Bullet Points: Community Objections to “Barclays” (LIBOR) Arena Operations (Most Relate Back To Zoning Override Locating Arena Close To Residences)

The "Barclays" Center advertising oculus showing Barbra Streisand, one of the singers who has not answered an open letter from the community questioning why she is performing at the Ratner/Prokhorov arena 

When I came out of yesterday evening’s Atlantic Yards Quality of Life Committee meeting I wasn’t going to write anything about it.  Of course there is going to be awkwardness and impacts to the community concerning the operation of the Ratner/Prokhorov so-called "Barclays" arena for which several city blocks were conjoined and certainly an aggrieved community, not enthusiastic bout the arena’s arrival, would be eager to complain. . . .and surely Atlantic Yards Report could be counted upon to quickly provide detailed coverage of the meeting.

But when I slept on it I thought: Why not just hit the highlights with a few bullet points?  That shortened format might help to call attention to the fact that the community’s list of gripes about arena operation is long and that almost all the problems in evidence relate back to the state decision (endorsed by Bloomberg) to override zoning restrictions and shoehorn an arena in closer than 200 feet to the brownstone neighborhood residences of the vicinity.  Besides, whatever Atlantic Yards Report may faithfully chronicle in fastidious detail, the rest of the media seems intent on ignoring the arena’s many negatives.

So here is my bullet list:

    •    Public Urination.  There is much reported (and officially acknowledged) public urination on the streets around the arena.  There was also one reported incidence of defecation. Forest City Ratner is willing to assume responsibility for dealing with (via extra lighting) and cleaning up after the urination in the doorway of Modell’s sporting goods store because Modell’s is their tenant, but was quick to point out that nearby townhouse owners were responsible for their own cleanup.  There was also complaint about clothing being changed in public.

    •    311 Complaints.  The Mayor’s office is likely responsible for the fact that the city’s 311 system has adopted an official policy of refusing to take any complaints about the publicly sponsored, publicly funded arena, deeming it to be a matter for private resolution with arena officials.  Several times the community representatives complained that there was no way to document incidences of complaint (and presumably also ensure followup) as well as it’s being unclear who (amongst a long list of potentials) should be contacted about what.  Right now the answer seems to be that lots of people need to be contacted about most problems.  Forest City Representatives indicated they don’t consider they can respond to, or be responsible for, anything about which they are not contacted about directly.

    •    Backed up trucks loading the arena.   Truck loading and unloading for the arena is not functioning as anticipated, resulting in backing up on local streets and idling trucks.  A Forest City representative suggested that this was partly because the arena was opened and its operations started before the arena was fully complete so that they haven’t been able to properly utilize interior space as planned.

    •    Black car management.  Black car management is an issue.  No one knows where all the backing up black cars should be sent.  Although a community representative pointed out that the need to deal with black cars must have been anticipated, the arena officials are only now trying to figure out a plan that will work to address the issue.  Apparently, there were lots of black cars for the Barbra Streisand concert.

    •    Assaultive Advertising Oculus.  The arena oculus’s illuminated advertising screen with all its bright billboard animations gets left on overnight and when people forget to turn it off as they leave there is then no one there to turn it off.  In theory it is supposed to be turned off from 1:00 AM to 5:00 PM.  Arena officials had no explanation for the community as to why the oculus needed to operate as late as 1:00 AM or start as early as  5:00 PM in the morning instead of providing for a more extended period of quiet respite from advertising.  Arena officials also could not say whether they had contractual commitments affecting when they planned and needed to run the oculus.  Light from the oculus is most broadly transmitted through the neighborhood when light from the oculus hits mist or fog and lights up the sky.  I found it pathetic when one neighbor said she could accept the advertising light coming in her residence window but just wanted to plead for better, more soothing and restful advertising, eliminating pulsating flashing lights that many ads in the oculus use.  She said found living with the Barbra Streisand advertising was the easier variety to endure.

    •    Laser light show complaints.  Arena officials, seeming somewhat abashed (an odd instance of this) could not explain what the laser light shows from the top of the arena were all about.  They said, however, they were just for the opening of the arena and wouldn’t happen again.

    •    Arena playing music for plaza crowds.  It looks like the operators of the arena have been violating city law by playing music for the crowds outside the arena. They said it was news to them that they might need a permit for this.  They also suggested that they didn’t think they needed a permit because they weren’t actually the ones playing the music for the crowds in the plaza, that it was their building that was playing the music for the crowds in the arena.

    •    Nearby Modell’s sporting goods store playing music for outside crowds.  Modell’s, the nearby sporting goods store that is a Forest City Ratner tenant, seems to have gotten into the concert spirit and is also now playing music outside their store.  Apparently they have been repeatedly told not to do this and gotten violations which they may be ignoring as fractional cost of generating extra business.

    •    Truckers that don’t obey truck route and other rules.  Arena officials complained about how little control they had over teamster truckers who were choosing to ignore their directives to follow rules.  (There was discussion about how “big” you had to be to effectively communicate with these truckers.  One community representative asked if this was to be interpreted to mean that, because the arena officials professed not to have control, the community should expect that it, in turn, had no control through those officials.  Could be.  Seems so.  It was asked whether ESD, the state agency that granted all the overrides of local controls to make the arena possible, had any control over the arena officials, if so, what kind of control.  Could be.

    •    Sound emanating from concerts escaping into the neighborhood.  There are different kinds of sound that can escape from the arena concerts.  A police official (worried about providing TMI) said that legally they fell into five categories, four of which were actually relevant.  She characterized the Jay-Z concerts as having something called “bass prevalent” sound.  Windows are reported to have been shaking from the bass a full block away.  Officials who showed up at nearby residences to monitor sound froma Jay-Z concert reportedly elected to leave again before the concert started: Jay-Z likes to start his concerts long after the official starting time.  Questions were raised about whether something was wrong with the arena’s sound proofing and insulation.  The representative from the state agency that sponsored the arena and permitting its overrides said she was confident in the arena work that had been done to date.

    •    Illegal substances being consumed in arena.  Apparently people have been smoking pot in the arena during concerts.

    •    Crowd surges outside the arena at exit time.  Crowds have surged from the arena to outside streets in inconsistent unpredictable patterns.  Different crowds surge differently: Jay-Z crowds surge out in twenty minutes while Barbra Streisand crowds (who also maxed out the entire available wheelchair supply) amble out in 35 minutes.  Decisions have had to be made, on an ad hoc basis (it’s impossible to have pre-existing plans in place), to halt vehicular traffic on Atlantic Avenue to accommodate the crowds.  One community-expressed worry is that pedestrians will be pushed out into the path of vehicular traffic.  One police officer commented that one night, with an unexpected surge from the arena, “we were losing [residential] Dean Street.”

    •     Unclear what police resources are being devoted.  City Council member Tish James thought that, at one point, about 150 officers had been devoted to a concert. A police representative said it was a number more nearly less than half that. Maybe the answer is that the number is closer to a 150 if you include transit police in the overall figure as well and maybe DOT officers.  Based on what I saw I think this might be a good guess to explain the differential in the numbers offered.  But the numbers of police that will be devoted to concerts is uncertain and will probably vary.

    •    Crowded subway stations.  Subway station platforms are reportedly very crowed when arena patrons surge out.  One community representative said the crowding was dangerous enough so that there were those who felt they had to exit the station rather than continue ot wait for a train.  WNYC’s Transportation Nation reports that LIRR crowds for the Streisand concert were more than four times what is normal and subway ridership was also substantially up.  Running more subway trains was suggested.

    •     Illegal parking and idling.   Arena patrons are supposed to be grabbing local parking spots whether legal or, as where hydrants are, illegal.  Cars are also idling, without parking, adding to pollution.  Tish James said that Fort Greene and South Portland street were getting the brunt of these problems.

    •    Previously undisclosed parking pad next to the arena.  Apparently there is a parking pad being used next to the arena that the community was not told about beforehand.  The community complained that this meant a presumed buffer was nonexistent.  Arena officials said the parking pad was required by the NBA for visiting team buses (but should it get other use as well?).

    •    Sanitation.  Sanitation was not reported to be that much of a problem but the arena has attracted lots of food trucks, resulting in potentially rat-attracting trash and there is no easy way to ban the licensed food trucks from the area.

    •    Unlicensed vendors creating bazaar.   Apparently the arena has also started to attract unlicensed vendors so that something of a bazaar is beginning to form around the arena.

Forest City Ratner and arena officials suggested that they only have to deal with what they consider “kinks,” that they should be viewed with some tolerance as being a “start-up,” and that it should be remembered that so far there have been only two concerts to evaluate.  On the other hand, one community representative warned that Lady Gaga would be showing up with a somewhat startling 45 semis when she comes.

“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?

“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.

“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.

and

• 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.

Whistleblowing and ESD: Culture and the Questionable Spirit In Which the State Agency Most Responsible For Atlantic Yards Wields Omnipotent Powers

Penn State University football coach Joe Paterno was recently fired (as was university president Graham Spanier) for his inadequate whistleblowing in connection the sexual abuse scandal involving minors. In a National Notice article I contrasted Paterno’s firing for insufficient whistleblowing with what lawyer and Salon columnist Glenn Greenwald is saying happens to whistleblowers in government which is essentially the opposite. Greenwald is saying that government whistleblowers, at least federal government whistleblowers within the Obama administration, are being punished for effective whistleblowing. (See: Friday, November 11, 2011, Damned If You . . . WHAT? Deep Doo Doo (or Don’t Don’t) Questions For Whistleblowers: Does All It Hinge On Private vs Public Sector Employment?)

(Picture of fired Penn State football coach Joe Paterno above from Wikipedia.)

Is this a difference between the private sector and government?: Is it that in the private sector you are damned if you don’t blow the whistle effectively while in government you are punished if you do? Possibly. And possibly the explanation is found in another thesis that Greenwald argues and has set forth at length in his new book, “With Liberty and Justice for Some: How the Law Is Used to Destroy Equality and Protect the Powerful”: That there is now a club, a political and financial class, that is above the law, essentially the 1% Club. By virtue of that thesis the elimination of effective whistleblowing within government simply follows from the fact that for all practical purposes there is now an identity of interest between government and the 1% Club. Greenwald referred to Simon Johnson’s Atlantic Magazine article “The Quiet Coup.”

Whistleblowing and New York Agencies: Presenting ESD

When I wrote the National Notice article referred to above I could not help thinking back to the earlier Noticing New York article about whistleblowing I wrote about effective and ineffective whistleblowing in New York government agencies, particularly state authorities. One of my focuses was the Empire State Development Corporation (aka The New York State Urban Development Corporation) which, with a new name shift, is now calling itself by the further abbreviated moniker “Empire State Development.” (See: Wednesday, February 3, 2010, Two Things About the Pataki Administration and a Hope About What Is Secretly Going on Behind the Scenes Respecting Atlantic Yards.)

One of the things I wrote about ESDC at the time was that:

. . the Empire State Development Corporation, the state agency theoretically most responsible for Atlantic Yards, does not have a whistleblower protection policy even though it was legally required to have adopted one by the Public Authorities Accountability Act of 2005, the provisions of which were signed into law on January 13, 2006.

And ESDC's noncompliance was being lapped by a new change in law because:

More whistleblower requirements that ESDC is supposed to follow are coming effective March 1, 2010 with the amendments to the Public Authorities Reform Act of 2009.

Crime Scene Return

I figured I would return to the scene of ESDC’s crime of noncompliance with the law to find out whether the state agency was finally getting around to complying. ESDC is belatedly coming into compliance with the law but it can easily be said that it does not look as though there is enthusiasm for a spirit of encouraging whistleblowing at ESD or at its coadministered sister agency, the Job Development Authority.

Fully on notice about its noncompliance given my February 3, 2010 Noticing New York article, ESDC finally adopted the whistleblower policy it was legally required to on April 26, 2010 (i.e. also missing the March 1, 2010 deadline of the second law).

It was on the agenda for April 26, 2010 for administrative action as Agenda item #4. According to the minutes, when one of the board members asked, they were told that this was the first time the agency had such a policy but there is no mention recorded in the minutes or in the memo presenting the policy to the directors that the agency had been improperly without such a policy for many years.

JDA, ESD’s coadministered sister agency that was involved in issuing the (rather questionable) bonds for the Atlantic Yards Prokhorov/Ratner “Barclays” arena did not act to adopt the required whistleblower policy until more than a year after ESD, June 28, 2011. (Interesting to note: In terms of government operating in a fancifully pure world, there is apparently, as of yet, absolutely no reference on the entire ESD site to “Prokhorov.”)

Inert Policies: No Periodic Reporting

The responses I received after inquiries to the ESD press office inform me that the policies, since their adoption, have been essentially inert.

The ESDC whistleblower policy requires that periodic reports be given to the board of directors and that those reports be no less frequent than annually. Specifically:

Periodically, but not less than once annually, the Audit Committee, in consultation with the Senior Vice President-Legal and General Counsel, shall provide a written summary to the ESDC Board(s) for the period setting forth the status of pending matters reported pursuant to this Policy Statement, including all claims of whistleblower retaliation.

That would mean that the first such report to the ESD directors would necessarily have been required by April 2011, at least. There was no such report furnished to the directors.

The ESD press office offered the interpretation that no report has been required because, to date, no “claims have been received for whistleblower retaliation.” This is not an impossible interpretation for a way in which the policy could, under its terms, be administered at ESD and JDA. Yes, the required reports could be interpreted as nonrequired in such a situation, but it is not the way to administer the policy if you want to create a consciousness that the whistleblower policy is important. Is it too lawyerly on my part to point out that the more conservative dot-the-“i”s and-cross-the-“t”s way to do this would be to provide the required regular periodic reports reminding the directors of the policy and affirming in those reports the negative, that no matters are pending.

Minimalist Policy Covering Only Retaliation

As it is, as written, very little is required to be reported under the ESDC whistleblower policy because the ESD policy constitutes only the very minimum required by the law it is finally complying with. The policy in all respects focuses exclusively only on prohibiting retaliation against whistleblowers and does not in any other respect encourage, require or provide structure for whistleblowing or employees to report information concerning acts of wrongdoing, misconduct, malfeasance, or other inappropriate behavior that they discover, know about, or otherwise obtain information about. If it did, the periodic reports would have more to cover.

At this point, were it to be assumed that ESD is now in compliance with both the law and its policy, the absence of required reports under the policy can be interpreted only to mean that no employees have complained of retaliation for their whistleblowing. It does not mean that no employees have blown the whistle about internal ESD misconduct. It does not even mean that employees who have blown the whistle are not being retaliated against, only that if they are being retaliated against they have not yet complained about it (if they even know they are being retaliate against).

No Duty to Report Internal Misconduct: Misconduct Not Proscribed

It is instructive to compare the whistleblower policy of the state housing and finance authorities that was included in my earlier Noticing New York article about whistleblowing.

Those agencies have an express policy of not condoning the misconduct itself:

It is the policy of the Affiliated Agencies . . . . that illegal or unethical activity, including but not limited to corruption, fraud, criminal activity, abuse and conflict of interest, by the Members, Officers or employees of the Agency or any person having business dealings with the Agency, will not be permitted, tolerated or condoned.

The ESD/JDA policy expresses no such equivalent. The policy for these other state agencies call for the reporting of internal misconduct:

Employees discovering or otherwise obtaining information concerning acts of wrongdoing, misconduct, malfeasance, or other inappropriate behavior by an employee or Member with respect to investments, travel, the acquisition of real property and the disposition of real and personal property and the procurement of goods and services shall promptly report such activity directly to: [then follows a list of reporting options.]

The ESD/JDA policy has no such requirement for its employees to report internal misconduct. (A sleepy ESD board director would probably not have noticed this by reading the description in the memo presenting the policy for adoption.) Does the policy therefore permit (even hope for) such nonreporting, the kind of government model Glenn Greenwald was apparently talking about vs. the kind of proactive spirit everyone, in retrospect, now feels should have been exhibited by Joe Paterno?

Spirit of Whistleblower Access and Assistance As Possible Alternative

What kind of spirit should an agency be showing with respect to whistleblowing? The Public Authorities Reform Act of 2009 (“PARA”) has provisions about the establishment of a “Whistleblower Access and Assistance Program” and that law also was supposed to involve the State Attorney General in commenting upon the Whistleblower polices of individual authorities like ESD and JDA. That bespeaks a spirit that favors encouraging and assisting whistleblowers but as technically written the program is to be implemented at a statewide level: a public authority such as ESD is not legally required to partake in that spirit. If it wants, an authority like ESD can apparently do the very minimum ESD has done.

And it appears that the ESD policy, as minimally compliant as it now may be, is sinking out of everyone’s consciousness given the absence of things like regular reports to ESD directors that could remind those directors that there are standards extant and applicable to the reporting of misconduct.

Reporting Agency Misconduct Externally

Are there any ESD employees mulling over reporting internal misconduct? Or are there even employees who have reported misconduct at ESD/JDA internally and are now noticing that their reports are not being followed up on? There is one piece of good news for them in the ESD whistleblower policy: It appears that the ESD policy protects ESD employee whistleblowers who report misconduct externally “insofar as the actions taken by the employee are legal” and/or the employee is disclosing the information “to a governmental body.”

Could the policy have been even clearer in saying that such external reporting is an option open to employees witnessing internal misconduct? Probably. The policy of the other state agencies says:

Where appropriate, employees may also, in addition, report such activity to outside local, state and federal governmental authority having jurisdiction over the illegal or unethical activity.

Should ESD employees consider reporting misconduct at ESD externally? For a possible answer we can come full circle to the Paterno and Penn State scandal.

The Culture of Cover-Up vs. Natural Moral Values

(Chris Matthews on Real Time above.)

Chris Matthews on last week’s Real Time With Bill Maher had some harsh words for those who think that just reporting misconduct internally is sufficient and harsh words for those who allow themselves, when it comes to their whistleblowing decisions, to get inculcated with the values of the organization where they work rather than the natural values with which they grew up. His remarks came about 42 minutes into the program:

You know what I think? I said this at college graduations— I believe in it so much! When you grow up as a kid and you join an organization, whether it’s the U.S. Congress or Penn State College, as you call it, you’ve got to have your values before you walk in the door, you’ve got to know what’s wrong and what’s right because they ain’t gonna teach you there. All they teach you there is how to win football games, how to cover your butt. You’ve got to have those values. That guy, McQueary [assistant coach Mike McQueary]— he said he was a young guy— he’s twenty-eight years old: OK?— He’s the guy they we’re all talking about, the guy, the guy they put on PAID LEAVE today. Paid leave! Give him a break? This guy should have known the minute he saw what you just described. The minute he saw it he should have gone to the cops; he shouldn’t have said, `talk to Dad about it.’ Because his first instinct was, `My God! This is horrible!: I can’t believe I am seeing it!’ Then he allows himself to be propagandized into the system— `Oh, well we really don’t want to tell anybody outside of the system.’ And he begins to ask the system to teach him the value system: AND THEY TAUGHT HIM IT: Cover it up! You never ask a system to teach you values because the values of the system is always cover-up.

His first impulse was right: `I can’t believe what I saw!’

Can Anyone Believe What We Saw With ESD’s Handling of Atlantic Yards?

Is the misconduct at Penn State so much worse as to defy comparison with the misconduct people envision occurred as state officials shilled for Forest City Ratner, bending procedures and protocol and bending the letter and spirit of laws, so as to favor a rigged deal for developer/subsidy-collector Forest City Ratner over the interests of the public? The acts alleged to have occurred at Penn State involving sexual abuse of very young minors are truly terrible. The abuse of minors is all the more terrible specifically because minors are understood not to be in a position to protect themselves. But when it comes to what people suffered at the hands of state officials were community members in a position to protect themselves?

The ESD officials wielded virtually omnipotent powers as they abused eminent domain, together with ESD’s other vast abilities to supersede conventional legalities for Bruce Ratner. In what kind of culture were all these powers wielded? I agree with and think that Tom Ziller (at SBNation.com) has accurately described the Prokhorov/Ratner basketball arena as “simply Vaseline for a real estate project [and, I add `accompanying land grab'] in Brooklyn that will make his company billions more than an NBA team could ever be worth.”

The Real Question to Ask About the Ratner Bait-and-Switch Approach on Atlantic Yards

In the lightning-keeps-striking department, state officials over at ESDC* appear to have been embarrassingly stung by yet one more bait-and-switch by Atlantic Yards developer Bruce Ratner with his just-announced intention to convert the now erstwhile premium design he once promised for his Atlantic Yards mega-monopoly to a mere assembly of prefab modular units. Ratner would thereby be bestowing upon Brooklyn the world's tallest prefab building (with untested technology) and what is projected to be the densest 22-acres of residential units in North America would then become a super-tall forest of cheap prefabs.

(* the “New York State Urban Development Corporation” doing business as the “Empire State Development Corporation)

A List of Ratner Atlantic Yards Bait-and-Switches (incomplete)

This most recent episode means that an incomplete list of the bait-and-switches that have been `foisted’ upon the ESDC to date now includes the following:

1. Cheap, untested, modular construction instead of premium `starchitect' (Frank Gehry) design (or high quality materials) for the residential portions of the project.

2. The revamping of the basketball arena Gehry design to an airplane hanger design dressed up with a theoretically temporary metal lattice work wreath. That arena is also smaller than promised and apparently can’t accommodate a hockey team, not that the surrounding Brooklyn Brownstone community should actually be happy if it could.

3. A shift from a swift 10-year build-out of the megadevelopment to a schedule that (like the now 40-plus-year development of Roosevelt Island) will take the protraction of “decades” to complete.

4. Constructing, in return for the MTA’s contribution of land, a significantly downscaled train yard with 7 tracks rather than 9 or the original 10, which reduced and minimized train yard will not provide the MTA with the flexibility it needs for long-term plans.

5. A ditching of promised green space both in permanent and immediate terms.

6. A substantially lower, in fact pathetically paltry, purchase price for public land paid out over time and at the developer’s option rather than upfront. The developer also gets an artificially low interest rate courtesy of the taxpayers puts down just 20% to start and doesn't having to pay the bulk of the already discounted price the government had previously accepted, a remaining $80 million, until 2031.

Incompleteness of the List

The list above is incomplete not only because it is virtually impossible to remember well enough to enumerate every single alteration of this project for the benefit of the developer at the expense of the public, but also because there are undoubtedly more bait-and-switches in store for us. Further, as ESDC often keeps bait-and-switches under wraps, there may actually be more in place at this moment.

ESDC kept the switch from a 10-year build-out to a multi-decade build-out secret, including by its calculated decision not to give pertinent documents to Judge Marcy Friedman in the current ongoing litigation respecting the consequent inadequacy of the environmental impact reviews. Similarly, ESDC kept under wraps the substitution of the ethically questionable Russian oligarch Mikhail Prokhorov for the usual good-old-familiar American investors . . . . even if those good-old investors come as crooked as Ratner. Let’s add that Prokhorov substitution to our growing, but still incomplete, list:

7. Substitution of ethically questionable Russian oligarch Mikhail Prokhorov for familiar American investors.

Beyond numerous other giveaways, like gifting the renaming rights of two major New York City subway station hubs for the developer to sell, we can probably also toss into this stew the way that New York State public officials have abased themselves by shilling for various developer tactics designed to divert more of the public’s tax dollars, including lobbying for the granting of a special IRS loophole's continuance to finance the arena and the use of EB5 sale of green cards to the Chinese via a program theoretically intended to increase jobs in the United States even while the developer, through maneuvers like this shifting to cheap modular construction, is hacking away at the already fictional number of jobs the project once promised. We could easily include such public official abasements for the developer’s sake but perhaps the willingness of ESDC officials to abase themselves this way is just something inherently in these officials’ DNA. . . they just naturally give things away for free.

Ratner’s Preintention When It Comes to Bait-and-Switch

I am not surprised that the first thing a friend asked me upon hearing of this latest bait-and-switch was: “Do you think that Ratner intended this all along?” Whether Ratner intended this particular bait-and-switch all along is not the question. What is important, as we have pointed out before, is that ESDC worked from the beginning to put the Forest City Ratner organization in the driver's seat, giving it, without bid, exclusive rights to this megadevelopment in such a way that Ratner could always shortchange and blackmail the public with frequent bait-and-switches thereafter. This setup for bait-and-switches was certainly intended by Ratner and consciously facilitated by ESDC officials from the get-go. So whether or not Ratner intended this particular bait-and-switch is not important: He intended a framework in which he could pull off this bait-and-switch or any other bait-and-switch he could think of.

Is Ratner really intending to carry out this most recently proposed bait-and-switch or is it just blackmail to get the state and city to give him more money? Does it make a difference? The result is the same; the public has been gypped. And thank you very much ESDC; this comes courtesy of you.

Ratner and the Construction Unions

Is it possible that Ratner is a man who can say something reassuring to your face even while intending exactly the opposite? If there was any doubt, this bait-and-switch addresses that question. Yes he can. From a Noticing New York viewpoint it is possible to have some sympathy for unions some of the time (see, Monday, February 28, 2011, Private Sector Croynism Seeks to Replace Government in Wisconsin: Might New York Be Leading the Way?), but when it comes to the construction unions supporting Atlantic Yards and other mega-schemes in New York like the rezoning of Coney Island little sympathy should be extended to them.

Construction unions are interested in the churn. They are not interested in what is in the public interest (hence their partnering with Ratner). Frank Lloyd Wright once facetiously proposed that all of Manhattan be leveled and replaced by just two phenomenally enormous tall towers. I often think that if such a plan were proposed today the construction unions would be out in droves to support it, not because it was in the public interest but because it would mean a huge amount of union jobs, both demolition and construction.

It has, of course, been noted that Ratner’s switch to modular construction leaves the unions high and dry, eliminating almost all of the promised jobs and replacing them with much cheaper low-cost and perhaps out-of-state jobs. Atlantic Yards Report has posted an article, complete with embedded video of Ratner saluting his union allies at the at the ceremonial groundbreaking for the Atlantic Yards arena (Thursday, March 17, 2011, At the March 2010 groundbreaking, Bruce Ratner saluted union labor, to cheers, thanking them for "arm in arm support for this project" (video)). That was March 10, 2010.

A One-Year-Old Ratner Plan to Shaft the Unions

On March 17, 2011 (St. Patrick’s Day), the front page New York Times story that informed us that Ratner was shafting the unions by going with modular construction also informed us that, “Mr. Ratner’s development company, Forest City Ratner, has been investigating modular construction for a year, but has kept its plans secret.” For a year!

That sounds like two things were going on simultaneously, Ratner was praising the unions as his allies and secretly planning to shaft them.

Where Now and Who's Watching?

Where do we go from here? The state ESDC is now owned lock, stock and barrel by Andrew Cuomo now that he is governor. Everything that happens from here on in, every future bait-and-switch, is on his watch. If Cuomo wants to prove that the money he accepted from Forest City Ratner during his campaign for office didn’t mean anything he should terminate the project and take the land back from Ratner now. Similarly, Eric Schneiderman, our new New York State Attorney General who promised to investigate abuses of eminent domain like Atlantic Yards but took $12,500 from Forest City Ratner for his campaign should get busy investigating as he promised. With the Ratner organization being implicated in paying off public officials with respect to two of its biggest projects in both Brooklyn and Yonkers, he has plenty to investigate.

Note that both Mr. Cuomo and Mr. Schneiderman should have a freer hand to act (without sacrificing any significant political capital) now that the Ratner plan to shaft the unions has seen the light of day. One thing that taking the project from Ratner and bidding it out to multiple developers (as at Battery Park City) could do is bring those jobs back into play and, with multiple developers. . . And the work would likely materialize far sooner.

How Could Cuomo Give Ratner the Boot?

One simple, efficacious way for Cuomo to send Ratner packing would be to simple settle the current environmental lawsuit before Judge Marcy Friedman in favor of the myriad community plaintiff organizations that joined together to bring it. In fact, looking at this switch to modular prefab, Atlantic Yards Report has just added one more reason why that lawsuit should be settled in the plaintiffs’ favor: See, Thursday, March 17, 2011, Does modular construction mean a new environmental review is needed for Atlantic Yards? Settling in the plaintiffs’ favor would give us all one dead Ratner project. It would also mean an end to the current structure that locks the state and city into being the victim of a constant round of bait-and-switch operations throughout the foreseeable decades. Your move, Governor Cuomo.