how to calculate them. One thing that’s true is that any one entity may at the same or different times have experienced both benefit and losses in connection with LIBOR manipulations (and remember again that rates were also manipulated both up an down). Where there is both benefit and loss it can be argued (along the lines of Bloomberg’s own argument in this respect) that things should be considered a wash or at least netted out. Alternatively, a party might find that it is incumbent for it to be both a defendant party in one or more lawsuits where it incurred benefit and a plaintiff party in lawsuits where it incurred losses. (Conduit transactions might actually complicate and preclude treating as a wash or netting out benefits and losses that have thus been legally compartmentalized.) In other words, it’s potentially very messy and difficult to sort out, but recognize at least that whether one is a plaintiff or defendant lawsuits just aren't fun.

Yesterday, some of the difficulty in assessing where the losses were was discussed on a Brian Lehrer show segment in which Matthew Goldstein, the editor in charge of Wall Street Investigations for Reuters, was being interviewed about pending arrests in the rate-fixing scandal (including NYC Barclays traders). (See: The Brian Lehrer Show:Will the LIBOR Scandal Lead to Arrests? Wednesday, July 25, 2012.)

At one point in this discussion (10:15 in the recording) Brian Lehrer somewhat paraphrased Bloomberg’s expression* of his minimizing “wash” theory:
I think Mayor Bloomberg has said that with the different kinds of banks and investors here it may be a net wash for New York with those who gained and those who lost from the manipulation. On the other hand, we have Attorney General for new York State Eric Schneiderman coming on later in the program and reportedly he’s investigating at least the possibility of filing civil suits against some banks because I guess the New York State pension fund would have lost money if these interest rate rates were, you know, manipulated below the market.
(* It could be that Brian Lehrer was listening to his home WYNC when the station broadcast the story quoting Bloomberg, but if he wasn’t I’d like to think Lehrer was reading Noticing New York: As WNYC didn’t post the Bloomberg story on the web the only place it is available on the web is in Noticing New York’s republication of what I consider an important story.)
Around Lehrer's paraphrasing, Goldstein had some assessments of the “wash” concept and its complexity, when asked by Lehrer who the victims were (at about 8:50 in the recording):
I may be somewhat different from some of my other journalistic colleagues. I’m not convinced that there were a lot of victims.- Or, it’s difficult to identify the victims because obviously there were pension funds that invested in some of these sorts of interest rate sensitive securities that were tied to LIBOR but if LIBOR is being manipulated on one level you may have benefitted on another level. I mean keeping LIBOR low can actually help someone getting a loan, you know a lot of loans are tied as a benchmark. So I think that in terms of the dollars and cents of who got hurt we will definitely see litigation but there will be a deeper analysis: OK maybe you got hurt on this transaction but did you get helped on another? . . .

. . . You don’t want to have a system where people can game the system even if the actual harm to investors may not be in, individual things, large; it’s the idea that there is a select class that can sort of change the rules as they want. . .

. . . people have been arguing this and those cases are working though. I just think at the end of the day it will be difficult to identify - - And I’ve talked to other lawyers on this and they can argue it on both sides- - and I would expect an attorney general to be aggressive in pushing it – but, you know if a pension fund were also involved in doing some sort of borrowing that it needed or some sort of leveraged loans that it invested in it could have benefitted. I think the litigation is going to be an interesting analysis behind how it actually all plays out.
Hot topic that the LIBOR fraud is, on today’s Brian Lehrer show the benefit vs. harm possible wash came up again in another segment (See: July 26, 2012, The Brian Lehrer Show: Washington Grills the Banks, Thursday, July 26, 2012.) where it got a less endorsing assessment from Wall Street Journal economic policy reporter Damian Paletta (at about 14:00 in the recording):

Paletta: There are a lot of cities who have filed lawsuits because they feel like they have really gotten screwed and quite frankly a lot of these cities are in really tough financial shape right now so the impact on them might be pretty severe. So I think it’s going to take time for us to kind of find out who the victims are here, because this is a little bit strange how the LIBOR impacts everyone’s life, but there’s definitely folks on either side of this and I think it’s going to take some time for it all to sort of shake out.

Lehrer responded: No matter who the victims turn out to be it was still people at the top of the biggest banks deciding that for their own purposes they were going to manipulate interest rates, and lie about interest rates and cover up what the true interest rates should have been. .not thinking about the 99% or even their other competitors; in the 1%.
Given what a mess this is you can see why government officials are not providing assurance that manipulation losses will be minimal. While the losses will, in the end, need to be calculated, Attorney General Schneiderman also made clear in his interview yesterday that there will be crimes he can criminally prosecute whether or not substantial losses get identified.

Still, the question raised here is whether Mayor Bloomberg went out on a limb to trivialize the possibility of New York City losses as a result of the rate manipulation. Bottom line, I think it’s clear that he did. Quite rightfully, other government officials are not backing him up (even though there is plenty of reason for them to want to if they could).

Maybe when the “Barclays” Center arena opens in the fall and Bloomberg has the urge to attend it we will have the spectacle of a number of government agencies simultaneously suing Barclays Bank for substantial losses. Maybe we won't yet have gotten to that stage and there won’t yet be many New York government agencies suing Barclays. Maybe the defining clarity of that moment will only come from Barclays traders being criminally prosecuted for self-interested rate manipulation. Rather than make a rushed assessment, let's just wait and see.

Below, in reverse chronological order is all of Noticing New York's prior coverage on this topic:
• FRIDAY, JULY 20, 2012, “Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?
• THURSDAY, JULY 19, 2012, “Barclays” Center Opening Pending, Will Empire State Development Sue Barclays Bank?: ESD Says The Question Is Being Reviewed By ESD Counsel’s Office

• TUESDAY, JULY 17, 2012, Will The MTA Sue Barclays Bank Over LIBOR Rate Manipulation Scandal? MTA Says It Will “Vigorously Pursue All Available Legal Actions”

• SATURDAY, JULY 14, 2012, Will The Empire State Development Corporation (ESD), The MTA, NYC And New York State Sue Barclays Bank?

Wednesday, July 25, 2012

Silly Little Blog Post About Dumb Little Blog Ad: My Excoriation of Barclays Paid-For Name Building Earns More Barclays Spending To Get Its Name Out

For most readers this will provide a teensy little peek into the inside world of blogging. . .

. . Noticing New York is published on the web via Google Blogger. It's `free' but Google sells advertising, so, for instance, yesterday a Google Blogger advertisement popped up when I published a Noticing New York post. The post (No Sparkle In Barclays’ Bob Diamond: Societal Mores Unmoored, What And Who We Honor Today- That Which We Used To Shun) extensively castigated Barclays Bank (and its former, now resigned-in-disgrace, chief executive Robert E. “Bob” Diamond) for not being inclined to do the right thing by community standards but nevertheless paying to have the `honor' of having their names prominently appear on things like the “Barclays” Ratner/Prokhorov basketball arena opening in Brooklyn and the (Bob) “Diamond Building” on Colby College’s campus.

It’s scary to think but Google Blogger knows what I am writing about! Something in its algorithms was reading what I wrote and knew I was writing about Barclays. So when I finally finished and posted my excoriation of the bank, what advertisement did Google Blogger pop up for me to see? . . . . It was an ad telling me I should “open an account today” with Barclays!

So much for the `successful publishing’ of my blog post!: Barclays’ lavish spending had done it again!

So I am left thinking of the many fellow bloggers who are probably hither and yon writing articles about the imminently pending criminal indictments of NYC Barclays traders and I am figuring that those bloggers are probably similarly being told to put their money into Barclays deposits! Ah, the preciously paid-for irony!

This has happened before and it obviously says something about who has money to burn and how they are burning it. I’ve written a lot of criticism of Barclay-friend Mayor Michael Bloomberg, including criticism about his record-breaking spending to get elected to his purloined third term. To wit, the below:
. . . Bloomberg, having so far “spent $85 million on his latest re-election campaign” (that’s just his direct campaign expenditures), was “on pace to spend between $110 million and $140 million before the election on Nov. 3” and that “Bloomberg, in his three bids for mayor, will have easily burned through more than $250 million” (in direct campaign expenditures.)
(See: Sunday, November 1, 2009, Bloomberg vs. Thomson (54% to 29%?): It’s Not What You Think. (For Instance the “P” is Missing and What Might “P” Stand For?).)

This was during the campaign and Bloomberg, using his personal wealth, was on track to significantly outspend (by about twelve to one) his Democratic opponent, Bill Thompson, who was using conventional donations and campaign matching funds. In the end that was pretty much the picture,with Bloomberg spending over $102 million Bloom-bucks for this one election.

My Noticing New York posts were supplying people with an impressive panoply of reasons NOT to vote for Bloomberg. What Google advertisements was I getting when I hit the “publish” button? Ads telling me that I should vote for Bloomberg!

Good thing none of these ads are subliminally effective. . . or at least I hope they're not.

Tuesday, July 24, 2012

No Sparkle In Barclays’ Bob Diamond: Societal Mores Unmoored, What And Who We Honor Today- That Which We Used To Shun

(Above, Bob Diamond Building at Colby College)

This post is about honor: what we honor today in society, who we honor, and why. In particular it is about the kind of honor that gets handed out when we name things. . .

. . As you read on a bit you will realize that there is a good portion of this article that I should have written and posted long ago. Had I done so I would have seemed remarkably prescient. (Does it count if I tell you it was, in fact, written in my head years ago?) Unfortunately, I apologize: Noticing New York readers, I am not a fast writer, there is so much to write, and sometimes I wind up on hiatus and write nothing at all. . .

As it is, it’s time to pick up our story- it concerns that project of ill-renown, the proposed Atlantic Yards mega-monopoly in Brooklyn . . .

Diamond Not Glittering

Bob Diamond, the chief executive of Barclays Bank, recently resigned abruptly and in disgrace over the rate-rigging scandal for which Barclays has been fined £290m ($450m) for manipulating LIBOR rates (LIBOR stands for “London interbank offered rate” a critically important benchmark rate). Barclays is reported to have done so to benefit its traders and cook its books. As Atlantic Yards Report’s Norman Oder notes (See: Tuesday, July 03, 2012, Barclays' Bob Diamond resigns, tainted in scandal; was responsible for arena naming rights deal; will MTA feel chagrin about selling subway station naming rights?)
Mr Diamond is:
The executive responsible for the Barclays Center naming rights deal--rights that New York State gave to developer Forest City Ratner--has resigned in the wake of a scandal. And that puts an asterisk on the first subway station naming rights ever sold by the Metropolitan Transportation Authority*.
(* For an extraordinarily paltry sum- $200,000 per year for 20 years- far below what ought to have been paid.)

If a one-time fine of £290 million seems huge (MSNBC dubs it “a record amount” and remember that pounds are a lot more valuable than dollars) consider it against the kind of compensation and bonus money that Mr. Diamond has been paid: In early 2010 Diamond’s compensation was approximately £63 million even after waiving his 2009 bonus, while in one of the years he did take his bonus he received £21m. (See: July 3, 2012, The Many Facets of Robert Diamond, by Michael J. De La Merced.) The fine was imposed jointly by by U.S. and U.K. regulators.

As the subject of names will be important in the discussion that is about to ensue let’s note that Mr. Diamond’s full name is Robert E. Diamond Jr., that’s Robert Edward Diamond Jr.

Add Mr. Diamond’s name, Robert E. Diamond Jr., to the lengthy roster of individuals involved in bringing into existence the Brooklyn Atlantic Yards and the Ratner/Prokhorov basketball stadium who have exited the scene in ignominy. Mr. Diamond is by no means the only individual involved in the perpetration of Atlantic Yards to wind up besmirched but we’ll save going into an enumeration of that long list for another day and another Noticing New York article.

September 2009 Event Not Previously Written About in Noticing New York

Here is the portion of this particular story I should have written long ago. In September of 2009 I found myself visiting the admissions office of Colby College up in Maine. The college representative handling the orientation was expounding to our small group about the unique attributes of a Colby College education. His adjectives and concepts were all rather vague. I wanted to lock it down with some tangible specifics. “Can you give me examples,” I asked, “of individuals graduating from Colby College in whom you can see represented the kind of traits that this kind of special Colby College education imbued them with?”

“Well, there is Doris Kearns Goodwin, the presidential historian,” (indeed, I had already noted the Doris Kearns Goodwin books, including her 2005 “Team of Rivals,” sitting on the bookshelves at the back of the room dedicated to Colby College authors- I was also quite familiar with her as a dependably tapped talking head on subjects presidential for American Experience documentaries and Charlie Rose shows), . . . “And then there’s”- the Colby College representative straightened his spine as if the individual he was about to announce outranked Ms. Goodwin in stature- “Bob Diamond the head of Barclays Bank.” . . .

. . . He smiled. I scowled.

“You know,” I said, “we come from Brooklyn and a lot of people in Brooklyn have a lot of problems with Barclays Bank and its involvement in putting its name on and money into the basketball arena boondoggle project being forced through with eminent domain abuse. We would consider Mr. Diamond’s role in all of that unethical and harmful to the community.” All of this wound up with me having more discussions afterward with the college admission’s representative and with other parents from our small discussion group about the bad things that Barclays was doing . . . The bad things Barclays was doing that were known at the time.

Immediately though, before the group broke up, the next thing I said was this: “Speaking of putting names on things I noticed that the building outside is called `The Diamond Building’- I gather that the `Diamond’ in that name is Mr. Diamond?” I’d noticed the building coming in (see photo at beginning of article and below). Seeing the building I had already suspected the worst. You see, I was already thinking in those terms, in part because a section of the New York Times I had with me was folded open to an article I was still musing over. It was about how easily money, no matter where from, can get things named after people. New York City Mayor Michael Bloomberg had just rewarded his First Deputy Mayor and long-time top political adviser and strategist, Patricia Harris, in a fashion that was above, beyond and outside of the normal conventions of government employee compensation. He paid $1 million to put her name on a new academic center at her alma mater, Franklin & Marshall College in Lancaster, Pa. (See: A Mayor Prizing Loyalty Pays Costly Tribute to His Top Aide, by Michael Barbaro, September 1, 2009.)

(Above, Bob Diamond Building at Colby College)

Mayor Bloomberg's Purchase of College Honor For His Top Deputy and Political Strategist

This was irksome news because since Patti Harris started working for Michael Bloomberg, going back to at least 1979, she has overseen the distribution of the personal wealth he controls to enhance his political power, including behind the scenes manipulations to change the City Charter mid-mayoralty race, thereby specially permitting Bloomberg a previously proscribed third term. Making the news worse is that, as mayor, Bloomberg has plenty of conflicts of interest with his business enterprises. He engages in transactions with virtually every major business in the city as both mayor and corporate mogul. There is plenty of reason to suspect that those conflicts of interest have in turn, vicious circle-style, enhanced that same wealth Mr. Bloomberg dispenses for political control. In the office of mayor, Bloomberg became the city’s wealthiest individual, his wealth increasing ten-fold from the day he started pursuing politics. The increase in Bloomberg’s wealth could, alternatively, be attributed to the acumen with which he runs his Bloomberg computer terminal business but when he turns that same computer business acumen to city projects he has consistently gotten the city taxpayers fleeced.

Ms. Harris is not the only individual for whom Bloomberg has notable regard: Bloomberg has also promotionally saluted Mr. Diamond as his “friend” at the groundbreaking for the "Barclays" Ratner/Prokhorov basketball arena spearheading the Atlantic Yards land grab. (See: Tuesday, July 03, 2012, Flashback to March 2010: Mike Bloomberg calls Barclays' Bob Diamond "my friend"- which includes a video of Bloomberg’s statement of affinity.)

Colby College Code of Student Conduct

So what kind of careers and individuals get honored at college campuses these days so long as somebody is willing to put up the money? Back in 2009, I thought of looking up the codes of student conduct that apply on the Colby College campus (see: Colby College Code of Student Conduct.) and then making the case that Mr. Diamond’s then known about bad conduct wouldn’t make the grade but that would have been a cheap shot. After all isn’t this what everyone recognizes the world has come to, that adults, banks and the entire financial and political world now conduct themselves by standards we would never accept from or teach to young people? (The exception perhaps being a retroactive acceptance of the bullying student Mitt Romney leading a group to pin down and cut off another young man’s blond hair.)

Diamond and His Money Protested at Colby College

Will Mr. Diamond’s misdeeds catch up with him despite the paid-for honors? A few days ago a small group of demonstrators at the college, roughly a dozen, showed up to demand that Diamond resign from the college's board (he's chairman) and that the college not take money from Diamond again. (See: July 22, Colby College trustee chairman targeted by protesters, by Doug Harlow Maine Morning Sentinel, and Colby protesters decry association with banker tied to LIBOR scandal, Alex Barber, Bangor Daily News, Maine, Sunday, July 22, 2012 at 7:07 am.)

We'll see.

What’s In a Naming? Aspirations? Determinism?

What should go into the naming of something? There are names we associate with an aspirational attempt at determinism, naming things as we hope they might come to be. So we might find that we name a daughter Bella (“beautiful”), or Grace, Faith, Joy, Amity, Charity, Prudence, Felicity, Honor, Ruby, Sapphire (Ruby and Sapphire are actually the same stone in different colors) or Pearl. And maybe sometimes names bestowed might indeed have a deterministic effect: Take note that the last names of the heads of two of the very biggest banks Barclays and JP Morgan (both the subject of ongoing heavily reported scandals), both evoke the same sparkling gemstone (Bob “Diamond” and Jamie “Dimon,” respectively, sounding aurally very similar and both with an auric-ly similar cachet). Another person very involved in the Barclays scandal, the investment banking chief, is named Rich Ricci; not exactly “Ritchie Rich” but pretty damn close. (Image from Wikipedia.)

Maybe names do sometimes deterministically influence outcomes. I have a cousin whose last name is “Judge” and he is . . . A lawyer. A close family friend’s last name is Lawlor and he is also a . . lawyer. The wonderful professor with whom I studied economics in college is named Charlotte Price.

Honoring the Past With an Eye To The Future

With the probable aspirational hope for an influence we have long named things after what we honor. Cincinnati is named after Cincinnatus, the patrician Roman general honored as an example of civic virtue and service to the greater good because he immediately resigned the absolute authority bestowed upon him to defeat invading foreigners after the need had passed. We also honor multitudinous places and institutions, naming them after General George Washington, appreciated for having many of the same qualities of Cincinnatus, much the way we also honor Lincoln with the frequent invocation of his name for places and institutions.

Why do we name a medical school the Albert Einstein College of Medicine or a law school the Benjamin N. Cardozo School of Law? To honor the deeds of great and honorable men. It was once as simple as that.

Indulging In the Purchase of Names and Honor

Certainly, as we are all familiar with, names are sometimes granted as a `thank you’ to honor the giving of substantial amounts of money. But as we see with Ms. Harris the source of the money might not need be where the `thank you’ goes; Ms. Harris gets the honor of her name being on a college building although Michael Bloomberg (with all his business’s financial conflicts working against the city’s taxpayers) is the actual source. Nevertheless, is this practice as simple as it previously was?

In medieval Europe professional pardoners raised money for the church through the practice of selling indulgences, largely regarded (with the benefit of historical hindsight and the advent of the Protestant Reformation) as an abuse. But such “indulgences” went no further than saying that the recipient was freed of the stain of a crime after it had been confessed and repented, not a crime that was prospective or ongoing.

In our modern world of one-stop-shopping efficiency we’ve upped the ante: Now when you plunk your money down on the table you no longer get just an immediate absolution for past bad deeds, you are buying several steps up the ladder’s rungs to receive an “honoring.” You can get that “honor” even when your misdeeds are ongoing; no need for confession or repentance. Those steps get skipped entirely. You are already certified and good to go for the future, no matter what. In the process, bad deeds become presumably good ones.

Ratner’s Brooklyn Museum `Honoring’

So it was when Atlantic Yards developer Bruce Ratner plunked down his money in return for an “honoring” by the Brooklyn Museum. That “honoring” was granted by the museum despite the fact that Ratner was in the middle of one of the most atrocious mega-land-and-subsidy grabs in the city’s history, significantly tailored to the developer’s benefit and the community’s detriment in terms of its out-of-scale, overly-dense design, street closures and seizure and privatizing of public space. Ratner's exchange of money for museum honor came about not so much in spite of the damage he was inflicting but because he wanted to inflict it and needed the assistance of the museum’s “honoring” to help assure that he could do so.

No Cleansing Intervals Now Needed

It is certainly true that wealth has always been able to buy acceptability in society irrespective of how that wealth was earned. But wealth questionably earned wasn’t always an immediate ticket to such access: Admission to society might only come after a decent cleansing interval following misdeeds. I recall coming across information when doing some previous research that during the Gilded Age it wasn’t always that easy for the newly wealthy robber barons and their families to get into society and that their business practices, including how society looked askance at monopolies cornering of the market*, could pose such an obstacle.
(* Unfortunately, I haven’t been able to navigate back to what I remember reading about this so if readers would like to leave more information in comment it would be very welcome.)
If only the wealthy in charge of this city (Bloomberg and Diamond included) would similarly shun monopolies rather than governmentally subsidizing them. But things have changed: In today’s world we can now buy the “honoring” of the very things we as society once shunned. This inversion where behavior which is bad becomes the behavior most likely to be in the public eye with “honorings” will probably accelerate: The disparity of wealth derived from misdeeds and the tilting of playing fields to favor the wealthiest is increasing. As we “honor” these things any societal discouragement of bad behavior goes by the wayside.

Doing the Math on Purchasing The Insurance of Reputational Scotchguard

Going back to the numbers used at the outset of this article for reference, translated into dollars, the “record amount” fine being assessed Barclays Bank by the U.S. and U.K. governments combined is $450 million. Compare that one-time $450 million record fine against annual compensation figures for Mr. Diamond of $98 million (pre-bonus compensation) plus $33 million in bonus compensation ($130 million or so a year?) and then recognize that Mr. Diamond was only one of Barclays executives getting flabbergasting compensation packages. Consider then what small fraction of Mr. Diamond’s compensation Mr. Diamond needed to donate to get an honoring with the naming of a Colby College building after him: a reported $6 million for the building with a total $14 million to the college in recent years (approximately 10%- tax- deductible- of what one year’s compensation might be). Ask yourself: With figures like this in the equation isn’t it worth the bad conduct to have millions left over after spending just a few million as the cost of buying back your honor?

Rescinding Honor?

Are any of these purchased honors likely to be rescinded? In the last few days we saw the unusual spectacle of Penn State, out of shame, removing the statue of Joe Paterno, its highly-compensated football coach and Brown, the university from which Paterno graduated, has removed his name from an award. In addition, in another unusual step the National Collegiate Athletic Association (N.C.A.A.) has erased 14 years of Paterno victories from its official record books. (For more about the Paterno scandal and an analogy with Atlantic Yards about how bad things happen when whistleblowers don’t come forward see Noticing New York’s “Sports Glummery” Series.)

In contradistinction what will happen to honors that have been purchased? Can the contracts for the namings be rescinded to rescind the honors? It’s unlikely that Mr. Diamond or Ms. Harris will one day be stripped of their bought-and-paid-for Colby College and Franklin & Marshall College honors.

Corporate Branding- The Cheap (and Ironic) Purchase of Reputational Honor

These purchases of personal honor for individuals come comparatively cheap. Bought-and-paid-for honor is also cheaply available for the questionable institutions with which such individuals may be connected. As covered by Noticing New York before, government officials are selling the right to corporately brand public assets and spaces. They are doing so inappropriately and for laughably little remuneration in exchange (See: Friday, June 29, 2012, Government Gets Branded.)

Now we are faced with the absolute absurdity that at the very same time there are multiple municipalities suing Barclays Bank and considering what losses and options they have in that regard, New York City will be participating in the promotion of the “Barclays” name with the opening of the “Barclays” Center, subsidized by the taxpayers (mostly the city’s). New York taxpayers have spent the better part of billion dollars in subsidies and incurred a net loss of hundreds of millions. Ironically, the same agencies enlisted to subsidize the financing of the Barclays Center are likely to have suffered LIBOR rate manipulation losses as a result of the bank's manipulations. (See: Friday, July 20, 2012, “Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?)

The honor of having the Ratner/Prokhorov basketball arena and two MTA subway stations named after Barclays was sold by New York government very cheap. Technically it was two somewhat separate transactions. First, New York State and New York City gave away the naming rights to the developer for free. The developer, taking the entire mark-up for itself, was then able to sell the rights to Barclays for a $400 million package. Since the $400 million was being paid in over 20 years the present value of that package needs to be estimated as a lower figure, below $200 million. In a subsequent renegotiation, the arena naming rights package was negotiated down from $400 million to $200 million (the present value of that again being less). Stage Two of the transaction was for the MTA to “sell” (give away) the right to christen two of its key subway stations “Barclays” for the insultingly trivial sum of $200,000 a year with a twenty year lock-in of the deal. (See: Sunday, June 28, 2009, Naming a Problem: The MTA Gives Ratner the Right to Name Brooklyn Subway Stations “Barclays”.)

Once again, compare those sums with Bob Diamond’s compensation of perhaps $130 million in any given year.

The Inversion of "Honor"

The awkwardness of the present moment aside, why should subway stations or a publicly paid for arena be named “Barclays” at all. I wrote before:
. . . the name “Barclays” on the arena is merely advertisement with no association with its place or moment in time, no sense of history, and that there was consequently no valid reason for government to confer upon it the very special honor of making “Barclays” a place name in the city.
But even as I said that the granting of the name of “Barclays” on the stations would one day cause us to look back and recall a saga of deceit I probably shortchanged this assessment in one respect. As law professor Frank Pasquale writes in a July 19, 2012 Boston Review essay that is very simpatico with Noticing New York opinions:
Many naming-rights deals are not merely advertising. Rather, they are transparent efforts by dubious enterprises to buy goodwill by permanently associating themselves with famous landmarks.
(See: Names, Trains, and Corporate Deals: Why Public Transit Shouldn’t Sell Naming Rights. See also Atlantic Yards Report’s review of that article: Tuesday, July 24, 2012, Naming-rights deals, suggests law professor, are "transparent efforts by dubious enterprises to buy goodwill by permanently associating themselves with famous landmarks".)

In other words, once again the increasingly predicable inversion we see with “purchased honor” is that the honor of bestowing a name is not done to honor good that was done in the past; the honoring is done to serve as cover for the ill that people hope to get away with in the future.

Saturday, July 21, 2012

A Real Estate Industry Code: The Special Interests of Forest City Ratner vs. The Rest of the Real Estate Community And New York City at Large

“At large”: That’s an interesting phrase.

“At large” can mean “as a whole” or it can mean “roaming” as in free, unfettered or escaped as in “reporter at large” (good) or “criminal at large” (bad). To a juvenile mind (mine was one once) the idea of a “criminal at large” sounds all the more ominous as it seems to imply the dangerous criminal looming as some sort of extra large, bigger-than-the-rest-of-us being.

This short post is about largeness at large, largeness that’s not good for the city at large. . specifically Forest City Ratner’s largeness. While it is largeness that’s intended to work well for Forest City Ratner it is largeness that doesn’t work well for the rest of the real estate community, notwithstanding that the rest of the real estate community doesn’t protest it.

Last week I was telling an activist I ran into about the New York City Housing Development Corporation's hearing that was coming up Wednesday to take comment concerning the issuance of more tax-exempt bonds to finance into existence more of Forest City Ratner’s envisioned Atlantic Yards mega-monopoly.

My listener, who hadn’t gotten wind of the hearing even though he was talking about how to appropriately express opposition to the opening of the Ratner/Prokhorov (“Barclays”) basketball arena, asked me what testimony I was going to give at the hearing.

Summing up what I knew was going to be some long and comprehensive testimony, I said I would testify that Ratner was a bad dude and that his mega-monopoly should be broken up and distributed among multiple developers.

Ratner’s mega-monopoly should be broken because he is a bad dude, and, as I later testified at the hearing, it should also be broken up because, irrespective of whether he is a bad dude, monopolies (particularly a really big one like this) are deleterious the city as a whole and therefore to all the rest of us.

Further, I told my listener, I would make the point that Ratner’s over-scale and overly dense mega-project was a subsidy hog, that it misdirects scarce subsidy that should be divided up to better benefit multiple developers, not-for-profits and minority developers more likely to be among them.

“That's great,” my listener said, “you should be able to get a lot of real estate developers to come to the hearing and testify to the same thing!”

“No,” I said, “they won't be doing that.”

“Why?” asked my listener. “That should be something they should really want.”

I offered my explanation. “They won't do it, and they don't do it,” I said, “because the real estate development community has a code. They NEVER testify against each other. It doesn’t matter how preposterously greedy another developer’s proposal may be or how deleterious that proposal is to the rest of the real estate community and to the city at large; they won’t do it.”

“It’s a club in which Forest City Ratner is one of the biggest members,” I said. I told my listener that the powerful Real Estate Board of New York (REBNY) always supports Forest City Ratner’s proposals even when those proposals are specific just to Forest City Ratner (and outrageous) notwithstanding that the Ratner proposals are not generally beneficial to the real estate board's members and can actually represent sacrifice or jeopardy for them.

At a November of 2007 Municipal Art Society “Jane Jacobs and the Future of New York” panel discussion I asked developer Douglas Durst about the Real Estate Board of New York going to bat for the a special Atlantic Yards 421a tax law carve-out that cost the city $300 million. The mere asking for such a provision put in jeopardy the passage of a law that was highly desired by the rest of the real estate community and yet REBNY sought it. By contrast I asked Durst whether developers wouldn’t want to work together through an organization perhaps REBNY, or an alternative, to bring about a better city where the economics would be better for everyone, presumably including for the entire real estate industry. Durst responded that REBNY never takes positions against a member and also said that developers won’t work together.

In my testimony Wednesday about HDC’s proposed issuance of more tax-exempt Ratner bonds I expressed the following about why monopolies like the Atlantic Yards mega-monopoly are bad for the city economy, bad for development and therefore bad for all of us:
Monopolies stultify development. They are antithetical to it because true development must partake of a diverse, richly dynamic environment of interacting elements and competitive testing of the best adaptations. Monopolies suppress development opportunities. Furthermore, in the words of Jane Jacobs: “Monopolies established by cronyism and strong-arm methods, along with pervasive extortion and corruption, falsify actual costs” [shall we note they falsify benefits as well?] Enterprises “prefer eliminating competition to competing with . . prices, quality and service.” Tax-exempt bonds are supposed to be issued by “development” agencies to foster development, not suppress it. Government officials shouldn’t replace economic ecosystems with a single privileged crony.
But developers have their real estate community club and that means that even if what Forest City Ratner is doing is bad for the rest of the real estate community, even though it would be good in multiple ways for the rest of the developers in that community for the Atlantic Yards mega-monpoly to broken up and distributed, together with the associated very scarce subsidy, amongst multiple developers (including some developers who are not bad dudes), this is not something that those other developers are going to get out and advocate. . .

. . . Developers have their code. The code isn't written but it never seems to be broken: Don’t work against other members of the club and that means don’t work against bad things and don’t work for the greater good.

This is a reason New York’s real estate community does more damage to the city than might otherwise be expected. It is a reason Forest City Ratner’s mega-monopoly’s largeness is still at large.

Friday, July 20, 2012

“Barclays” Center Opening Pending, Bloomberg De-Minimizes Envisioned New York City Lawsuit Against Barclays Bank. Is He Out On A Limb?

With a significant amount of New York City government hoopla about to be unleashed with respect to the opening of the “Barclays” Center (i.e. the Ratner/Prokhorov basketball arena for the Nets) Mayor Bloomberg may be going out on a limb to minimize the story about how NYC could be suing Barclays Bank at pretty much the same time. Baltimore and other municipalities are suing Barclays Bank for its rate manipulation in the LIBOR scandal, but Bloomberg is taking the position that New York, a much bigger city than Baltimore, the financial capital of country and a leader in doing government financing in terms of both scale and complexity is only likely to have “de minimis” losses because of Barclays . . . but Bloomberg is nevertheless envisioning that NYC may very well be participating in lawsuits against Barclays.

The story about the Mayor’s consultation with his budget director Mark Page was on WNYC yesterday evening. Noticing New York is providing WNYC's entire story below since it is not otherwise available on the internet:
Mayor Bloomberg says the city may have lost money due to rate tampering by large banks. But he doesn't believe the losses were large. Mark Page, Director of the Office of Management and Budget, briefed the Mayor this morning on the city's potential exposure. The city has swaps agreements on construction bonds, linked to a key interest rate that may have been manipulated.
Cut to clip of Mayor Bloomberg himself:

“If the rate went down some city debt would be adversely impacted, and some city debt would be favorably impacted. If there are class action suits, we'll join em, but it would be a de minimis amount of money.”
It's the first time the Mayor has spoken on the subject since Barclays Bank admitted it tampered with the benchmark London Interbank Offered Rate, or LIBOR.
Is Bloomberg paying attention to Noticing New York’s inquiries about what government agencies will be suing Barclays? Bloomberg’s quick and dismissive assessment of the lawsuit situation comes just two days after the New York City Housing Development Corporation (“HDC”), a Bloomberg-controlled financing agency and one of the biggest municipal bond-issuing agencies in the country, declined to comment when Noticing New York inquired if that agency would be suing Barclays (quote: “HDC declines to comment on these issues at this time.”)

On Wednesday HDC held a hearing respecting its proposal to issue bonds for a building that will be structurally and reputationally a part of the “Barclays” arena. HDC is proposing to issue approximately $92 million in additional bonds, secured by the new building, to finance Forest City Ratner’s proposed Atlantic Yards mega-monopoly. It also plans to provide the Forest City Ratner building with a significant amount of subsidy in addition to those bonds but did not publicly disclose what the amount of that subsidy (or even a ballpark figure) would be before the hearing being held to take comment on the financing (and the amount is still unknown). Noticing New York provided testimony at the hearing opposing the issuance of those bonds.

The mayor says the city may be suing Barclays. At the same time HDC, a city agency accountable to Bloomberg through his appointees, is mum about whether it will be suing Barclays but earlier Noticing New York stories covered the fact that the counsel for two of the other agencies financing Atlantic Yards and the “Barclays” arena, the MTA and Empire State Development, are considering the possibility of suing Barclays. That means that at least three out of four of the principal financing agencies for “Barclays” arena block are looking at suing Barclays Bank. Despite HDC’s being mum on the subject it is probably four out of four. And the New York State Attorney General is investigating Barclays together with the Connecticut Attorney General, perhaps soon to be joining with other states’ attorneys general as well.

Here is Noticing New York’s prior coverage to date on the above (in reverse chronological order):
• THURSDAY, JULY 19, 2012, “Barclays” Center Opening Pending, Will Empire State Development Sue Barclays Bank?: ESD Says The Question Is Being Reviewed By ESD Counsel’s Office

• TUESDAY, JULY 17, 2012, Will The MTA Sue Barclays Bank Over LIBOR Rate Manipulation Scandal? MTA Says It Will “Vigorously Pursue All Available Legal Actions”

• SATURDAY, JULY 14, 2012, Will The Empire State Development Corporation (ESD), The MTA, NYC And New York State Sue Barclays Bank?
It’s clear why Mayor Michael Bloomberg wouldn’t want to play up a possible city lawsuit against Barclays. Whatever the losses to the city occasioned by Barclays Bank's misconduct, the city has invested a flabbergasting sum in the “Barclays” arena itself. Hundreds of millions of direct New York City cash subsidy has so far been given to the Atlantic Yards mega-monopoly and the Barclays arena (replacing properties that were actually taxpaying and plans for more) will also be off the city tax rolls so the cost to the city of just the arena is up close to around one billion dollars. No matter how conservatively you calculate the net loss it is in the hundreds of millions of dollars.

Further, in writing about this before I raised the question about whether city assessment of the situation might be affected by how much Mayor Bloomberg is “a friend of the banking community.” In connection with previous “Barclays” arena promotion hoopla Bloomberg saluted Bob Diamond, the Barclays president who recently resigned because of the LIBOR scandal as his “friend.” (See: Tuesday, July 03, 2012, Flashback to March 2010: Mike Bloomberg calls Barclays' Bob Diamond "my friend"- which includes a video of Bloomberg’s statement of affinity.)

Is Bloomberg going out on a limb with his `de-minimizing’? Was the city Budget Director Mark Page able to make this assessment so quickly? Did Bloomberg mean that it was just specifically the city’s loss he could consider minimal or did he mean the city and all of its bond financing agencies such as HDC (Mr. Page is on HDC’s board as one of Mr. Bloomberg’s representatives) and the New York City Economic Development Corporation? Remember the 2008 financial crisis when no one could figure out or know for certain where all the losses would be and what their amount would be because the interrelationships were so complicated? There are similarly complex and tangled interrelationships to be assessed here.

If you begin to search the internet you will see what starts to pop up and how frequently:
• The New York City Executive Report on the City’s 2011 Budget, Message from the Mayor with Mark Page’s name on it

• Look at the same Executive Report for the city’s 2010 Budget.

• The City Comptroller's Comprehensive Financial Report for the fiscal year ending June 30th 2008 has this kind of language in it about NYC financial risk mitigation:
“In its August, 2004 basis swap, the City’s variable payer rate is based on SIFMA and its variable receiver rate on a percentage of LIBOR. However, the stepped percentages of LIBOR received by the City mitigate the risk that the City will be harmed in low interest rate environments by the compression of the SIFMA and LIBOR indices.”
• HDC has bonds where LIBOR comes into play. It could very likely be the majority of HDC's bonds that do.

• Here from April 2010, generated by Barclays Bank itself, is a Barclays Capital Trading and Distribution Commentary about the municipal market. It warns “The views and recommendations in this commentary are the short-term views of the Barclays Capital Municipal Trading Desk.” It notes that Barclays “will price a New York City Housing Development Corporation weekly VRDN next Friday.” The price for these “Variable Rate Demand Notes” was probably keyed off Libor. Elsewhere in this document it evaluates market interest rates this way: “The stronger economic picture and expected govt debt supply next week weighed on treasury yields. Libor swap yields rose over 5bp in the 3y-7y sector for a second consecutive day. SMA Ratios dropped in response, however, activity was much lighter than yesterday.”

• State agencies which issue bonds to finance projects in the city also keyed such bonds off LIBOR as a benchmark for all sorts of things. Here is just one $131,105,000 Dormitory Authority of the State of New York financing. DASNY is a big issuer of bonds so there are more. . . many, many more.
Despite Bloomberg’s `de-minimizing’ this doesn’t look like the story is going to end here. Noticing New York will also be doing some follow-up on where the New York State and City Comptrollers are in overseeing these matters and possibly bringing their own lawsuits, particularly with respect to the city and state pension funds.

Thursday, July 19, 2012

“Barclays” Center Opening Pending, Will Empire State Development Sue Barclays Bank?: ESD Says The Question Is Being Reviewed By ESD Counsel’s Office

As previously covered here, Baltimore and a number of other municipal governments are suing Barclays Bank in connection with its LIBOR benchmark interest manipulations. (See: Saturday, July 14, 2012, Will The Empire State Development Corporation (ESD), The MTA, NYC And New York State Sue Barclays Bank?) It therefore seemed logical for me to wonder whether the state’s Empire State Development agency and other state and local governments in New York would also similarly be suing Barclays. Contacting the MTA I found the agency already had on hand a prepared statement to the effect that its legal counsel was reviewing and would vigorously pursue its legal options in this regard:
“The MTA has asked its legal counsel to review its options in relation to the LIBOR scandal, and will vigorously pursue all available legal actions. We are outraged about the apparent market manipulation, and will always do everything possible to protect the MTA.”
(See: Tuesday, July 17, 2012, Will The MTA Sue Barclays Bank Over LIBOR Rate Manipulation Scandal? MTA Says It Will “Vigorously Pursue All Available Legal Actions”.)

In addition, the New York State Attorney General's office is conducting an investigation into the manipulations’ financial harm to New York. That investigation is currently being conducted jointly with Connecticut’s attorney general with the AG’s office confirming that the “joint investigation could soon spread to other states.” (See: New York AG probing LIBOR scandal: Eric Schneiderman's investigation could reveal whether banks violated state anti-trust and fraud laws by manipulating the London Interbank Offered Rate, by Shane Dixon Kavanaugh, July 16, 2012.)

New York Attorney General Schneiderman’s office has released a statement that says:
“Working together, the New York and Connecticut attorneys general have been looking into these issues for over six months and will continue to follow the facts wherever they may lead.”
The above quoted Crain’s article echos my previous columns about Barclays' potential liability, saying the implicated financial institutions could be “on the hook for hundreds of billions of dollars.”

(* Matt Taibbi says that the “scale is just mind-boggling. Every town and municipality in America probably has investment holdings that are pegged to LIBOR. I think The Wall Street Journal calculated $800 trillion of financial products.” $800 trillion of loans and derivatives worldwide was the figure being used in NPR coverage yesterday.)

The Attorney General’s investigation and assessment of “whether New York suffered losses from the alleged rate-rigging scheme by banks” must mean that it is talking with all affected city and state financial agencies. They would have to be in such communication in order to be effective in answering the questions that need to be asked. I’ve contacted the Attorney General’s office with a media inquiry to confirm this but they have so far avoided getting back to me. I won’t take it personally as the Crains’ article indicates that the office also avoided getting back to Crains.

This gets me back to the original question: Is ESD, the state agency that financed the “Barclays” Center (the Ratner/Prokhorov basketball arena), going to be among the growing list of government entities that sue Barclays?

ESD’s press office confirmed to me that the question is in fact “being reviewed by our counsel’s office.” In other words, in that respect they are like the MTA.

I also asked whether ESD would, alongside the MTA, confirm:
• That ESD is similarly outraged about the apparent market manipulation.


• That ESD is similarly committed to do everything possible to protect ESD.
The press office’s response was that ESD “cannot comment further at this time.”

Given the pending opening of the Ratner/Prokhorov “Barclays Center” which will involve a lot of hoopla and PR playing up the Barclays name it is clear why ESD is naturally loath to excoriate the Barclay Bank at this time. ESD probably also has plenty of reason to hope that the “Barclays” is somehow is exonerated or that the bank gets off lightly in terms of the PR price it pays. Is it unfair to think that such hopes would have any possible effect on the vigor with which ESD might pursue this matter or affect the timing of its actions so that any actions ESD takes against Barclays does not coincide with the grand opening of the arena with that name that ESD itself financed?

It must certainly come up in the conversations about the implications of ESD’s actions, as I pointed out in a fly-on-the-wall (wouldn’t you love to be?) comment in my first post on this subject, speculating about the meetings that senior management and counsel at the affected government agencies must be having as they consider their obligations to recover losses for New York taxpayers.

A reader suggested to me that for clarity’s sake I reiterate from my first column the many ways that Barclays may be legally liable to the government financing agencies for the bank's rate manipulations. I am repeating from that column the bullets below. As you review them you see the importance of affirmative good faith assistance from an agency like ESD in order for investigations like the Attorney General’s to be fully effective. (This list is only a starter list):
• The financing agencies may have invested in bank instruments that paid them a lower rate of interest.

• The rate that the agencies received from developers paying loans may have been dragged artificially low.

• The agencies themselves may have paid lower interest rates on their own municipal bond obligations, but even if this was superficially to their benefit it may now make them liable to their bondholders and when sued by those bondholders they may have to legally implead (i.e. sue, or cross sue) Barclays as a result.

• Financial transactions are sufficiently complex these days so that it takes a fair amount of unraveling before all the implications of a manipulation like this can be fully assessed in terms of Barclays likely liability to the government agencies. For instance, even if the rate an agency itself was obligated to pay on its own bonds might have been lowered by Barclays shenanigans the agency (or maybe developers the agencies were assisting) might have ventured into the questionable risk of rate-swapping agreements whereby the net result was a more significant injury.
I have been in touch with other New York government agencies about whether they will be suing Barclays. I will report on my communications with the State Comptrollers Office and the City Comptrollers Office in a follow-up article: I still have some outstanding questions for which I am seeking answers.

One other agency from which I did receive a response of sorts is the New York City Housing Development Corporation. HDC is planning to issue more bonds to finance Forest City Ratner’s proposed Atlantic Yards mega-monopoly (approximately $92 million additional bonds plus providing significant additional subsidy in an unspecified amount) for a building that will structurally and reputationally be a part of the “Barclays” arena. Yesterday, at HDC’s hearing about whether to issue those bonds I testified that before making its decision about issuing such bonds the HDC board should be thoroughly informed about “all the possible lawsuits against Barclays that may or will be brought by HDC and other agencies.” The HDC board includes* the city’s Director of the Budget and Commissioner of Finance. These city officials, though appointed by Mayor Bloomberg, a friend of the banking community, should care about these things.

(* The City Comptroller, John C. Liu, is not on the board but should have jurisdictional review powers he may want to exercise in this regard.)

Will HDC's legal counsel review and vigorously pursue its legal options in relation to the LIBOR scandal like the MTA ‘s? Will it be reviewing the question like ESD’s counsel? The response from HDC Press Secretary Eric Bederman when I made inquiry specifically in reference to the hearing, prior thereto:
“HDC declines to comment on these issues at this time.”
One would certainly hope that HDC would not shirk its responsibilities to protect the taxpayers merely because it would generate bad PR in connection with a Bloomberg-supported building it is financing.

This next building for which tax-empt bonds are proposed to be issued together with the adjoining “Barclays” arena itself and all of the proposed Atlantic Yards are being financed by the coordinated efforts of the ESD, the MTA, and HDC (plus a lot of money from the city itself). I suppose that to be assured that two out of three of these financing agencies are looking at the question of suing Barclays Bank to recover losses from the LIBOR rate manipulation is pretty good. Let’s see how things stand the day of opening ceremonies for the Ratner/Prokhorov “Barclays” arena.