Plutocratic Class Warrior Stephen A. Schwarzman: Public Impoverishment When Such An Individual Gains The Economic and Political Upper Hand?

Stephen A. Schwarzman sees himself on one side of a class war, where when it come to protecting the preferential tax breaks he receives the rest of us are like Hitler.

Stephen A. Schwarzman, head of the Blackstone Group, has already been prominently cited in two columns by Paul Krugman, the Nobel prizewinning economist and New York Times opinion page columnist, as an example of a plutocratic class warrior who believes that the 1% must retain their supremacy over the rest of society, winning at any cost. (See: Plutocrats Feeling Persecuted, September 26, 2013 and Paranoia of the Plutocrats, January 26, 2014.)

Similarly, a recent short piece in the The New Yorker, Moaning Moguls, by James Surowiecki, July 7, 2014, focused in on the way a complaining and financially aloof Schwarzman aligns himself, class-wise, according to a we/they perception of the world:

You wouldn't think [Schwarzman would] have much to complain about. But, to hear him tell it, he's beset by a meddlesome, tax-happy government and a whiny, envious populace. He recently grumbled that the U.S. middle class has taken to "blaming wealthy people" for its problems. Previously, he has said that it might be good to raise income taxes on the poor so they had "skin in the game," and that proposals to repeal the carried-interest tax loophole-from which he personally benefits-were akin to the German invasion of Poland.

Is the bottom line that the wealthiest in society like Schwarzman should be living in fear that the political upper hand will be seized by those who will tax the rich (or simply eliminate the loopholes by which Schwarzman pays his income taxes at a preferential lower rate) to dispense “largess to the poor” or other strata of our society?  Au contraire!   While class warfare is real, is not a matter of what the wealthy might fear from the rest of us, but what the rest of us have to fear in the way of predation from the likes of Schwarzman: What do individuals such as Schwarzman do when they have the political and the economic upper hand?

Schwarzman, who has focused on profiting from buying homes of owners defaulting in the face of economic downturn, has in his role as New York Public Library trustee pushed for the selling and shrinkage of New York City's libraries, he has enthusiastically promoted investment in the environmentally costly practice of hydro-fracking with all its global-warming implications, he has invested in privatizing prisons and now, as is getting attention, we find that he has in a major, very nontransparent way been taking advantage of pension funds, including those of public employees.  Some of the pension fund handed over to Schwarzman's Blackstone were set up for the benefit of New York City and New York State employees.

Raiding Pension Funds

In “Wall Street,” the 1987 film famous for its “Greed is good” Gordan Gekko character played by Michael Douglas, a key part of the plot is the disclosure of the unscrupulous lengths to which Gekko will go in dismantling an airline company, putting its employees out of work, in order to raid its pension fund.  The mindset epitomized thereby: An economic framework that works for and benefits a larger segment of society is up for grabs to be destroyed by monied interests playing an insider game to pile up ever greater wealth.  That was the 1980s.

Stealing from pension funds?  Is it worse when the pension funds that get hit are those of public employees?  And if you are a New Yorker paying New York taxes, what if those pension funds are for New York public employees?  The politically connected Stephen Schwarzman who keeps photographs of George W. and Laura Bush and Michael Bloomberg on his office desk has, Gordan Gekko style, been accused of robbing public pension funds, to build up his own personal wealth.  The accusations are worthy of consideration for all they imply.  See Zero Hedge’s Leaked Documents Show How Blackstone Fleeces, Taxpayers Via Public Pension Funds, by Tyler Durden, May 5, 2014 passing along an article by David Sirota at Pandodaily, LEAKED: Docs obtained by Pando show how a Wall Street giant is guaranteed huge fees from taxpayers on risky pension investments, May 5, 2014

Here’s some of the Zero Hedge summing up of the situation:

The following story by David Sirota at PandoDaily is simply excellent. It zeros in on the secretive and rapidly expanding relationship between private equity firms and the public pensions that invest in them. It shows a crony capitalist love affair greased by lobbyist influence peddlers known as "placement agents", as well as non-public agreements between PE firms and public pensions chock full of conflicts of interest, extremely high fees and underperformance. Unbelievably, in many instances the trustees of the public pensions are not allowed to know what funds the "fund of funds" invest in. This makes due diligence impossible, and in one particularly egregious example it led the Kentucky Retirement Systems to unknowingly invest in SAC Capital despite the fact it was under SEC investigation at the time.

Furthermore, with the Wall Street Journal reporting back in 2011 that $37 of every $100 dollars invested in Blackstone's investment pool comes from state and local pension plans, it appears that taxpayers are once again being fleeced by the financial oligarch class.

    * * *

The chief villain in this article will be no stranger to readers of this site. It is Blackstone . .

The main point of the PandoDaily article:

An increasing number of those pension funds are being stealthily diverted into high-fee, high-risk "alternative investments" that deliver spectacular rewards for the Wall Street firms paid to manage them - but not such great returns for pensioners and taxpayers.

According to the analysis of the leaked documents obtained:   

Taken together, the documents raise serious questions about whether the government employees, trustees and politicians overseeing major public pension funds are shirking their fiduciary responsibilities under the law when they are cementing "alternative" investment deals.

Fees Sapping Fund's Prospects of Investment Growth

These pension fund investments were not performing well because of the debilitating effect of high fees. Around the beginning of 2008 Blackstone launched its hedge funds; with a “fund of funds” approach where it steered clients’ money into other hedge funds in return for an additional fee.

When the Kentucky Retirement System was looking to invest about $400 million in Blackstone's Alternative Asset Management Fund (BAAM), which is a so-called “fund of hedge funds” the PandoDaily article says the leaked documents showed:

Blackstone was guaranteed whopping fees of 50 basis points plus 10 percent of any overall profits on retirees' money. In addition, the memo estimates 1.62 percent management fees and 19.78% incentive fees to be paid on top of the Blackstone fees to the underlying (and undisclosed) individual hedge fund managers in the "fund of funds."

And:

Pension officials made the decision to invest in the fund despite Blackstone then reportedly being under SEC investigation.

The Sunday’s New York Times Business Section of a week ago featured, front page, above-the-fold, a comprehensive article that, in just slightly more tempered New York Timesian business lingo, covered much of the same ground, with a few additions, as the Pando and Zero Hedge articles from last May. See: Behind Private Equity’s Curtain, by Gretchen Morgenson, October 18, 2014.

We’ll come back to ways in which that article, illustrated with a photo of New York City Comptroller Scott Stringer and featuring a quote from him, brings the question of these investments closer to home for New York taxpayers.

First, it would be worthwhile to note the way the compounding effect of `fees,’especially any accumulating proliferation of them, work to seriously gut an intended building up of retirement investments.  To say that “fees” are being charged might imply that valuable services are delivered in exchange, but, bottom line, one ought to suspect and fear the opposite.  PBS’s Frontline covered this point well in “The Retirement Gamble” (transcript is available).

If you Google images for “retirement three legged stool”

U.S. citizens have frequently been described as relying on a “three-legged stool” for their retirement, 1.) social security, 2.) presumably secure pensions, and 3.) invested personal savings that can also include 401(k) and IRAs.  Frontline covered how there has been a shift away from pensions (that covered 42% of Americans in 1972) largely to 401(k)s, originally “a corporate tax dodge” for high earners that “Nobody ever thought that this was going to apply to the rest of us.”

From Frontline's  “The Retirement Gamble”

Frontline explained the effect of fees in the context of the third category, invested personal savings that can also include 401(k) and IRAs.  One expert asserts that Americans don't know the price, quality or risk of what they are paying for when buying 401(k) retirement investments.  To lay it all out, Frontline correspondent Martin Smith talked with Jack Bogle, the founder of Vanguard, a company that offers some of the lowest-fee products on the market. Bogle succintly offers the advice “that if you want to improve your retirement outcome, make sure to minimize Wall Street's take.” * (Starting at 23:40 on the video- ignore the investment company promo ironically inserted at the very beginning of the PBS video.):

(* If social security is ever privatized as has been proposed all these considerations will come into play with respect to social security too.)

    MARTIN SMITH: Bogle gave me an example. Assume you're invested in a fund that is earning a gross annual return of 7 percent. They charge you a 2 percent annual fee. Over 50 years, the difference between your net of 5 percent - the red line - and what you would have made without fees - the green line - is staggering.

    Bogle says you've lost almost two thirds of what you would have had.

    JOHN BOGLE: What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding costs. It's a mathematical fact. There's no getting around it. The fact that we don't look at it- too bad for us.

    MARTIN SMITH: [on camera] What I have a hard time understanding is that 2 percent fee that I might pay to an actively managed mutual fund is going to really have a great impact on my future retirement savings.

    JOHN BOGLE: Well, you have to rely on somebody to get out a compound interest table and look at the impact over an investment lifetime. Do you really want to invest in a system where you put up 100 percent of the capital, you the mutual fund shareholder, you take 100 percent of the risk and you get 30 percent of the return?

Again, from Frontline's  “The Retirement Gamble”- Results of a 7% return vs. a 5% return

These same mathematical investment facts also apply to pensions of private companies and public employees although the risks and responsibilities for management of them and the costs have not been shifted over from the employers to the employers in the same way.  These mathematical investment facts apply to Blackstone and in the case of public employee pension funds, it's our elected officials like our state and city comptrollers who are responsible for making the decisions about what fees like this are to be paid to companies like Blackstone.

On the Political Inside- "Pay to Play"

That’s why it’s a problem when Blackstone and firms like it are making campaign contributions to the very same officials making those decisions.  You have heard of "pay-to-play"?  See: Do campaign contributions help win pension fund deals?,  8/28/2009.  Here from that article:

More than two dozen firms that have surfaced in a broad corruption investigation of public pension funds gave at least $1.97 million in campaign contributions to officials with potential influence over the funds' investments, a USA TODAY analysis shows.

The givers included private-equity giants such as the Blackstone Group, the Carlyle Group and the Quadrangle Group, the firm founded by Steven Rattner, who in July resigned as the White House point man for the auto industry rescue. The contributions are legal, and the firms haven't been accused of wrongdoing related to the giving.

    * * *

Officials of the Blackstone Group have similarly contributed to pension fund incumbents and candidates. The firm's chairman is co-founder Stephen Schwarzman, a former Lehman Bros. executive. Co-founder Peter Peterson retired as Blackstone's senior chairman in 2008.

Campaign finance records show Schwarzman; his wife, Christine; and Peterson gave a combined $30,000 to three candidates who ran in 2002 to succeed H. Carl McCall as state comptroller. Hevesi, the winner, got the most, $21,000. Separately, McCall received $25,000 from Christine Schwarzman for his unsuccessful bid for governor.

Blackstone has received about $1.74 billion in private equity- and real estate-related investments from the New York pension fund since 1993 and has been paid about $20 million in fees, said Whalen, the state comptroller's spokesman.

The firm has not been accused in the New York investigation.

See also Crains New York Business: Private equity donations to politicians uncovered- Staffers of firms gave money to officials with power to steer pension funds to range of investment advisors, by Hilary Potkewitz, August 28, 2009.

New York Attorney General Andrew Cuomo has been investigating pay-to-play accusations involving the state's pension plan and various investment funds, including Carlyle, for the past year. In June, the Carlyle Group agreed to pay a $20 million settlement, and change company policy to limit employee political contributions to $300.

Blackstone has not been accused of anything as a result of Mr. Cuomo's investigations. A Blackstone spokeswoman said that since at least 2006, the company has had a policy prohibiting employees from donating to campaigns for offices with direct oversight of public pension funds. That policy also requires approval from its general counsel for any campaign contributions.

And see, Final Alternatives Hedge Fund and Private Equity News: Ex-Blackstone Employee Pleads Guilty In N.Y. Kickback Scandal, May 13 2009.

A former employee of a placement agent now owned by the Blackstone Group has pleaded guilty to securities fraud as part of the widening kickback scandal at a New York State pension fund.

Putting this again in the context of the debilitating fees already discussed, we come across this article from the New York Post that ran four years ago during the last election for state comptroller.  Harry Wilson, the Republican candidate running for office against Democrat Thomas DiNapoli (who won and is now running again) likely knew what he was talking about because he was a former Blackstone principal.  See: A pension to slash, by Josh Kosman, August 1, 2010.

The former Blackstone Group principal who is the Republican candidate for New York State Comptroller believes the state should consider decreasing its allocation to private equity in its pension funds.

Most PE firms, he said, do not outperform the S&P 500 after fees.

"I'm not a big believer in alternatives," Wilson told The Post. "I don't own a lot of alternatives in my portfolio."

"To outperform the markets is hard and then when you charge large fees on top of that it is really hard."

The article points out that:

The state as of March 31 had 9.3 percent of its $133 billion invested in private-equity funds, and another 9 percent in other "alternative investments" like real estate and hedge funds.

Idea That Pension Benefits Are Too Generous Anyway Finds Home at Schwarzman's Blackstone

Maybe candidate Wilson had a change of heart after leaving Blackstone but indications are that for those at Blackstone their heart is not in benefitting the pensioners; the job they are being paid enormous fees to do.

Blackstone’s Byron Wien, vice chairman of New York-based Blackstone's advisory group, said retiree benefits were "too generous."

"The retirement benefits for state workers, really not only in New York, California and New Jersey but throughout the country, are very generous, too generous," Wien said in response to a question about U.S. state budget deficits during a Jan. 5 presentation of his forecast, according to a transcript. "We literally can't afford the benefits we have given our retirees in state and local governments and we have to change that."

(See: Blackstone Seeks to Appease New York City Pensions After Wien's Comments, by Cristina Alesci and Jason Kelly, May 26, 2010.)

Wein’s remarks sound very much like Goldman Sachs CEO Lloyd Blankfein when he said that the public was going to have to lower its expectations about “entitlements and what people think that they're going to get.  Because they're not going to get it.”  It has been suggested that Mr. Blankfein should, like Mr. Schwarzman, be made one of the trustees to whom we entrust the care of our New York City libraries.  

What did Stephen Schwarzman say in response to Mr. Byron’s remarks and the objections that consequently arose?

"Byron will play a central and invaluable role in providing direction and guidance,"

While Mr. Wien's heart doesn’t seem to be in helping pensioners, he may also lack the talent that would entitle him to take fees to do so.  See:  Byron Wien's Atrocious "Forecasting" May Have Cost Blackstone Hundreds Of Millions, by Tyler Durden on 01/06/2011.

Another Level of Asset Stripping: Pension Funded Job Losses Through Blackstone

While politically luring public pension funds into underperforming high-fee investments is one form of public asset stripping, New York’s pensioners may also be chagrined to learn that the funds they had invested with Blackstone entailed another layer of public loss, one that U.S. Senator Charles Schumer was duty bound to complain about when it came to light.  During the Democratic Convention in the 2012 presidential race Bain Capital was excoriated for jobs it was said to have destroyed in corporate takeovers.

Blackstone engages in the same sort of dismantling of jobs and companies so, by investing in Blackstone, New York’ pension funds (two New York State public employee pension funds and four New York City pension funds) were causing jobs to be lost in Fulton, New York.  A Birds Eye Foods factory was ultimately closed by Blackstone's subsidiary after the union’s and Senator Schumer’s fruitless protests.  See Bloomberg’s: Pensions Find Private Equity Bites as Blackstone Cuts Job, by William Selway and Martin Z. Braun, February 23, 2012 and the very similar, slightly truncated Pension and Investments: NY pension funds find private equity controversy as Blackstone cuts jobs, by Bloomberg, February 23, 2012.

The new owners, Pinnacle Foods Group LLC, a company held by the private equity firm Blackstone Group LP (BX), [“the world's largest buyout firm”] closed the factory and fired 270 workers. Kimber, 64, got eight weeks severance for her 12 years on the job and lives with her 37-year-old unemployed daughter in the rust-belt town of about 12,000, northwest of Syracuse.

“They just used us. That’s exactly what they did,” Kimber said. “And then they kicked us to the curb.”

    * * *
Private equity executives, including Blackstone managing director and Pinnacle Foods director Prakash Melwani, have helped stock Romney's campaign war chests.
    * * *

New York Comptroller Thomas DiNapoli, the sole trustee of New York's $140 billion retirement fund, declined to comment. New York City Comptroller John Liu declined to comment. John Cardillo, a spokesman for New York state's Teachers' Retirement System, declined to comment.

    * * *

In January 2010, U.S. Senator Charles Schumer, the New York Democrat, held a press conference with workers in Fulton, saying he would keep pressuring the company until all the jobs were safe. Schumer said he called Stephen Schwarzman, Blackstone's chairman and co-founder, and asked him to spare the factory.

Ironically, Charles Schumer’s wife, Iris Weinshall, has now taken the position of Chief Operating Officer at the New York Public Library, where, because Schwarzman is a trustee there, she, in a sense works for him as one of her bosses.  She replaced Chief Operating Officer David Offensend who came to that position from Evercore, LLP another private equity and hedge fund firm that was spun off from Blackstone.  The universe of those exercising influence and power is remarkably small.  (So small, in fact, that Offensend's wife, Janet, wound up as a key trustee at the Brooklyn Public Library while it implemented plans tracking the NYPL's similarly selling and shrinking Brooklyn's libraries.)

As the articles note, while New York City Comptroller John Liu did not comment on this factory closing, in another situation where another private equity firm was involved in closing a factory in Cleveland over the objections of investing pension funds whose monies were being used, Liu wrote:

New York's pension funds do not wish to be investing in job loss or in a global `race to the bottom.

Fulton’s Republican Mayor Ronald Woodward, gets the concluding word in the article, putting it terms of class:

"What you're doing by doing that -- you are systematically eliminating the middle class," he said. "You're going to be rich or you're going to be poor. There's no in between."

Placement Agent Fees

Blackstone, and especially Schwarzman, was also openly going after and championing yet another level of fees that would sap pension fund investments, “placement agent fees.”  When I was in government with the state finance agencies we were confronted by firms that, with political introductions, proposed that they should be inserted as a new level of intermediary between the finance agencies and the investments they made, getting yet another set of fee for its `advice’ or `guidance.' Unable to discern any value to the proposal or actual expertise being offered we turned them away.

“Placement Agent Fees,” paid by pension funds generated considerable controversy and a challenge from the SEC.

The New York Times stepped into the fray with a business section editorial criticizing New York City Comptroller John Liu for wanting to ease a ban on placement agents.  See: Editorial: Bringing Back the Fixers, by Dealbook, February 22, 2010.  The editorial observed:

For years, the easiest way companies could get contracts to manage billions of dollars for the pension funds for either New York City or New York State was to go through the local influence peddler. It was a recipe for big corruption, especially in Albany.

Both the city and state stopped using placement agents last April after two top advisers to Alan Hevesi, the former state comptroller, were charged with corruption and violation of federal securities law relating to their "private" work as placement agents. The two pleaded not guilty and are expected to go on trial soon.

Another four fixers from the Hevesi era have pleaded guilty to securities fraud. And a California manager of a venture capital fund pleaded guilty in December to giving out nearly $1 million in illegal gifts to New York State officials to get contracts with the state pension fund.

State Comptroller Thomas DiNapoli said Thursday that the ban on placement agents is working well in Albany. He said it had made the investment process more transparent and helped new and smaller firms compete.

So, The Times asks, why is Mr. Liu going in the opposite direction?

Not quite two weeks later, Schwarzman was granted space in the Times to personally respond to the editorial.  He was arguing to support the position that Comptroller Liu has taken, that placement agents should be regulated, not banned, a position that would permit Blackstone to continue to ply its trade with New York pension funds as one of the four largest placement agents. See: Another View: In Defense of Placement Agents, By Stephen A. Schwarzman, March 4, 2010.

The four largest placement agents are part of major financial institutions in New York - Credit Suisse, UBS, Lazard and the Blackstone Group - and the professionals are federally registered and the firms themselves are heavily regulated. We do extensive due diligence on any manager we seek to represent (Blackstone's Park Hill Group takes as clients about 5 percent of the managers who come to it). We also prepare marketing materials and then take them before the major sources of investment capital - private, state and local pension plans; university and foundation endowments; sovereign wealth funds; etc. - to make the case as to why these managers warrant an investment. Most of these managers could not get a start in business without placement agents.

It is probably not to Comptroller Liu’s credit that he aligned with Schwarzman on this issue.  The alignment may have also put Liu in an interesting position when, three years later in the spring of 2013, Liu stepped up to oppose the sale and shrinkage of libraries with their attendant questionable real estate deals that Schwarzman was pushing for as a trustee of the NYPL.

When he wrote his Times rebuttal Schwarzman was already on record fighting against any bans on placement agents:

The SEC in May 2009 proposed the outright banning of placement agents , which in New York, California, New Mexico and Kentucky, were the conduit for corruption in those states' public pensions. However, the Private Equity industry was able to kill this SEC proposal, I believe by getting the Obama administration to pressure the SEC to water down this ban.

Blackstone's billionaire founder, Stephen Schwarzman, personally sent a letter to the SEC opposing a placement agent ban.

(See: Feds indict public pension placement agent, By Chris Tobe, March 20, 2013.)

A Hidden World, Where With a Lack of Transparency Pension Investors Take Hit for Fund Manager Wrongdoing

Photo used by the Times to emphasize Comptroller Scott Stringer's quote objecting to pension investors being saddled with the legal loss incurred from the settlement of the charges of improper conduct on the part of the fund managers

The recent article in the Sunday New York Times business section about the inappropriateness of pension funds investing in private equity funds focused mostly on the lack of transparency with respect to those funds and how that lack of transparency can conceal conflicts of interest that benefit the fund managers at the expense of the public investors.  Case in point, the quote featured from Comptroller Stringer was his objection to the fact that there had been a legal settlement respecting alleged misconduct of fund managers where the losses incurred with the settlement were passed along to be paid by the public pensioner investors, not the managers.  Given the lack of transparency of the private equity funds the public pensioners were probably in the dark that they are responsible for these costs, because according to the Times:

Their legal obligations are detailed in private equity documents that are confidential and off limits to pensioners and others interested in seeing them.

Notwithstanding, Comptroller Stringer said that forcing the pensioners to take the loss: "violates the spirit of the indemnification clause of our contract.”

Times reporting on the $325 million settlement to which Blackstone was a party

The comptroller was speaking of a settlement of a lawsuit against Carlyle Group and a number of other equity firms, (Bain, etc.), the Blackstone Group included, accused of colluding and market manipulations to drive down the prices of corporate takeover targets.  Blackstone, K.K.R. and TPG agreed to pay a combined $325 million to settle the accusations, the amount to be divided up between them in a manner unspecified t the public (K.K.R., Blackstone and TPG Private Equity Firms Agree to Settle Lawsuit on Collusion, by William Alden, August 7, 2014) and the Carlyle Group subsequently agreed to pay another $115 million in its own settlement.  Total, all of the firm settlements reportedly tallied $590.5 million (Carlyle Deal Concludes a Lawsuit Against Private Equity, by William Alden, September 8, 2014.)

The Sunday Times article makes it clear that Carlyle passed this loss along to New York City pensioners and that Comptroller Stringer's remark applies to them. When I asked whether the Blackstone was, or might be similarly passing its loss along to New York City pensioners I was quickly informed that the investigation is ongoing so that this information could not be furnished.  I put this question to the State Comptroller’s office at the same time and have yet to receive a response.

The Times article was front page and above-the-fold of the Sunday Business section

The Times article noted more on the absence of transparency:

"Hundreds of billions of public pension dollars have essentially been moved into secrecy accounts," said Edward A.H. Siedle, a former lawyer for the Securities and Exchange Commission who, through his Benchmark Financial Services firm in Ocean Ridge, Fla., investigates money managers. "These documents are basically legal boilerplate, but it's very damning legal boilerplate that sums up the fact that they are the highest-risk, highest-fee products ever devised by Wall Street."

Retirees whose pension funds invest in private equity funds are being harmed by this secrecy, Mr. Siedle said. By keeping these agreements under wraps, pensioners cannot know some important facts - for example, that a private equity firm may not always operate as a fiduciary on their behalf. Also hidden is the full panoply of fees that investors are actually paying as well as the terms dictating how much they are to receive after a fund closes down.

A full airing of private equity agreements and their effects on pensioners is past due, some state officials contend. The urgency increased this year, these officials say, after the S.E.C. began speaking out about improper practices and fees it had uncovered at many private equity firms.

The explanation from Blackstone and companies like it for the lack of transparency?:

Private equity giants like the Blackstone Group, TPG and Carlyle say that divulging the details of their agreements with investors would reveal trade secrets. Pension funds also refuse to disclose these documents, saying that if they were to release them, private equity firms would bar them from future investment opportunities.

Public Officials Don't Bargain?

On the very questionable absence of oversight by the public's elected officials making these investments the article quotes attorney Karl Olson, a partner at Ram Olson Cereghino & Kopczynski, who has sued he California Public Employees' Retirement System, to disclose fees paid to hedge fund, venture capital and private equity managers.

"I think it is unseemly and counterintuitive that these state officials who have billions of dollars to invest don't drive a harder bargain with the private equity folks," he said. "A lot of pension funds have the attitude that they are lucky to be able to give their money to these folks, which strikes me as bizarre and certainly not acting as prudent stewards of the public's money."

Conflicts of Interest?

On the subject of conflicts of interest that hide behind the lack of transparency the Times writes:

Regulations require that registered investment advisers put their clients' interests ahead of their own and that they operate under what is also known as a fiduciary duty. This protects investors from potential conflicts of interest and self-dealing by those managers. This is true of mutual funds, which are also required to make public disclosures detailing their practices.

But, as a lawsuit against Kohlberg Kravis Roberts shows, private equity managers can try to exempt themselves from operating as a fiduciary.

Abuse and the Breaking of Laws

It quotes another attorney in the area as follows:

"On one hand they say they don't owe you the duty," she said, "but everything is so confidential with these investments that without a court order, you don't have any idea what they're doing. It's not open and transparent, and that's the kind of structure to me that's ripe for abuse."

How ripe for abuse?  With this total lack of transparency and diligent review and bargaining how quickly would we know, for instance, if there was another Madoff in this thicket?  The Times reported that although private equity firms got off to a better start in their initial years, more recently:

. .  a simple investment in the broad stock market trounced private equity. For the five years through March, for example, private equity funds returned 14.7 percent, annualized, compared with 21.2 percent for the S.&.P. 500. One-year and three-year returns in private equity have also lagged.

And given the complicated calculations about who gets what monies in transactions, with the managers first in line, the investors always waiting to find out what they finally get, how late in the game after final reckonings would one know how bad, bad news is?  You can’t always get out of a hedge fund investment exactly when you’d like and when funds face liquidity problems they sometimes restrict withdrawals.

Madoff, of course, broke laws and a fairly high proportion of his victims were wealthy.  However, as must be noted with increasing frequency in our society, when it comes to the ways that the wealthiest use tilted playing fields to their advantage at the expense of others, the crime is not what activities are against the law, the crime is what is legal.  That’s the context in which this nation’s “plutocracy” is better understood as a "kleptocracy."

Laws can change.  Practices described here are in many ways similar and analogous to the kinds of abuses with respect to credit card and consumer lending, “tricks and traps” that Elizabeth Warren and new consumer regulations are working to proscribe.

Even by the relatively weak standards of what currently isn’t outlawed, it seems that legal lines are still crossed far too often.  According to the Los Angeles Times:

In a report on the SEC's findings after a preliminary round of examinations, agency official Andrew J. Bowden described what he called a "remarkable" level of lawbreaking and cheating among the 150 private equity advisory firms inspected so far. Bowden delivered his report directly to the lions in their den, speaking at a May 6 private equity conference.

"A private equity adviser is faced with temptations and conflicts with which most other advisers do not contend," Bowden stated. "We have seen that these temptations and conflicts are real and significant."

The most striking statistic: Half of all examinations uncovered "what we believe are violations of law or material weaknesses in controls."

(See:  SEC peeks under private equity rug, finds 'remarkable' corruption, by Michael Hiltzik- May 13, 2013.)

Rebates - Fluid Rules?

The New York Times article about high fees was preceded by several months by a thorough article addressing the subject that appeared in the Financial Times apparently sparked by the SEC investigation: Private equity: A fee too far- Regulators are probing conflicts of interest and high fees charged by fund managers to the companies they own, by Anne-Sylvaine Chassany and Henny Sender, July 13, 2014.

According to the article, one thing that is happening as investors and their advisors react to fees that “pump substance out of portfolio companies. . . the sort of greed you would typically see in investment banking" (quote from one advisor) is that investors are demanding, and getting, rebates of fees, on the order of 80%.  Such after-the-fact rejiggeing of the rules to fatten up a scrawny and inadequate return sounds faintly Ponzi-ish, though a crossing of that line has not been alleged on the part of any of the funds.*

(* In some fascinating articles however, questions have been raised about how, on the state official side of things, the state of New Jersey did poorly channeling monies into underperforming private equity funds,  Blackstone being one of the firms investments were handed off to, tripling fees being paid under Governor Christie while turning New Jersey into one of the nation's largest investors in hedge funds and then, and is now apparently trying to cover up "suddenly reporting higher results" . .  "a full 1% higher than previously announced".  "as if no one would notice the change."  See: New Jersey Funneling Pension Fund Cash to Wall Street Investment Managers, by David Dayen August 26, 2014 and Is New Jersey Fudging Its Pension Fund Results to Defuse a Christie Scandal? by Yves Smith, September 13, 2014.)

From the Financial Times article:

Even though these fees are increasingly refunded to investors, prominent institutions including some top university endowments are reluctant to back the most high-charging fund managers. "They have come up with a formula to enrich themselves more than their investors," says the chief of one leading US endowment.

The Financial Times article also examines ways that tax considerations contort private equity practices and funnel preferential benefits, another reason to close the kinds of loopholes that Schwarzman so watchfully protects.

Things may be coming home to roost, and there is one more sign that institutional investors, as the Times reports, are walking away from these deals more often: At the September 17, 2014 NYPL trustees meeting, home turf for Schwarzman, the trustees were told that the NYPL was implementing a shift in the last couple of years to take risk out of the portfolio, simplify and reduce fees.  Nevertheless, with 72% of its portfolio in public common stocks it still has 15% invested in alternative investments like hedge funds and 10% in private equity and real estate.

A Designated Villain?

Stephen A. Schwarzman leaving an NYPL trustees meeting March 12th outside of which demonstrators gathered to oppose the sale, shrinkage and deliberate underfunding of libraries.  Photo by Jonathan Barkey.

Are we being too hard on Mr. Schwarzman?  Are we asking too many hard, too many unfair questions?  Should we take less of a cue from, put less stock in how ostentatiously Mr. Schwarzman, himself, has declared himself to be antagonistically on one side of a class divide?

Is it just that Mr. Schwarzman sets himself up as too much of a target when he proclaims himself in superlatives, saying that Blackstone is, among other things, the world's largest real estate investment firm, the largest owner of houses in the United States, one of the "four largest placement agents," the world's largest investor in hedge funds, the "world's largest manager" (with $88 billion in 2008 and $200 billion in 2013) of "so-called alternative assets, such as private-equity, real-estate, and hedge funds-esoteric vehicles" mostly on behalf of "corporate and public pension funds, endowments of universities and other nonprofit institutions, insurance companies" with investors that included "Dartmouth College, Indiana University, the University of Texas, the University of Illinois, Memorial Sloan-Kettering Cancer Center, and the Ohio Public Employee Retirement System."?

This 2008 New Yorker article's title reference's Wall Street Journal coverage of a birthday party Mr. Schwarzman threw for himself that garnered negative attention for its ultra-lavishness  

How much of Mr. Schwarzman's being such a conspicuously large target accounts for a 2008 New Yorker story commencing with an evaluation that, with a sort of Gordon Gekko emblematic emphasis, Mr. Schwarzman:

. . had become the designated villain of an era on Wall Street-an era of rapacious capitalists and heedless self-indulgence that had driven the Dow Jones Industrial Average to new highs, along with the prices of luxury real estate and contemporary art, while the incomes of ordinary Americans stagnated or fell.

(See: The Birthday Party- How Stephen Schwarzman became private equity’s designated villain, By James B. Stewart, February 11, 2008.)

Are there lines that just shouldn't be crossed when making making money?  For instance, even if we believe that virtually, by definition, prisons should never be privatized and subjected to the profit-making motivations of incarcerating more people longer and for lesser infractions,* if prisons are privatized should it be off limits to invest in them?

(* Michael Moore had some ghastly fun with this in his "Capitalism: A Love Story" documentary segment running through unfortunately true facts about private prison operators kicking back money to judges to keep children in prison, the "kids for cash scandal".)

Are we too quick to hold NYPL trustee Schwarzman accountable for the debacle that was the sale of the Donnell Library or for the push for even more library sell-offs and shrinkage with the NYPL's Central Library Plan that, although the NYPL did not publicize it, would have involved public expenditures of over half a billion dollars?  Mid-Manhattan and the 34th Street Science, Industry and Business libraries were to be sold while the research stacks of the Central Reference Library holding three million books were to be destroyed.

Is it within bounds to observe that pulling back on resources like libraries helps send more people to prison?  According to Neil Gaiman:

I was once in New York, and I listened to a talk about the building of private prisons - a huge growth industry in America. The prison industry needs to plan its future growth - how many cells are they going to need? How many prisoners are there going to be, 15 years from now? And they found they could predict it very easily, using a pretty simple algorithm, based on asking what percentage of 10 and 11-year-olds couldn't read. And certainly couldn't read for pleasure.

(See: The Guardian- Why our future depends on libraries, reading and daydreaming, October 15, 2013.)

Mr. Schwarzman is not the only plutocrat who invests in such anti-social, currently money-making activities as hydro-fracking, with all its myriad long-term pollutions, toxins, water usurpation, radioactivity, earthquakes . .   When it comes to the ravaging the entire planet for the benefit of a few with the promotion of more fossil fuel use that will significantly bump up the effects of global warming, Schwarzman isn't likely to catch with the Kochs brothers, or even just David.  Brother David lives in the same building as Schwarzman, 740 Park Avenue, now an infamous symbol of wealth, income and political inequality with assists from Alex Gibney's documentary “Park Avenue: Money, Power & the American Dream”* and the book that preceded it, "740 Park: The Story of the World's Richest Apartment Building," by Michael Gross.

(*  The film targets New York Senator Charles E. Schumer as "a chief culprit" in protecting the "tax break benefiting hedge-fund moguls" including Schwarzman.)

David Koch who, with his brother Charles have also been attacking universal national healthcare, seems to has his name ubiquitously on everything these days despite such other anti-social activities as financing climate science denial.  Why should we then care or consider it inappropriate that Mr. Schwarzman's name should have appeared on the NYPL's 42nd Street Central Reference Library that would have been so ruined by the real estate deal oriented shrinkage plans he supported?

I think the answer is that it isn't just Mr. Schwarzman and his activities we should be objecting to and even though we are not, per se, talking the 1%, (actually the top tenth of 1%, .01% of all Americans) where an increasing imbalance of wealth is piling up, there are multiple other individuals we should be concerned about in that elite and exclusive group. . .

. . . Maybe it can be argued that putting David H. Koch's name on ballet theaters, NOVA Science episodes, hospital centers, or new oil-black public fountains outside the Metropolitan Museum of Art (weren't we better off with the old fountains and plaza?) somehow ameliorates the fact that we are trading in our environment, probably together with the planet's future, by letting Charles and David pursue ever greater wealth in whatever manner they choose.  Maybe it can also be argued that, in this besieged world where the middle class is already being squeezed out of existence with the spoils divided up, pension funds are best off partaking in dismantling the jobs of other workers in their state to curtail losses.  (That argument is suspect, however, if these equity funds don't even keep pace with the broader stock market). . . .

. . .  Nevertheless, does it make sense for us as a society to be signing on to losing propositions that shuffle wealth upwards and then content ourselves with these booby prizes as consolation?  Unless we are all in abject surrender mode, isn't it time to remove David H. Koch's name from all those public properties to which he has affixed it and remove Stephen A. Schwarzman's name from the NYPL's 42nd Street Central Reference Library?  Thereafter shouldn't we put a halt to the anti-social activities that have financed such ill-advised public honorings whether they be Mr. Koch's, Mr. Schwarzman's or anyone else setting such lamentable examples?

“We’re Starting From Scratch!” Says Developer Getting Brooklyn Heights Library Site- So How Tall Luxury Building Replacing Library Will Be And What It Will Look Like Is Unknown!

Eeny, meeny, miny, moe- What might the luxury tower proposed to replace the Brooklyn Heights Library looks like?  We don’t now how tall or what shape, or anything, because the developer is “starting from scratch” stealing shamelessly from his competitors

The big, takeaway-with-a-gasp headline from the Tuesday, October 7th “Community Advisory Committee” meeting about selling and shrinking the Brooklyn Heights was that the developer said that he couldn’t say how tall the luxury tower replacing the Brooklyn Heights Library will be or what that building will look like, because, now that his company has been awarded the bid for the library site, they are “starting from scratch . .  just beginning” and that he could “now shamelessly steal” from his competitors to design what might actually be built.

Invisible Dog, Invisible . . . .

Ergo, a tricky feat was managed: While the CAC meeting had aspects of a dog and pony show where Brooklyn Public Library President Linda Johnson and cohorts were self-congratulatorily announcing their plans with an odd sense of certainty and inevitability, there was a certain invisibility to both the dog starring in the show (a library proposed to be vastly shrunken) and the pony (the luxury tower).

Version of Proposal F released by the BPL- Without the Saint Ann's development rights included to make it taller?

How tall might the luxury tower be and what might it look like?  If David Kramer and his Hudson Companies are stealing shamelessly from his competitors that means that anything that was previously possible or under consideration is still possible and under consideration.  It means the tower might, in height, be the equivalent of 45 to 55-stories.  That’s what was being looked at in terms of “Proposal F.”  See the analysis done of all the previously competing designs when they were presented:  Monday, December 16, 2013, Tall Stories- Buildings Proposed To Shrink The Brooklyn Heights Library: Brooklyn Public Library Publishes Seven Luxury Building Proposals To Shrink Away Brooklyn Heights Library.

There is an incentive for the developer to make his building as tall as possible that was highlighted in the Request For Proposals (RFP) that the BPL and New York City Economic Development Corporation issued that touted to developers the benefits of buying the library site.

The site enjoys park views to the east with the prospect of achieving views of Manhattan and Brooklyn skylines, as well as of the New York Harbor and bridges.

(See: Friday, September 20, 2013, Forest City Ratner As The Development Gatekeeper (And Profit taker) Getting The Benefit As Brooklyn Heights Public Library Is Sold.)

By making two choices the developer increases the number of luxury apartments that will vault into the heavens high enough to see over the rest of the neighborhood and across the harbor: 1.) make the building tall and skinny, and 2.) go with extra tall floor to floor/ceiling heights.  Each of these choices is all the more likely to be the developer’s strategy in the New York City market where an increasingly large part of the city’s luxury condo ales are comprised of what a New York Magazine cover story referred to has high-end “stash pads,” apartments that are pitched, largely to foreigners, as money-sponge assets, ways to soak up and park illegally obtained or ill-gotten gains now that new post-9/11 laws prohibit Swiss bank accounts from performing the functions they formerly did.  See:  Stash Pad- The New York real-estate market is now the premier destination for wealthy foreigners with rubles, yuan, and dollars to hide, (Why New York Real Estate Is the New Swiss Bank Account), by Andrew Rice, June 29, 2014  and (from the International Consortium of Investigative Journalists) Hidden in Plain Sight: New York Just Another Island Haven, By Michael Hudson, Ionut Stanescu and Samuel Adler-Bell, July 3, 2014.

Image that appeared in the New York Times and elsewhere as if the developer wasn't "starting from scratch" and incorrectly reporting that the tower would be "20 stories"

Asking how tall the new luxury tower might be or what it would look like might have seemed a somewhat stupid, time-wasting question when it was asked, given that when the BPL issued its press release about the selection of a developer an image of a building submitted with the developer’s proposal circulated and appeared in all the press reports including the New York Times.  The question, in fact, was far from foolhardy given the developer’s response.

Two incorrect reports that the new tower would be 20 stories.  On the left the New York Times correction.  On the left, the same incorrect information in a photo caption on the Brooklyn Paper

Another reason it made sense to ask?: After the BPL press release and press conference announcing the developer’s selection there were reporters, including for the New York Times and the Brooklyn Paper, who got the misimpression that the tower would only be 20 stories tall,  The information was incorrectly reported  with corrections needing to be made later.

You also can’t trust pictures that developers release to promote their projects as really being reflective of what the buildings will look like in relation to their environs.  Right now Forest City Ratner is taking lumps for new project renderings that obviously distort, trying to make proposed new Atlantic Yards (aka “Pacific Park” as euphemistically renamed) mega-project buildings look smaller. See these two recent articles: Friday, October 10, 2014, 550 Vanderbilt condo renderings fudge transition from row houses to tower; building marketed along with Nets in China and Tuesday, September 02, 2014, Playing with perspective: how renderings suggest new 18-story tower (smallest of all) almost harmonizes with row houses.  And see these older articles:  Wednesday, December 18, 2013, What's wrong with this picture? Atlantic Yards B2 rendering skews several perspectives, suggests clock tower,  Friday, September 26, 2008, Weighing Scale, and Thursday, September 10, 2009, The Surrounding Light Smears Ratner's Atlantic Yards Arena.

A taller version of Proposal F if Saint Ann's and Ratner development rights were used?

Lastly, another reason to wonder about how tall and large the building actually built might be is that none of the seven renderings previously presented to the public showed the development using all of the available development rights.  . . . . Six of the seven did not show development using the substantial development rights that Saint Ann’s, the private school on the same block (on the other side of the Forest City Ratner building) will transfer in when its zoning lot is joined with the Ratner zoning lot, as the library property is already joined.  From recent details released (the fact that Saint Ann’s is getting a new gymnasium out of the transaction and has been briefing its faculty on the benefits of the library sale and shrinkage for Saint Ann’s) it seems clear that this developer is, now at least, doing business with Saint Ann’s.  But did the developer’s original proposal reflect that fact?  If so, then “Proposal F” by another developer depicting the tallest of the proposed towers was a depiction that didn’t already include the Saint Ann’s development rights, a proposal that when stolen “shamelessly” can be much taller when the Saint Ann’s and unused Ratner rights are transferred in.

Developer David Kramer of the Hudson Companies speaking at the CAC meeting

Here is exactly what the developer said about how the building could be just about any size or shape when was asked about how tall, how many stories the luxury building would actually be.

So we’re sort of starting from scratch and trying to figure it out.  And you know we have different options.  You can have a taller slender building.  You can have a shorter squatter building.  Uhm, and so we are going to look at different options.  So, right now, we’re sort of. . uhm,. .. we’re just beginning.  We have scratch paper and we haven’t finalized uhm, either the floor to floor height for any individual apartment or the shape of the building.

And, in fact, you know an interesting dynamic is we can now shamelessly steal from all our competitors.  There were fourteen proposals and seven finalists.  I got to see six other designs.  Some of them are good friends of mine and I asked if I could go, you know, take a look at their proposal and they greet my request with a combination of anger and (laugh) friendship, uhm . . .and uhm. .  the BHA had good and bad things to say about those seven proposal and we sort of want to, uhm. . . you now, think about it, and see what people like, and what we like, and you know-   You don’t want to have it designed too much by committee, a camel as the joke goes,  . . . But, uhm, we want to. uhm, take a little time to figure it out.

Here is Citizens Defending Libraries YouTube of the developer's statement:

 

Hudson Companies on Library Tower: What Design? We Have Scratch Paper.  (Click through to YouTube for best viewing.)

The Brooklyn Heights Blog has recently covered the proposed Brooklyn Heights Library sale and shrinkage in a series of longer-form articles that are more detailed, considered and informative than is often typical for coverage of such matters.  Nevertheless, covering the CAC meeting it intemperately offered the assessment that:

  . . .  the evening's presentation confirmed that BPL has crafted a well-thought out and realistic proposal to replace an aging but extremely popular local library at one of Brooklyn's most expensive real estate addresses.

(See: BPL's Johnson Holds Her Own Against Opponents of Heights Library Plan; Smorgasburg and Brooklyn Roasting Company Named as Retail Tenants, by Michael Randazzo on October 8, 2014.)

My comment to the blog article (emphasis supplied):

How can there be any confirmation that the “BPL has crafted a well-thought out and realistic proposal” when the developer said that now that he has been selected he will “start from scratch?” Further, how can the BPL size a drastically shrunken library and then decide what the design will be and ask for public input afterward?

Better cover of the CAC meeting appeared in the Brooklyn Brief: Further Details (and Concerns) Emerge at Heights Library Community Council Meeting, Matthew Taub, October 8, 2014

The Known Unknowns About the Library

Above- The existing two-story Brooklyn Heights Library overlaid on the real estate parcel (with boundaries indicated) on which it sits.  That portion highlighted in brighter orange would be the amount of similar above-ground space the proposed "replacement" library would take up.  Hardly enough to be functional, certainly not functional as the central, destination library it has been since it was built. (More here.)

Just as what luxury tower we will get is a black box perfectly set up for bait-and-switches, we similarly know nothing about the library sale, shrinkage and so-called ”replacement” except for the exact size down to which the library is supposed to be shrunk, 21,000 square feet with 15,000 square feet above ground, down from a total 63,000 square feet of space owned and available to the public. . .

. . .  We don’t know:

    •    What assets we are giving up in terms of the existing library and the associated real estate or the value thereof.  A large portion of what we are giving up has only been identified under the treacherously vague rubric of space `not currently accessible to the public’ with no identification of what actual and specific space is being referred to or even how that space was determined as somehow being `not accessible to the public’  or possible not valuable to the public.  As one can see from the visual, the BPL has inexplicably  managed to conclude that the majority of above-ground space at the Brooklyn Heights Library is space ‘not accessible to the public.’

    •    What the BPL would net (if anything) in terms of available proceeds from the library sale (or in terms of overall value in the exchange).  Might there even be losses?

    •    What the “replacement” library would consist of.  At the CAC meeting Linda Johnson was telling individuals attending: “I hope that you will actually participate in the workshop [to conceptualize, design and configure the replacement library].  It sounds like you have ideas about what the library should contain and we’d really like you to be there.”

I asked at the CAC meeting for details about the first two unknowns bulleted above, but Ms. Johnson and the BPL did not provide that information for which Citizens Defending Libraries (of which I am a co-founder) has made the following outstanding request: Open Letter To Brooklyn Public Library President Linda Johnson.

It says something about the abject imbalance of the BPL’s  public priorities that while we as yet don’t know how big the developer’s luxury tower is, the one thing we do know is exactly how small a space the library would be shrink down to, even before consideration of what we will try to include in that space or carry over  from what is presently publicly owned.

In simple bar graph form- The BPL is proposing to drastically shrink the size of the publicly owned space in the Brooklyn Heights Library from 63,000 feet (blue) to just 21,000 square feet (on left) of which just 15,000 square feet would be above ground.  For more visuals that look more directly at the existing building and property to explore what the public would lose at the site in terms of the benefits it is familiar go HERE.

Just 15,000 square feet of above-ground library space?  The Brooklyn Heights Library is a central destination library, at least the second-most-important library in the borough, serving the downtown, and accessible to all residents of the borough, all residents of the city, in fact, at the borough’s most important mass transit hub for both subways and buses.  The last time the BPL was going to create a new, central, destination library, in 2005 before the current library-shrinking and selling regime was instituted, it planned that a new Visual and Performing Arts Library across from BAM would be 150,000 square feet, ten times the size of what the BPL plans as the above-ground replacement library in the Heights.  That’s extremely telling even if that 2005 plan might have sported some of its own boondoggle aspects.

Absence of physical books in the libraries

A mezzanine of entirely empty bookshelves at the BPL's Williamsburg  Library where patron complain there are too few books and the BPL is also shrinkingthe library by giving away an entire additional floor to the private Spaceworks firm.  (Williamsburg is another library in city Councilman Steve Levin's district.)

Set aside the BPL’s suspicious `not accessible to the public’ space calculations: The BPL’s premises for shrinking down the Brooklyn Heights Library and others, selling off their space, is really based largely on the idea of getting rid of physical books.  Physical books take up real estate the BPL wants to sell.

There are two ways in which the BPL is proposing to banish physical books from the libraries:

    •    The library would no longer endeavor to have robust browsable collections of physical books available to the public visiting libraries.  Instead, a reduced collection of physical books, a “floating collection” would be available elsewhere, upon request.

    •    The library will provide books that are digital (many books simply aren’t digitally available), while forcibly weaning patrons away from what it refers to internally as “old-school type analogue books.”

Doreen Gallo of the DUMBO Neighborhood Association is a member of the Community Advisory Committee, and was particularly eloquent about a number of matters during the evening’s meeting, including how, due to prior vetting, members of the CAC did not represent the community or its viewpoints.  Gallo, herself, is an exception to that general observation.

Ms. Gallo zeroed in on the disappearance of books from the libraries, noting how other libraries loved their books, and complaining about the absence of books from the library.  She cited her visits to the Heights library with her daughter (written about in her open letter to Borough President Eric Adams) where it had taken nine to eleven days to obtain a books that they would originally have expected to find at the library when they went and, most recently, how requested books missing from the library had taken three weeks to obtain.

Ms. Johnson's explanation and information about the books that were not at the libraries was as follows.  The BPL is not maintaining book collections at individual libraries the way it used to.  Instead she explained that it has (a smaller) collection of books that “floats” among libraries (likely being where they were last requested) and that these books could be obtained by request. She said that books not at visited libraries “are somewhere else.”  She said that she thought that “nine to eleven” days seemed like "a long time" for it to take to obtain such books and that three weeks “was unacceptable.”

Then she said that the BPL was “monitoring this closely,” maintaining statistics about how long it took to get books and asked an assistant present (Sheila), “responsible for our neighborhood libraries,”  to say a few words about how long its takes to get requested books.  Her assistant said that for patrons requesting books not at libraries there was “usually a week’s turnaround” involved (that sounds like an `average of seven days’ to me, pretty close to the nine days Johnson said was a "long Time") although books could “sometimes” be available in (emphasis supplied) “even two days.”
  
Ms. Johnson, apparently unhappy with the answer her assistant statistic-tracker had given, then stepped in to inaccurately restate the information just provided as follows: “If you reserve a book that’s not in your local library it’s usually between two days and a week to show up in the branch where you want it to be.” (Implying an `average of 4.5 days?’ not 7.)

Of course, no matter how long it takes to fulfill a request, the valuable “browsing experience” is eliminated.

Later on in the meeting Johnson was criticized for not being a librarian and not having a respect for books.  Indeed, Ms. Johnson talking about "crestfallen" librarians and book lovers has often been quoted in the press talking about how she sees the future of the BPL’s libraries as being largely bookless although she was previously advertising that books stored off-site would be available in "24 hours."  When Jim Vogel, representing state senator Velmanette Montgomery, confronted Ms. Johnson about the absence of physical books Ms. Johnson offered somewhat lamely, "we can get very philosophical here about what it means to be a library" and said that she was sorry if people found her alternative vision for the library "mind-boggling."

It's is sad to see the children’s section of the Brooklyn Heights Library with empty shelves as a result of Ms. Johnson work and alternative vision.

Front page article in the New York Times: “reading to a child from an electronic device undercuts the dynamic that drives language development.”

As fate would have it, the next Sunday, New York Times ran a story on its front page about new studies “that reading to a child from an electronic device undercuts the dynamic that drives language development.”  See: New York Times: Is E-Reading to Your Toddler Story Time, or Simply Screen Time?, by Douglas Quenqua, October 11, 2014.- That’s basically in line with what a survey of the literature published in Scientific American was showing: The Reading Brain in the Digital Age-  Why Paper Still Beats Screens (Why the Brain Prefers Paper), by Ferris Jabr, November 2013.

Smaller Library to Have Fewer Librarians

Along with less space and far fewer books, the "replacement" library would, according to Ms. Johnson, have fewer librarians and a smaller staff.  Ms. Johnson was asked whether the downsizing of the library would result in a reduction in the staff assigned at that location to serve the public.  It was not surprising to learn from Ms. Johnson that a far smaller library would involve staff being cut.  Ms. Johnson said that she did not know "the exact answer" to the question about how many people would be hired at the smaller library, that “the numbers have yet to be determined," but that her hope was that when built the "new building will be a model of efficiency" with a reduced staff that would not have to compensate for the drawbacks of dealing with a library that was of an "improperly" large size.

Ms. Johnson almost made her less-is-more argument sound credible unless you stop to wonder whether libraries as places of exploration and discovery are really meant to to thrive on pared down efficiency.  Is efficiency really always good and how much is it just another pretextual euphemism in this context?

Community Reaction

Pretty much across the board the proposal to sell and shrink the library was not well received.  The opposition to the sale was not informed in advance that there would be an opportunity for the public to say anything or ask questions.   In addition to direct opposition, concerns were expressed about the paucity of dwindling public assets in the neighborhood, so that perhaps a shrinkage of the library would remove one more asset while PS8, the local public school, was still struggling to keep pace with too little space.  The developer's proposal would benefit Saint Ann's, a private school, but not the public school.  The developer said he hadn't been asked to benefit the public in this way, and that if he were required to do anything more to benefit the public he would have wanted to pay less for the property.

Monday, October 6th, the Saint Ann's faculty was getting another briefing about the benefit to the private school of the library being sold and shrunk

Reactions to the proposed sale and shrinkage were not universally, negative.  There was an interesting scattering of individuals who maybe didn't use the library but had decided to come out that night ready to express their enthusiasm for civicly engaging in the workshops to design its replacement that Ms. Johnson was extolling, a replacement they were somehow already sure would be an improvement.  At least one of these individuals wouldn't give her name afterward to an inquisitive reporter.

Certainly, all of the people that got up to speak at the meeting are real people with real lives, but one wonders what to make of remarks made by some of them.  One father who told a story about how his five daughters, hungry to read books from the library, reached the age of nine and then didn't want to go to the very "unappealing" library anymore so that as their father now, beseeched by them, had to run solitary, derring-do errand runs to fetch books.  Speaking derisively of the library, he bet aloud to those assembled that nobody could name another building designed by its architect.  I was standing behind him and named the Grand Army Plaza Library, also designed by Francis Keally.  The BPL places no information about this up on its site, but Ms. Johnson then wanted to quibble about whether both libraries were designed by the same architect or only by his architectural firm.  When others in the audience contradicted this speaker, saying that the library is, in fact, attractive the defended himself by saying, "not according to the library." 

There is a lot to be learned when we communally share our libraries as common assets.  One fellow commented quizzically about the pronunciation of "Llama" he heard used at the library when "Llama Llama Red Pajama" (drawn and written by by Anna Dewdney) by was being read to children at the library.  Llamas are domesticated animals in south America in countries where Spanish is spoken.  This fellow heard the word Llama being pronounced with its original Spanish pronunciation ([ˈʎama] locally: [ˈʝama] or [ˈʒama]).

Need to "Activate" Clinton Street?

There is probably more to say, but maybe it is sufficient to conclude this report of the CAC meeting with one last thing that may have gone unobserved.

The developer, promoting his development, said that Clinton Street, where the library is located, needed to be “activated,” asserting that this is something he knows because he walked his dog there four days a week and because it was something the Brooklyn Heights Association was calling for.  He said his project would activate Clinton Street by having on either side of the entrance to the luxury residential tower “two small retail spaces”: a coffee shop and a space curated by “Smorgasbord” that would have rotating food vendors.

Several incensed members of the community begged to differ about whether they believed this block of Clinton Street in fact needed to be "activated" or was actually better off the way it is now.  Who knows, but certainly it must be in the developer’s mind that Jonathan Butler of the real estate blog Brownstoner is the Brooklyn Flea, is Smorgasbord, and that promoting Smorgasbord and giving it space could likely improve the press Mr. Kramer and his Hudson Companies development firm get in Brownstoner for all the projects Mr. Kramer wishes to push through in the future . . . .

. . .  Which is to say, that when it comes to real estate development in New York City don't expect people in the industry to miss a trick- Something to remember whenever people in power are proposing that we should sell off our public assets.