Another Lulu: Revisiting the Yankee and Mets Stadium Scams

We are going to bury the report of our own mistake in the expression of further outrage. Not long ago we reported on the tricky way that the New York City Industrial Development Agency was “noticing” hearings this Thursday for the issuance of still more tax-exempt bonds for the Yankees and the Mets. (See: Saturday, December 20, 2008, Legal Notice! A Hearing May or May not Be held! (It Depends, Call Us!)). We expressed our evaluation that the “notice” was not legally sufficient since it did not actually inform the public the required number of days in advance whether or not a hearing would be held. In the same spirit of keeping the public on tenterhooks the IDA also was making available only at the last minute information important for the public comment. Our mistake was that apparently the currently required period of legal notice for the hearing is ten days rather than thirty.* That does not change our main objections or the fact that we still think the notice given for the hearing was inadequate since actual notice was less than the required ten days.

* (Apparently the required period of statutory notice is now ten days. Historically it was ten days. Then it was changed to thirty days. The statutory thirty day requirement recently rolled back to the original ten day requirement though there is an ongoing effort to reinstate thirty days. With the rollback, the technical specification that the public was to be provided with cost benefit information needed to make its comment worthwhile also rolled back and is part of what should be reinstated when the law is again brought up to date. The IDA’s notice played around with craftily purporting to fulfill all these requirements while actually complying with none of them.)

The IDA’s Craft to Shortchange the Public and What Will be Heard

In our previous post we criticized the IDA’s craft used to shortchange the public in the hearing process. Implicitly, such tactics show the IDA is not interested in either the public commenting effectively or in “hearing” what the public has to say. That the IDA is not interested in honestly evaluating and taking into account what the public has to say is further apparent from the following reported in a Good Jobs New York press release. First the IDA scheduled the consideration of the issuance of the $454 million in proposed additional tax-exempt financing for the new Yankee and Mets Stadiums for Inauguration Day! Now it has rescheduled that consideration even less opportunely for just one day after the hearing. Presumably, they figure that staff doesn’t need to absorb or pass along to the IDA board any input from the public because the decision about how the board should be voting is considered to have already been made. (See: December 23, 2008, Good Jobs NY Press Release: Bloomberg’s Economic Development Office Announces Rushed Vote on More Bonds for Yankees’ and Mets’ Stadiums.)

For some quick reference to quickly establish some background, we quote from the above No Land Grab post:

Moreover, the public financing scheme approved by the IDA in 2006 for the new Yankee Stadium is under investigation by the U.S. House of Representatives’ Subcommittee on Domestic Policy and by State Assemblyman Richard Brodsky. Earlier this month, for example, Brodsky revealed evidence that suggests communication between City and Yankees’ officials led the city to artificially inflate land values to support more bond debt.

“It is outrageous for the Bloomberg Administration to rush additional public financing for the wealthiest teams in baseball while city, state and federal legislators are grappling with the worst budget crisis in decades,” said Bettina Damiani, Project Director of Good Jobs New York. “How do entertainment corporations outrank the city’s infrastructure and employment needs?”

Comptroller Thompson Calls for a Postponement of the IDA’s Vote and Asks About IDA Competence and the Public Being Misled

New York City Comptroller, Bill Thompson, issued a press release today calling for the IDA’s vote to be postponed. (See: THOMPSON: CITY MISMANAGED COST ESTIMATES FOR STADIUM FINANCING.) In it he points to concerns about the IDA intentionally misleading the public. Quoting some pertinent portions from the release:

“While our financial review cannot determine intent, this incredible mismanagement begs the question: Was this plain old incompetence or a blatant attempt to mislead the public?” Thompson said. “Either way, New Yorkers now have a box-seat view of fiscal mismanagement.”

* * * *

Thompson cited the following as examples of faulty cost estimates:

* The demolition of the existing Yankee Stadium was estimated at more than 50% less than the true cost.
* Failure to conduct environmental reviews, which would have taken into account the existence of, and necessity to remediate, oil tanks on the waterfront site of a planned new park.
* Underestimation of the cost for a rooftop park and retaining wall resulting in cost escalations of 30%; the price tag now stands at $44.5 million.

* * * *

Similarly, the cost to the City for a luxury suite will total $1,250,000 annually, while other luxury suite purchasers will pay between $600,000 and $850,000. Under terms of the new agreement, the City has agreed to let the Yankees market the suite with a minimum payment of $100,000 per year. {for some Noticing New York thoughts on this see: Wednesday, December 3, 2008 Mayor’s Focus on City Planning Matters: Some Quantified Analysis}

“Anybody can see that this is simply a bad deal for New York,” Thompson said. “Yet it is the kind of financial incompetence that the Administration has consistently demonstrated when it comes to the new Yankee stadium. And incredibly, the Yankees are asking for more money and the Administration wants to give it to them without getting anything in return.”

* * * *

“For all these reasons, I am calling for the vote to be postponed so that the City can negotiate a better deal,” Thompson concluded.

In November 2008, an audit conducted by the Comptroller’s office found that the Yankee’s underpaid the City more than $11 million in rent over a two-year period. As a result, the Yankees have since paid the City $7,352,519 plus interest of $635,132. The Yankees still owe the City another $4,035,636.

IDA Executives Subpoenaed by the Assembly

Another press release was issued today by Assemblyman Richard Brodsky’s office stating that the Assemblyman who is Chairman of the Committee on Corporations, Authorities, and Commissions, has, together with Chairman James Brennan (D-Brooklyn) of the Committee on Cities, “issued subpoenas yesterday to Seth Pinsky, Chairman of the Board of the New York City Industrial Development Agency, and Randy Levine, President of the New York Yankees, to appear at the Committees' hearing tomorrow, January 14th, 10:00 A.M., at 250 Broadway, Room 1923 (19th Floor), and deliver documents regarding the public financing of the new Yankee Stadium.” That press release also quotes Assemblyman Brennan:

"It is obvious that additional public subsidy for the Yankees is both inappropriate and unnecessary and the New York City IDA should halt further tax-exempt financings based on diverted property taxes"

Misleading the Public, a Hearing Habit (Like Bloomberg Misleading the Public)

Want another example of the way that the IDA goes out of its way to “mislead the public” ? Consider that it is being proposed that $370.9 million in additional bonds will be issued for Yankee Stadium. (This does not include an additional $60 million in refunding bonds. Of the $370.9 million there will be $259 million in bonds that are triple tax-exempt, exempt from federal, state and local taxation, and $111.9 million that will just be exempt from state and local taxes. The hearing notice focuses on not telling the public about the exemption from state and local taxes by expressing things this reverse way (emphasis supplied):

Up to $259,000,000 of tax-exempt and/or federally taxable revenue bonds, up to $111,900,000 of federal taxable revenue bonds and approximately $60,000,000 of tax-exempt refunding revenue bonds. . . .

That is exactly in line with the way Mayor Bloomberg is playing it when he keeps misinforming the public that these bonds do not involve expense to local New Yorkers. (See: Wednesday, December 17, 2008, Who Gets Clipped? Bloomberg Radio Clip on Stadium Financing and Monday, December 15, 2008, Stadium Finance: Mayor, Professing to Know Numbers, Should Know He Can’t Have It Both Ways (Unless He’s Keeping Two Sets of Books.)

Concerned Public Should Testify but Will Have Its Work Cut Out for It to Do So

Concerned members of the public should do everything they can to testify at the hearing, but you will have your work cut out for you. Keep an eye out for guidance likely to be available from Good Jobs New York.

There are cost-benefit documents now available to the public though they will be difficult to absorb: For the Yankees and for the Mets. (See: Wednesday, January 07, 2009, Documents emerge about stadium subsidies; mayoral candidates shy away from criticism and City Releases 116-Page Obfuscation of Stadium Deals, by Neil deMause, January 6, 2009)

Recently discovered (though the last-minute chance for public diligence is daunting): “Last Tuesday's paperwork on the New York Yankees and Mets tax-free bond requests includes word that the city will also be voting this week on exempting the teams' new stadium costs from mortgage recording and construction sales taxes, as their initial costs were.” See: Field of Dreams: January 12, 2009 Yanks bond request includes $11m tax break.

Jim Dwyer and a Few Things That Might Be Said Including Quoting the Mayor

For a good overview of some of the things one might say at the hearing, we refer you to the excellent recent piece of Jim Dywer’s: At the New Yankee Stadium, Sanity Rides the Bench, January 9, 2009. Some quotes:

This is more. New. In addition to. On top of the $942 million in previous financing, and $660 million that the city is pitching in to replace parkland sacrificed for the new stadium and transportation improvements.

What is the team going to spend the new $370 million on?

Here are some items on the submission filed with the city’s Industrial Development Agency: $10.5 million for “suite level upgrades,” and $5 million more for “public washroom upgrades,” and $1.1 million to “upgrade suite seats, field seats” and areas where disabled fans will sit.

Mr. Dwyer is even able to quote Mayor Bloomberg to make obvious points:

In 2002, soon after Michael R. Bloomberg became mayor, he announced that he was canceling stadium deals made in the last hours of the Giuliani administration.

“At the moment, everybody understands that given that the lack of housing, given the lack of school space, given the deficit in the operating budget, it is just not practical this year to go and build stadiums,” Mr. Bloomberg said.

“You have to set priorities, and the priorities this year do not allow for the construction of sporting stadiums.”

The city is now in much worse shape. Every agency that serves the public is being cut.

Additional Bonds as an Inducement for Stadiums That Are Already Built?

The fact of the matter is that the stadiums are already built. The cost benefit analysis offered by the IDA conflates the value of issuing these additional bonds with the value of having the stadiums which already exist. The stadiums are not going anywhere if more bonds are not issued for the purpose slathering additional benefit on the Yankees and the Mets. They are contractually obligated and to say otherwise would be to say that the city really doesn’t know what it is doing. In fact, there is nothing that even says that if the Yankees and the Mets want additional frills they won’t ultimately pay for them out of their own pocket the way all stadiums were once typically financed.

A Few More Impediments to Testifying at the Hearing (Plus an Updated Pone Number)

Here are some other impediments to testifying at the hearing. If you call the published number that the non-notice notice for the hearing gave, (212) 312-3542, as we did today, you may be told, as we were, that information is still not available as to whether the hearings will actually be going forward for these two issuances of bonds. You may be told that you needn’t RSVP in order to attend the hearing, but we recommend RSVPing and calling another number, 212-312-3598, (not in the non-notice and which we got from Good Jobs New York). Ask to speak to Fran Tufano. Query: if you don’t RSVP to give the IDA contact information, how will the IDA ever tell you that the hearings are going forward? (Ms. Tufano seems definite that the headings will be held on Thursday and that, however awkwardly precipitous it might be, the plan is to have the board vote the very next day.)

What We Were Able To Find out About the Additional $60 Million in Refunding Bonds (Representing Additional Public Cost)

Since there are $60 million in refunding bonds proposed to be issued, we wanted to know when, after the refunding bonds were issued, the bonds that they refund will be redeemed. The issuance of refunding bonds represents an additional transaction (which throws money to Wall Street professionals involved), but the point of our question goes to calculating the cost to the public of issuing these additional tax-exempt bonds. It goes to the question of what period two sets of tax-exempt bonds will be outstanding: Both the original bonds and the refunded bonds. This is what we were informed:

The proceeds of the refunding bonds will be held in escrow and invested in defeasance securities to the maturity or earlier optional redemption date of the series of bonds to be refunded. The decision of which series of bonds will be refunded is still being determined by the underwriter. Currently they are planning on defeasing the series 2009-2015 CPI bonds, which all mature prior to 2028. They are also considering defeasing a portion of the term bonds maturing in 2046. Those would be defeased to the optional call date in 2028.

That means that until that optional 2028 call date, there will be two sets of bonds outstanding. In calculating the additional costs to the public bear this in mind: $60 million in refunding bonds, which will be additional bonds simultaneously outstanding for a substantial period of time, should be added to the other $454 million for a total $515 million in additional new bonds.

The Prospect of Caroline Kennedy as a New York Senator

The New York Times is reporting that Governor Paterson met with Caroline Kennedy to discuss Ms. Kennedy’s interest in being appointed to the United States Senate. (See: Paterson and Kennedy Meet to Discuss Senate, by Nicholas Confessore, January 10, 2009.) We suppose then that it is time for us to write about this.- That is, to write about the prospect of Caroline Kennedy as a United States Senator.

A Working Relationship: Speaking Legally

It can properly be said that Ms. Kennedy, who had summer legal internship at the State housing finance agencies, once worked for me. As a lawyer, I was, as a technical matter, asked to formally oversee her assignments.

Rather than write about what kind of senator I think Ms. Kennedy might be based upon my experiences with her, I would like instead to write about the kind of senator I hope she would be, the kind of senator I think New York desperately needs. The truth to tell, I did not get to know Ms. Kennedy very well on a personal level. It was a busy time: she had a wedding coming up and I was too good at respecting deep personal privacy and too much in the habit of keeping relationships professional.

Two Irish Gentleman, Generations Back

In retrospect, I regretted not having gotten to know Ms. Kennedy better when I discovered years later that Ms. Kennedy’s grandfather, Joseph P. Kennedy, and my grandfather, Thomas Justin White, had corresponded extensively. The friendly connection between our grandfathers was due to the fact that they were both prominent and successful Irishmen. My grandfather was president and general manager of the Hearst Organization. Among other things these two friendly Irish gentleman wrote about how the nation’s economic depression needed to be effectively addressed and dissatisfactions (perhaps particularly my grandfather’s) with the way that Roosevelt was handling things. Given current state of our national recession/depression, I would like to have integrated more discussion of this into this post but it will have to wait for another day. I learned from the correspondence I reviewed that, based on how my grandfather was sounding out Mr. Kennedy, that my grandfather toyed with the idea of making a happy career switch from publishing to film executive. (In addition to his other business ventures and later political appointments, Mr. Kennedy had connections with film studios including the old RKO Studios.)

Given the friendliness of my grandfather and Mr. Kennedy, my father was acquainted with the next generation of Kennedys but this is not something I raised with Ms. Kennedy. Though I didn’t get to know her very well, I have nothing but good things to say about her personally and perhaps one rather silly one: I appreciated the casual nonchalance of how she wore just a simple Swatch watch. (I myself tried Swatches later on but abandoned them when I discovered that their plastic crumbles when exposed to sun screen, a seemingly little known fact.)

What Would NNY Like to See? Some Kennedy Family Examples

Jacqueline Kennedy Onassis

What would Noticing New York like to see from Ms. Kennedy if she is appointed senator for New York? There are some things we know about Ms. Kennedy’s family that would cause us to hope for the best in terms of that which we value. Ms. Kennedy’s mother, Jacqueline Kennedy Onassis, fought for landmarks preservation and was a key player in the fight to preserve Grand Central Station. In fact, the “highest honor” of the Municipal Art Society is the “Jacqueline Kennedy Onassis Medal.” MAS is an organization dear to our heart and one of the very most important in the city in terms of things Noticing New York believes it is absolutely imperative to see happen in this city.

Joseph P. Kennedy, Sr.

We know that when Joseph P. Kennedy, Sr. was appointed to be the first head of the newly created Securities and Exchange Commission, people said that it was like appointing the fox to guard the henhouse. The appointment seemed counterintuitive and was resisted for months because Kennedy himself had been a major stock speculator before the Depression in a stock market where game playing at the expense of the common investor was rampant. In the end, however, Mr. Kennedy’s appointment was generally regarded as a success because he was so familiar with what needed to be fixed and guarded against to protect the general public. President Franklin Roosevelt, whom Kennedy served, was a member of the upper classes but he knew that the interests of the upper classes can often be at odds with the interests of the general public.

Robert Kennedy, Jr.

Another Kennedy doing things we believe in is environmental lawyer Robert Kennedy, Jr. who works with the Riverkeeper organization to prevent pollution of the Hudson River in which our city of islands floats. Robert Kennedy is also keenly skeptical of the fairness and propriety with which some of our elections have been conducted which, in our book, places him on the side of the general populace. (See his article in Rolling Stone Was the 2004 Election Stolen? Jun 01, 2006, which dared to ask truly legitimate questions about the 2004 Bush Kerry election that far too few people were willing to ask.)

Ms. Kennedy’s Positions

We read one article listing most of Ms. Kennedy’s positions on issues (Kennedy Offers Hints of a Platform, and a Few Surprises, by Nicholas Confessore, December 20, 2008 ). We found that it left us mostly thirsting to know what we consider most important at this time: Where our politicians stand on what David Cay Johnston has defined in broad terms as the “rigged economy” (Listen to: The Leonard Lopate Show: Sick Economy, Wednesday, January 07, 2009.)

The Important Issue: The “Rigged Economy”

We believe that businesses, industries and organizations need to protect themselves against disruption and preserve their ability to serve as the social infrastructure that will make society productive in the future. But too often these days this self-protection tilts into something adverse to society. That’s when we get what Mr. Johnston is able to document numerous examples of: a world were those with an already existing cumulative advantage; the already wealthy, powerful and already gigantic corporations rewrite the rules to give themselves additional unjustifiable advantages. Too often these advantages are reaped by creating special subsidies that turn sensible economics upside down. On the national level, why should we tolerate the subsidization of corn ethanol as an alternative to “replace” petroleum if we actually use more petroleum manufacturing the ethanol than is saved by substituting the ethanol produced. On the local New York level we get equivalent abuses of subsidies and they are very much a Noticing New York concern because they are so exceptionally prevalent in the real estate industry.

The Exhortation of Another Kennedy Family Member

This is where we should mention Ms. Kennedy’s father, President John F. Kennedy, Jr. Those that are too young to know little else about her father will probably remember as his most ringing words: “Ask not what your country can do for you—ask what you can do for your country.” The abuse of the economy and subsidies as documented by Mr. Johnston and others represents the complete disregard of that exhortation. It represents, instead, its inverse.

Abuse of Subsides

Abused or carelessly used, subsidies can result in startlingly absurd results. The results seem explicable only if you consider that almost invariably the common citizen is being robbed to pile privilege and advantage onto those who are already privileged and advantaged. Disturbingly, and you can take as examples the various stadium finance deals paying for stadiums and arenas at public expense, it seems to represent the essence of billionaire Mayor Michael Bloomberg’s style and it isn’t working.

Bloombergian Abuse in the World of New York Real Estate

Though the details may vary, huge swaths of the Bloomberg administration city: West Harlem, Coney Island, Willets Point, Hudson Yards, the Moynihan/Penn Station area, Ground Zero, and Atlantic Yards are being turned over to single developers without public planning or appropriate breakdown to allow for effectively rigorous competitive bids. Since the goal seems to be to benefit the big developers, property is wrested from those who would own and use the property better. Destruction proceeds inappropriately and precipitously. Design quality for what will come next is soulless and we are slowly winding up with holes in our city where once we had things of value. Witness the destruction of Coney Island, the Atlantic Yards developer’s (Forest City Ratner) unnecessary destruction of the Ward Bakery Building, what the city wants to do at Willets Point, and the parks put asunder to build Yankee Stadium that may now not be replaced in the foreseeable future.

In essence, Bloomberg is selling off the public realm piece by piece. In the Village he is selling off a portion of the Greenwich Village Historic District to let unmerited private profit be extracted in the form of the high density of the Rudin/St. Vincent’s real estate deal.

These are examples of how the “rigged economy” manifests itself in the world of Bloombergian New York City real estate development and they are central to Noticing New York’s concerns about the city, but the same thing is happening writ large in multiple ways across the country. We think that what is required of a New York senator in this time of national economic crisis is an understanding that projects like the Brooklyn developer-initiated and developer-driven Atlantic Yards megadevelopment represent the root cause of our economic distress and not any form of ”shovel-ready” solution to it.

When It Comes to the “Rigged Economy,” New York Doesn’t Need Another Senator Schumer

In our day, we have had a lot of respect for New York Senator Chuck Schumer, always rooting for his rise. We have been watching him with respect for decades since he has always been a friend of affordable housing. After the 2006 elections we were pleased to be able to personally congratulate him on the significant role he played in the Democrats taking back the Senate, which we viewed as an exceedingly crucial thing at the time. Schumer is highly capable but we are thinking that the last thing we need now is another Senator Schumer. Why? Because he has supported Atlantic Yards though if you call his office you are likely to find them vague or obfuscatory on the subject. If Schumer supports Atlantic Yards, then he doesn’t understand the issues critical to the nation at this juncture. By the same token, Paul Krugman in one of his recent columns inserted a well deserved shout-out and call to action directed to Schumer, analogizing the Madoff scandal to the misfunctioning of the economy at large:

At the crudest level, Wall Street’s ill-gotten gains corrupted and continue to corrupt politics, in a nicely bipartisan way. From Bush administration officials like Christopher Cox, chairman of the Securities and Exchange Commission, who looked the other way as evidence of financial fraud mounted, to Democrats who still haven’t closed the outrageous tax loophole that benefits executives at hedge funds and private equity firms (hello, Senator Schumer), politicians have walked when money talked.

(See: The Madoff Economy, by Paul Krugman, December 19, 2008.- Emphasis supplied. We highly recommend reading this piece in full.)

Schumer’s Inappropriate Deference to ACORN

Wonder whether Schumer is being appropriately responsible on Atlantic Yards? An acquaintance of ours told us the story of cornering the Senator in a Park Slope barber shop and challenging him on his support for Atlantic Yards. What did the Senator say before fleeing? “I just accept what ACORN tells me about the project.” We called the Senator’s office and offered them the chance to elaborate on this point. When they didn’t get back to us, we didn’t put any effort into following up. Perhaps we will some day in the future. We put no stock in what ACORN says about Atlantic Yards. Our analysis about the lack of public benefit ACORN is shilling for and the questions raised by the improper cover-up of significant embezzlement is at: Selling out the Community for Beans (A Giant Wrong) (Saturday, June 28, 2008) and Falling Acorn! How Far from the Tree? (Thursday, July 24, 2008).

For good measure we refer you also to the recent reporting on secret and inappropriate handling of large conflict-of-interest ensuring loans to ACORN from the Atlantic Yards developer, starting off with this recent Atlantic Yards Report article: More details emerge about Forest City Ratner bailout of ACORN: did Bertha Lewis mislead her board? (Monday, January 05, 2009).

We don’t need another senator like Schumer carelessly putting stock in ACORN and not recognizing that it has sold out the community. ACORN must be recognized as contributing to the problems that need to be solved.

Ms. Kennedy and Mayor Michael Bloomberg

Back to Ms. Kennedy: Where might she stand on the important problems we face with the : "rigged economy?" The Times article listing her positions offers only one clue. It involves a fudge on the subject of New York’s master economy-rigger himself, Mayor Michael Bloomberg and the fudge and what the article elaborates out it worries us. To quote the article:

But Ms. Kennedy did not answer a question from Politico about whether she would support a Democratic candidate for mayor during the 2009 elections or supported Mayor Michael R. Bloomberg’s controversial but successful effort to alter New York City’s term-limits law to allow him to run for a third term.

Ms. Kennedy’s Senate effort has been managed by Josh Isay, a consultant to Mr. Bloomberg, who won his first term as a Republican and is now an independent. And she is also being aided by Kevin Sheekey, one of Mr. Bloomberg’s top deputies.

This lack of an answer could provoke Democratic officials in New York, many of whom had little relationship with Ms. Kennedy until she undertook a whirlwind tour of meetings this week, and some of whom will expect her to back the party’s nominees in general elections.

“As the last Democratic nominee, I would be very upset by a response like that,” said Fernando Ferrer, the Democratic nominee for mayor in 2005. “I don’t know if this is a disqualifying nonanswer, but it certainly doesn’t make Democrats comfortable.”

Mr. Ferrer noted that politicians were expected to back their party’s nominees in general elections, though some Democrats broke ranks to endorse Mr. Bloomberg in 2005.“I assume she would want Democratic support if she won a primary, and I presume she wanted Senator Clinton to support Senator Obama in the presidential race when it became clear that Senator Clinton did not have the delegate votes.”

A spokeswoman for the state Democratic Party, Carly Lindauer, said in a statement: “The mission of the New York State Democratic Committee is to help elect Democrats, at all levels, across the state. We hope that as a member of the party, the next senator would share that commitment and work with us to achieve our goals.”

We understand why Ms. Kennedy might let herself be helped in her bid by some of the same experienced political aides that have helped Mr. Bloomberg, but if Ms. Kennedy is not in the end able to recognize how bad Bloombergian style is for what ails America, we have a problem. There is also the question of recognizing how Bloombergian billionaire maneuvering on term limits was antithetical to fair play and respect for the rules by which the elected officials are supposed to honor and be accountable to the public. It represents, once again, making additional accretions of power by the privileged and powerful a priority over the common decency and respect the general public deserves.

For some of our thoughts on Bloomberg’s term limits extension, you might start with: The Mayor, The Times’ Timing, and a Proper Ordering (Saturday, November 15, 2008). For Times Columnist Clyde Haberman’s thoughts on the subject which we recommend there is a list of links in our article: Remembering; Not Forgetting in Chinatown (Tuesday, November 4, 2008).

The Obama Future: Finding New Common Ground

We note with interest and hope that Barack Obama has often spoken of effort to find common ground between right and left, red and blue, Democrat and Republican. We would like to think that this new common ground will be founded upon common sense. In other words, rejecting the bad economics and faulty policies of the “rigged economy.” Unfortunately, in the past, the common ground found between Democrats and Republicans tended to be just the opposite, a capitation to the big money spent in politics that sought to rig the economic rules to favor special interests, the special interests that asked only “what their country can do for them” at the expense of the taxpayer with little though of what they could do in return.

We look for and imagine change. To quote Robert F. Kennedy, who once held the senatorial seat for New York that Ms. Kennedy now seeks: “Some men see things as they are and say why. I dream things that never were and say why not.” Except this is not exactly to dream things as they never were. Abuse of subsidies and things like eminent domain have not always been known to the extent that they now are. We hope that Obama and those who will be in Congress to work with him will do something different and we hear hope for that in his recent speech discussing the need for economic stimulus last week when he said (emphasis supplied):

No longer can we allow Wall Street wrongdoers to slip through regulatory cracks. No longer can we allow special interests to put their thumbs on the economic scales. No longer can we allow the unscrupulous lending and borrowing that leads only to destructive cycles of bubble and bust.

Deus Ex Machina Desperation?

We recognize that Ms. Kennedy has been the subject of criticism for coming from a life of privilege and seeking to be appointed to this senate seat in a nonconventional, not-by-the-numbers fashion, not coming up through the ranks, and without “waiting her turn.” That is something to consider. By the same token it is tempting to hope that coming to us from outside the system, Ms. Kennedy, not saddled with the usual political debts, obligations, allegiances and compromised past, might be able to rescue us from the complicated mire in which the general public is regularly coming in second to the machinations of money in politics. That was also once a selling point for putting the billionaire Bloomberg in the mayor’s office, a candidate who theoretically would be immune to the pull of special privileged interests. With Bloomberg, things turned out to be quite the opposite, particularly as his lust for ever-extending his personal power is increasingly on display.

Our hopes for a deus ex machina rescue from the abuses of the privileged class by members of the privileged class is perhaps an indication of just how desperate for salvation we are. We have recognized this desperation once before when writing about whether politically active billionaire Tom Golisano with his Responsible New York organization has might step in to champion the cause of eminent domain reform. (See: Sunday, November 2, 2008, Still Looking for a Chance to Vote on Eminent Domain Abuse.) We have pointed out that it would be a natural for him to do so since the “issues he has been championing are almost all things that eminent domain abuse tend to tie in with: no-bid contracts, special tax abatements and exemptions, lack of transparency, favoritism, inequitable distribution of assets, back-door borrowing, out-of-control authorities and special big-developer real estate interests.” Ms. Kennedy will either align with the privileged class from which she came or, like other members of her family (and the aforementioned Franklin D. Roosevelt), Ms. Kennedy might step outside that convention to do something different. We can hope for the best but nothing is assured.

Roads to Greater Certainty: Grass Roots vs. Declarations

The fact of the matter is that if we place our hopes for rescue from the abuses of the powerful by members of the privileged class, we may find ourselves just waiting, waiting for what was once theoretically promised by Bloomberg, waiting for Mr. Golisano, waiting for Ms. Kennedy. Therein lies the argument for doing things grassroots from the ground up. Perhaps Barack Obama, the man Ms. Kennedy was one of the first to support for president, is an example of this very thing. We note, of course, that Ms. Kennedy has the opportunity of alleviating suspense by announcing herself on the issues we care about and that she can do so sooner rather than later if she so chooses.

What We Would Expect from Any New York Senator

We have said here what we would hope for from Ms. Kennedy as a senator, but from our references to Senator Schumer and our disappointment with him over his poor conduct on Atlantic Yards, it should be clear that what we are seeking and hoping for here is what we would seek and hope for from any New York senator. That includes not only Ms. Kennedy and Senator Schumer but anyone else who might attain a New York senatorial seat. That list could include Andrew Cuomo (with whom we also once worked), Carolyn Maloney or anyone else in the list of qualified candidates in the running.

The Beauty of Truth Through Design . . .

One last thing: There are many ways to come to realizations about the way that things are off kilter and what needs to be done to fix them. Insight, for example, can come simply from an appreciation for good design. We think that an appreciation of good design is what invariably leads the Municipal Art Society and Noticing New York to positions that are so close. Usually the main difference in what we have to say is that, for various reasons, Noticing New York is generally much less delicado when speaking truth to power. We also see much less reason to advocate compromise when process and power structures are abused. Noticing New York comes to its positions on New York politics principally from being dedicated to the proposition “that developing New York and appreciating New York go hand in hand.” Noticing New York, for example, was led to many of its conclusions by the exceedingly poor design of our favorite poster child for bad development, Atlantic Yards. (See: Tuesday, November 11, 2008, Jane Jacobs Report Card for Atlantic Yards . . .Megadevelopment Gets an “f”)

. . . And One Last Kennedy Family Member

We will mention one last member of the Kennedy family in regard to the question of appreciating good design; not Ms. Kennedy’s mother, Jacqueline Kennedy Onassis, who fought for landmarks preservation, but Ms. Kennedy’s husband, Edwin Schlossberg. Mr. Schlossberg is in the design field. The founder and principal of ESI Design, he is an internationally recognized museum exhibit designer, author and artist. Perhaps, such an appreciation for good design will lead to a convergence of paths and insight. Some time ago I wrote to Ms. Kennedy telling her that I was sorting out questions about the pursuit of public purpose, the roles in the world that are out there to be played and how urban planning and skills as a lawyer (which we both share) can best be used. I won’t say whether I should ever expect to receive correspondence back, but there are interesting discussions to be held in this regard.

We Hope. . .

In conclusion, if Ms. Kennedy is appointed Senator for New York as might quite probably happen, we can hope that she will be a good one and there is certainly cause to believe that this might be so.

Eminent Domain Is Density

Something struck us when we recently posted a piece about whether New York City is becoming too dense: The relationship between eminent domain and density. The piece we posted, Is NYC Becoming Too Dense? Who’s to Say? (Thursday, December 11, 2008), was about the Bryant Park area, including the new Durst Bank of America Tower exceeding livable density.

In essence, we find ourselves concluding that “eminent domain is density” or, put another way, that greater density is now coming upon us by way of eminent domain.

NYC’s Brave New World: Three Examples of Surpassing Density that Coincide With . . .

It does not seem to be an accident that density and the use of eminent domain coincide in the following examples of recent and proposed NYC development:

1. The Bank of America Tower, the second-tallest building in New York (6th Avenue and West 42nd Street. Year of completion 2009)

2. The New York Times Tower, which is tied with Chrysler Building for third place as the third-tallest building in New York (8th Avenue between West 41st Street and 40th Street. Year of completion 2007)

3. The proposed 22-acre Atlantic Yards megadevelopment which, calculated on a per square mile basis, would be twice as dense as the densest census tract in the country. (Though the 22 contiguous acres of the megadevelopment should certainly be considered as a whole, the 22 acres do not constitute a single census tract since the span of acreage partakes in four different districts. See: Ratner Will Bring Us Closer Together, by Matthew Schuerman in the Observer, October 5, 2006. The project area unto itself is substantial: Though the project design involves discredited superblocking, its footprint could readily constitute 10 city blocks if it were better laid out.)

. .The Modern Proclivity: New Use of Eminent Domain

It is not an accident that the use of eminent domain coincides with these three surpassing examples of density: Eminent domain is being used as the tool to shoehorn in density that would not be achievable under normal circumstances. The fact that these three examples are current era projects separated by only a few years bespeaks something of the new proclivity to use eminent domain to force private owners to transfer their property to other private owners. Often the transfers being forced involve the new, after-transfer owners making similar or identical use of the land as the original owners even though the original owners’ actual buildings might be torn down.

Adding to the List, a New Reason to be Wary of Eminent Domain

Some general wariness about eminent domain has already taken hold in society. The practice of using eminent domain to force transfers of property from one private owner to another is often criticized as easy-to-recognize abuse. (See: Saturday, June 28, 2008, Kelo case drew the line in the wrong place, Re: Pols Remain Masters of Domain.) We also know from what we repeatedly witness that resort to eminent domain frequently engenders blight even when “elimination of blight” is being invoked as a purported rationale for its use. What has yet rarely been talked about is the way that eminent domain is now being used to reach unusually high densities and how eminent domain rewrites the equation of the densities. Though this does not seem to be something people are talking about just yet it is something that should be raised at every public hearing where questions of appropriate density and use of eminent domain overlap. For instance, there is concern that by virtue of its recent rezoning, Downtown Brooklyn will soon become too dense, but because the plan is projected to use eminent domain, the density increase coming to Downtown Brooklyn will be more pronounced. (Not to mention that streets may be shut down, something you don’t want particularly when density is increased.) (see: Sunday, December 07, 2008, Some Place Like Home: FUREE's new film takes on Downtown Brooklyn rezoning).

Permitted Density vs. Achievable Density

As we discussed in Is NYC Becoming Too Dense? Who’s to Say? there is significant difference between permitted densities in the city and those achieved. The theoretical maximum densities permitted for different areas of the city under the zoning code are rarely achieved. In fact, only a fraction of the densities that are permitted in various areas are normally achieved. In essence, the maximum permitted density is a density toward which people are always building but which, on an overall basis, is not likely ever to be reached. What is achieved is somewhere in the middle between what has been the actual density and that permitted maximum. And, it is always possible to roll back permitted density to a lower density if it is perceived that the actual density people are building towards is in danger of becoming oppressive.

The Model in the Middle: Achievable Density

Therefore, whenever we are dealing with an area that is already relatively developed, maximum permitted density should not be perceived as a model toward which we as a city are building: The goal should be perceived to be that middle ground toward which building is heading. Actually it should be those middle grounds (plural) since achieving density is normally a gradual process. The equilibrium of what is achievable will change and increase over time. This is desirable. Respected urbanist Jane Jacobs prescribed that one aspect of making higher levels of density tolerable and successful is the achievement of density over time. (See: Saturday, November 29, 2008, Jane Jacobs Atlantic Yards Report Card #4: Appropriate Density? NO.)

The Experience of Density Relates to the Speed With Which it Materializes

It occurs to us that achieving an appropriate level of density is therefore a little bit like the macroeconomic formula prescriptions for achieving an appropriate size for the nation’s money supply: the question of the speed becomes important. In macroeconomics the size of the nation’s money supply (which affects inflation, or, these days, possibly deflation) is not just a question of the amount of currency in circulation plus the deposits available on demand in banks and financial institutions; it is also affected by the “velocity” of money, the rate at which money changes hands. The faster money changes hands between consumers, the greater the effective size of the money supply that influences the economy. Similarly, the effects of density in the city and whether it is beneficial or tolerable has to do not just with how much total density there is overall and whether there are streets, avenues and infrastructure to support it, but also how fast that density is being created: density created at greater speed will be experienced as more overwhelming in nature.

Permitted Density Should Exceed That Density Which Is Our Goal

Back to maximum permitted density: as we said, it should not be the goal. The goal, the desired density, should be somewhere in between what has existed and what under the maximum permitted can be built as a practical matter. Accordingly, maximum permitted density should be greater than what one expects will be achievable. How much greater permitted density is, will influence the speed with which new higher densities will be achieved. If higher density is intended to be achieved at a faster rate (which will increase the experience of inordinate density during that increase) then the permitted density should be all the more greater than the density which is the actual goal.

Problems with Using Eminent Domain to Attain Greater Density

The problems with using eminent domain to attain greater density are several fold. First off it should be noted that when it is used this way we are in uncharted territory. Eminent domain was not previously used to create density. When eminent domain was used to create roads, parks, police stations, court houses, fire houses, public schools, transportation centers, its goal was something else: Its goal was public use. The focus was on use and good design. The use of eminent domain to create density is an outgrowth of the use of eminent domain for “economic development” purposes, but even when it was first used for this new purpose the goal did not initially seem to be to maximize density. The impulse toward maximizing density seems to be a new fashion.

The following problems materialize:

1. Using eminent domain to boost density circumvents the normal practical constraints on the maximum levels of density that can be practically achieved. Notwithstanding that maximum permitted density was never the model or ideal and notwithstanding what we have said to the effect that the maximum permitted density should normally be substantially above the ideal, the maximum permitted density now becomes achievable. It becomes what is achieved or targeted. In ways that may not be immediately and transparently apparent to the public, it is now possible to shoehorn in every last little lick of permitted density. Ergo we get more density than is ideal and more than was truly planned for when the maximum density levels were established.

2. If developers are able to adhere to their desired schedules, the increase in density will be achieved too rapidly, thus aggravating the negative overwhelming impact of the growth in density.

3. Eminent domain is likely only to be made available as a tool to the politically favored. It therefore shifts substantial resources, as represented by the density that only the politically favored will be afforded, into the hands of what David Cay Johnston refers to as the “rigged economy.” Those resources are consequently shifted away from optimal free market resource allocation. (Listen to: The Leonard Lopate Show: Sick Economy, Wednesday, January 07, 2009) The result is getting less of what society actually wants and more of what is politically favored.

4. One of the reasons Jane Jacobs favored slow build-ups of density is that it allows for development of greater variety. The political favoring associated with building up through the use of eminent domain becomes a second element, in addition to speed, that makes the development of such desirable variety less likely. Slow build-ups of density also allow that variety to accrete interactively in a natural up from the ground way rather than being formulaically filled in.

5. With fast build-ups of density, society is less likely to be in a position where it can evaluate soon enough and respond by easing off on the creation new density if experience points to the value of doing so.

6. The developer bias toward density of development is blessed and often accentuated with modern-style, density-creating eminent domain. That is because today’s “economic development” eminent domain is so often developer-initiated and developer-driven. Atlantic Yards is clearly a case where the project was both developer-initiated and developer-driven. In the case of the Durst Bank of America Tower, the Durst organization had assembled most of its development site before it approached the state to use the threat of eminent domain to acquire the rest of the site. (See: Developers Can't Imagine a World Without Eminent Domain, by Terry Pristin, January 18, 2006.) The New York Times Tower has Forest City Ratner as one of its developers, the same developer responsible for the developer-initiated and -driven Atlantic Yards megadevelopment. Condemnation and assembly of the Times Tower site by Empire State Development Corporation did not occur until after the New York Times was identified as the prospective owner of the building. (See: Blight to Some Is Home to Others; Concern Over Displacement by a New Times Building, by David W. Dunlap, October 25, 2001). According to the Village Voice “After the Times expressed interest, the city and state abandoned previous plans to seek bids on the property, which is privately owned but in the Times Square redevelopment area.” Instead the state and city signed off on a sole-source deal with multiple special benefits for the Times and its partner, Forest City Ratner Companies. (See: The Paper of Wreckage, The 'Times' Bulldozes Its Way to a Sweetheart Land Deal You Will Pay For, Paul Moses, June 18th 2002.)*

By definition, the price paid to acquire private property through eminent domain creates a windfall since it is not equal to market value, given that it is not the price at which the original owners would willingly sell the property. The windfall is greater since the original owners of the real estate (including such parties as tenants) are not fully compensated for all the value lost in the process of the forced transfer. Therefore, eminent domain is attractive to developers because of the per se windfall it represents in any acquisition price. But the greatest possible windfall is made possible to the extent that the density of the new development exceeds the density of the area’s development that would have been reasonably expected or anticipated. To the extent that density in the new development exceeds the generally expected, reasonably anticipated density for the area, there will be eminent domain windfall that is gravy over and above the base level of eminent domain windfall that could be expected. That is because, while condemnation law does not presently fully compensate original owners, the law prescribes that the portion of the compensation that will be paid will be geared to the foreseeable development value of the property. To the extent that density is pushed to exceed the foreseeable development value, the developers will not have to additionally compensate the original owners at all. Therefore, there is a strong incentive associated with developer-driven eminent domain to push the density beyond what was reasonably foreseeable so as to access this gravy windfall.

* (The June 2002 Village Voice article presciently reported: Robert McChesney, a communications professor at the University of Illinois, said the deal "gives the appearance of impropriety" and will undermine the Times' ability to criticize similar arrangements between government and business. The materialization of that prediction has been reported upon by Atlantic Yards Report and most recently in an IFC Media Project documentary segment devoted to the issue. See: Wednesday, December 17, 2008, Time to Times; Dear, Dear, Dear, Thursday, December 11, 2008, "Unreliable Sources" redux: only one of three dailies covers the Forest City conference call, Monday, December 08, 2008, A dozen Atlantic Yards stories that have gotten scant or no coverage, Unreliable Sources and December 13, 2008, Unreliable Sources: "Undue Influence." See also the picture of the Times Tower on the cover of the Forest City Enterprises new annual report, click to enlarge, laid out to look like the New York Times Magazine: Fr more on this see: Sunday, May 25, 2008, The FCE annual report looks like the NYT Magazine.)

Examples of Developers Pursuing Unforeseeably High Levels of Density in Order to Get Eminent Domain Windfall Gravy

Eminent domain-associated, developer-driven campaigns to exceed density increases that would be reasonably expected through foreseeable upzonings are likely to be most apparent in the case of areas zoned for relatively low density, where the difference between current low zoning and the maximum possible legal zoning is greatest. Atlantic Yards is a clear example of this difference. Atlantic Yards evaded public hearings on the zoning change to increase density. The proposed Columbia University expansion into West Harlem is another such example. Columbia’s proposal to put a huge “bathtub” basement underlying most of what it is proposing to build, including under the intervening streets, can be seen as a convenient rationale to undergird its argument for the use of eminent domain to take over a complete neighborhood rather than integrate into it. The seven-story-deep bathtub can also be seen as a way of maximizing the jump in density beyond what might have been reasonably expected. Thus it is associated with the pursuit of maximum eminent domain windfall gravy.

The extent to which Columbia’s increase in density is unexpected or beyond what might be reasonably anticipated is somewhat disguised by the fact that there was a competing community plan and the community, stretching to get its own plan accepted, sought to propose as much maximization of density to accommodate Columbia as possible. The difference was that with the community’s alternative plan, other property owners, not just Columbia, would have benefitted by acquiring the value associated with increases to permitted density of their property. Those owners would have benefitted even if they then sold their land to Columbia. (Even as is, the community plan’s proposal to increase density should assist in providing an evidentiary foundation for the owners in the West Harlem to obtain greater compensation to the extent that eminent domain forces transfers of their property to Columbia.)

But Doesn’t the Creation of All This New Density Stimulate the Economy?: Not Likely

Could we at least say that these new concentrations of density will benefit society by representing development and economic stimulus that would not have occurred otherwise? No, not reliably and it may be the opposite. It will not be so to the extent that these new overly dense areas are subsidized to out-compete the less dense and more diffuse alternative development the economy would naturally have engendered. In this regard, things like the level of the tax abatement subsidies received by the New York Times Tower must be examined. It will not be so to the extent that these areas of huge development shift resources into the less efficient and productive rigged economy benefitting the politically favored. It will not be so to the extent that these new areas of density involve, as they more likely will, unnecessary demolitions of worthwhile buildings rather than infilling around them. It will not be so to the extent that these developments capture and misdirect scarce resources like subsidies that would be better used elsewhere. Last, and most important, it will not be so to the extent that we create an undesirable environment in which to live and work.

What Hasn’t Yet Been Noticed

At the moment we are unaware that anyone else has pointed out the linkage between eminent domain and the delivery of unprecedented new and unexpected levels of density. You may be reading about it here first. In Is NYC Becoming Too Dense? Who’s to Say? we pointed out that there are lag times involved before increases in density are fully noticed or comprehended. In the end, whether a level of density is the right level or too great depends upon how it is experienced and that experience does not come until the tail end of a process. It doesn’t even come when sky-blocking buildings are built; it comes only after they are fully rented and occupied in a thriving economy. As fast as things have been moving in Yew York, we are not yet at the stage where significant increases in density have been fully noticed. For instance, though we wrote about how the Bryant Park area is destined to become denser than it has ever been before, right now the buildings that overlook Bryant Park are have difficulty renting to fill up. (See: Market’s Troubles Echo in a Building’s Vacant Floors, by Charles V. Bagli, November 9, 2008 and Square Feet: Manhattan Awash in Open Office Space, by J. Alex Tarquinio, December 2, 2008.)

You Heard It Here First

Once we more fully notice with full comprehension the density building up around us, we will perhaps also notice the new important relationship between that density and eminent domain. As we said, we are in uncharted territory since we have not seen this before. Because this is uncharted territory, people should be talking about what is going on in order to decide how to navigate going forward. So remember, you heard it here first when we pointed out that New York’s brand new second-tallest building, its new third-tallest building and its new proposed 22-acre neighborhood that would be twice as dense as the densest census tract in the country, all rely on a new proclivity to use eminent domain as it has never been used before, to subject us to new unexpectedly high levels of density.

Coney Island- Grinch Story

Developer Joe Sitt sure seems truly certain that the Bloomberg administration has a pot of gold for him at the end of a rezoning rainbow if he totally annihilates Coney Island. We refer you to Rich Calder’s Christmas Day New York Post Story, The Grinch Who Stole Coney Is.: Christmas Eve Lockout. It sounds as if Mr. Sitt is hacking away machete-style to destroy every inch of Coney Island amusement area he can colorably claim he has the right to through his unfortunate ownership. It doesn’t make sense for him to be destroying the zoning compliant amusement uses of these areas unless he is confident that the Bloomberg administration will accommodate him (or those who subsequently purchase from him which is the likely plan) with a coup de grace rezoning once the dastardly deed is done.

You can’t argue over the results. The destruction of Coney Island can clearly be laid at the Bloomberg administration’s doorstep. Is it, as can be so readily suspected, the result of policies intended toward this result? If not, it is the result of abjectly failing policies that are nearly as bad. (Here is some Noticing New York reading on the subject of Coney: Wednesday, November 5, 2008, Back In the Coney Island Saddle? Saturday, October 4, 2008, “Sitt”ing Not So Pretty and Monday, November 17, 2008, The Coney Island Crowd: Plans Unveiled Tonight.)

And once destroyed will anything replace our Coney? It is a bad economy. That which gets destroyed does not necessarily get replaced. How many areas of the city that resiliently survived for generations through good times and bad must be destroyed under Bloomberg to be replaced, if at all, perhaps only decades hence? We’ve seen the destruction of thriving parts of Prospect Heights including the landmark Ward Bakery. It might be replaced in 30 years. Columbia University has been given the tool of eminent domain to blight West Harlem and hold it for slow development over decades. Willets Point is may also be wiped out with eminent domain and again, who knows if it will be replaced in 30 years.

Keep alert. If you go to Coney Island this New Year's Day the Polar Bear Club will be taking their annual swim. Expect also to see people who are gathering because they don’t want Coney Island’s future taken away from us. It seems as if plans are taking shape. They should be gathering at the gates of Astroland, another amusement calculatedly put asunder by Mr. Sitt.

Go. Go to Coney Island this New Year's Day. You even have an excuse: Coney this year it is Reuter’s top pick of all the places in the world to usher in the New Year. See: Travel Picks: Top 10 places to usher in the New Year, Fri Dec 26, 2008. Maybe Reverend Billy will be there and maybe the Whos will be making a joyous sound the Grinch will hear from his mountaintop.

A New Year’s Revolution List (Starting 2009 Off Clean: Pull the Plug On Atlantic Yards)

It is time to pull the plug on Atlantic Yards, go back to the drawing board and get going with a better designed, fairer, clean-slate project that can proceed faster at less public expense and greater benefit. We’d soon be most of the way there by bidding out a version of the UNITY plan proposal to multiple developers. The proposed Atlantic Yards developer, Forest City Ratner, is clinging to a strangely formulated circumlocution that it is using to string along its investors: That FRC has an “entitlement” to decades of undefined development in the proposed Atlantic Yards footprint. Forest City Ratner’s “entitlement” is a just a made-up term. It stands for nothing legal and, at best, is a claim upon politicians not the public. (Honestly, what more does anyone thinks it means than, "We gave campaign contributions?")

Forest City Ratner never bid to become the developer of Atlantic Yards. Giving a decades-long monopoly on acre upon acres of Brooklyn development to a bankrupt developer with bankrupt ideas who is forever looking for opportunities to raid the public till for additional subsidy is hardly the model we should be following. Forest City Ratner is the same developer who has the twisted notion that its ravaging of Prospect Heights and its environs with blight will strengthen its tenuous chances of being permitted to develop the area. Obviously, Forest City Ratner will be generating more blight until it is extracted out of the picture.

Governor Paterson, Mayor Bloomberg or even the City Council each have the independent ability to initiate the action of extracting Forest City Ratner from the picture. Let’s consider how they are going to do it.

Consider this a wiki-piece. We are throwing out ideas in the list below that consists of various thoughts about ways to terminate Ratner’s “entitlements.” We invite anyone to contribute additional ideas to the list. How good an idea does one need to send Ratner and his “entitlements” packing? It probably won’t take much to bid adieu to Forest City Ratner. Remember that even were Ratner to protest, the courts are going to be sympathetic to the government seeking to follow a good government course of action.

1. Entitlements? Where would they come from? There was no contract to begin with. There is no such thing as a legally enforceable "agreement to agree." A contract has to be reasonably specific from both ends about what is going to be done in order to be enforceable.

2. Next, the project is no longer what was approved. For instance, there should be no obligation to do a $950 million arena when what was approved was a $637.2 million arena.

3. It is easy to simply note that more approvals are needed and that they won't be forthcoming. An example: the Public Authorities Control Board approval taking the arena up to $950 million.

4. Housing subsidies should not be given unless there is a competitive bid for the parcels of project being financed. That knocks Ratner totally out of the box. The housing agencies have not contracted to give (non-bidding) Ratner subsidy and they shouldn’t.

5. Then there are the various breaches on Ratner's part.

6. It is also possible to throw Ratner out based on misrepresentations.

7. If all else fails, terminate and give Ratner damages. The courts will never allow him substantial damages. (Among other things, think back to the misrepresentations and no-bid aspects of his project.)

8. To get out of financing the arena, bond counsel can observe that they don't consider that proper legal opinions can be issued on the bonds. (It could be the current bond counsel or there might even be a reason to switch to bond counsel as a first step, given everything that has gone on with Yankee Stadium and a history of odd real estate assessments on these deals.)

9. Ratner’s so-called “entitlements” can be voided for public policy reasons.

10. Eminent domain could be used to wipe out whatever “rights” Ratner thinks he has.

11. Then there is the simple expedient of just settling the law suits- Why? Because the state knows that there is plenty in its files which would cause the litigation to be lost if it is divulged.

12. Because of various bait and switches, what was contracted for was never properly approved. There are therefore no valid “contracts” because they would all be ultra virus. An ultra vires defense can also be asserted to the extent that authorizing legislation has been exceeded.

13. Recind city and state appropriations. Take advantage of the fact that this project is being done over the course of so many years that appropriations for it can always be recaptured because the City Council and/or the state legislature this year doesn’t have to spend what once upon a time a prior City Council and/or the state legislature decided it wanted to spend.

14. Have the city rezone the entire area for something more appropriate. Override ESDC’s zoning override. (And don’t re-override it back again.)

The above is not intended to be inclusive. Nor have we ordered ideas, putting the best first. Pretty much any one idea would suffice in itself though there is always the option of using ideas in combination. As we said, consider this a wiki-endeavor, so we are soliciting additions.

One place the ideas should be coming from is Empire State Development Corporation (ESDC). As has been reported, there was a meeting the beginning of this week where gathered legislators were presented with the status of the dreadful mess that ESDC and Forest City Ratner have made of things. (See: Wednesday, December 24, 2008, Details on AY housing point to 80/20 rentals, not condos, in a smaller Phase and Developer of Atlantic Yards project delays condo plan, by Jotham Sederstrom, Tuesday, December 23rd 2008.)

The way the meeting should have concluded is that ESDC Chairwoman Marisa Lago should have asked the Forest City Ratner people to leave the room and she should have thereupon addressed the assembled legislators to say, “Here are our favored options for terminating our relationship with Forest City Ratner.” If this did not happen, upon Marisa Lago’s initiative, the request for the Forest City Ratner representatives to leave the room should then have come from the legislators present. Our legislators should have then asked Ms. Lago to present the termination options.

If neither of the above happened, each of the legislators involved in the meeting should be contacting Ms. Lago in follow-up, asking for a detailing of the preferred termination options. All it takes to get moving is for people to decide that pulling the plug on Atlantic Yards is what we are going to do and for the government lawyers to get creative because this is the time we are going to do it.

We are happy to add additions from the government lawyers to our wiki-list.

We understand that the legislators who were involved with Monday’s meeting and should be equipped with the identified option to terminate Forest City Ratner are as follows: City Council member (and candidate for City Comptroller) David Yassky, City Council member (and candidate for Public Advocate) Bill deBlasio who sent a represntative, City Council member Tish James, Congresswoman Yvette D. Clarke, New York State Senator Velmanette Montgomery, New York State Assembly members James (Jim) F. Brennan, Joan L. Millman, and Hakeem Jeffries.

Let’s see what they can send in to add to our wiki-list.

Our Reasons to Love New York Magazine and Elected Politicians

We are going to start this piece by saying a few appreciative things about New York magazine and the proceed with a segue to discuss what will be necessary for us to say appreciative things about our New York politicians.

New York Magazine: Loving Something They Love

In one of its end-of-the-year-round-up special issues New York magazine just featured 59 “Reasons to Love New York.” As has been widely reported, one of those reasons, (#14- the Valentine Numbers?) is the non-building and non-success of the proposed Atlantic Yards megadevelopment. (For the original NYM piece see: 14. Because Sometimes Immense, Gratuitous, Noncontextual Acts of Real-estate Ego Don’t Pan Out . . . by Robert Kolker Published Dec 14, 2008. For some of the reporting on it the article see: No Land Grab: December 15, 2008, Reasons to Love New York 2008, New York magazine, by Robert Kolker, Tuesday, December 16, 2008, NY Mag: "Because Sometimes Immense, Gratuitous, Noncontextual Acts of Real-estate Ego Don’t Pan Out…" and The Brian Lehrer Show / December 18, 2008 / He (Hearts) New York. )

Some of New York magazine’s thoughts about why this is a reason to love New York:

They say New York is the place where your greatest dreams can come true. Of course, it’s also a place where those dreams can die on the vine. Take Atlantic Yards. Lending new meaning to the term noncontextual, Bruce Ratner’s $4.2 billion, 22-acre combination of residential towers and office buildings, anchored by a basketball arena for the Nets, was supposed to completely transform downtown Brooklyn—with seemingly little thought given to what it might do to the already paralyzed intersection of Atlantic and Flatbush Avenues.

* * * *

. . . Ratner has reportedly laid off workers, and he’s admitted he won’t build anything other than the arena without an anchor tenant for the tallest building. Five years ago, Gehry said what he really wanted was the chance “to build a neighborhood from scratch in an urban setting.” At the moment, the old neighborhood is winning. Score two points for entropy.

Pursuing all the 59 reasons to love New York, this was the only one we could spot that was based on something that is NOT happening. Maybe the closest to it is reason number 3, which is that New York is taking back its streets for pedestrian use. (See: 3. Because Robert Moses Would Have a Coronary If He Were to See Our Streets Now, By Justin Davidson Published Dec 14, 2008.) In this regard we should note that if Atlantic Yards were to happen as proposed, its design involves a strike against the public in that the developer would be taking over for his private benefit public streets, avenues and sidewalks.

New York Magazine as a Resource

New York magazine is a great resource. They publish a wide range of views. The reliability of their guidance may be undermined by a tendency to go for quick, snarky comments, but in the end they contribute valuably with some comprehensive reporting. For instance, we found they provided valuable resources when we were evaluating the World Trade Center site redevelopment. (See: Tuesday, August 5, 2008, TWO, AND FRO?)

Two examples of the snarkily-off-base are in the same list of 59 reasons to love New York: the overly-clever suggestions that Mayor Bloomberg is to be loved as a masochist or that his baseball stadiums are to be loved as example of ill-considered multi-million excess and squandering. (See: 12. Because Our Mayor Is a Self-Regarding Masochist, by Chris Smith, Dec 14, 2008 and 27. Because Our New Stadiums Are Perversely Perfect Symbols of the City Right Now by Chris Smith, Dec 14, 2008 )

New York Magazine’s Greatest Atlantic Yards Service

We can’t write about the value of New York magazine without writing about the cover story they did on Atlantic Yards for their August 7, 2006 issue, with their “Ratzilla” “Battle for the Soul of Brooklyn” cover. (See: Mr. Ratner’s Neighborhood, Manipulative developers, shrill protesters, and a sixteen-tower glass-and-steel monster marching inexorably forward. What the battle for the soul of Brooklyn looks like—from right next door, By Chris Smith Published Aug 7, 2006.)

This cover story was where some people, including ourselves, were introduced to our first credible account of the Atlantic Yards tale. I was still responsible for legal affairs at the state finance authorities. We subscribe to New York magazine (basically since it was in its fledgling incarnation as part of the World Journal Tribune) but I had not read the story. It was brought to my attention in the office by other agency professionals. It was brought into my office noting that I would almost certainly find it a cause for alarm. Even then I did not read the story right away. When I did, I was quite concerned. It got may attention. I kept researching afterward. And there was lots worth researching. There is no better site for deep research on the subject than Atlantic Yards Report. The New York magazine piece was a wonderful initial introduction and overview.

While there was some alarm on the part of professionals at the agency, there was another point of view available. From a technical standpoint the project seemed so harebrained that it could be predicted that it would never succeed. Harebrained, yes, but I think this pont of view could have been more of a protective denial mechanism against ever having to worry that, as a public servant, one might become responsible for something so publicly damaging. I, for one, suffered enormous angst and hoped that a new gubernatorial administration would come in with greater sense to put things on track. Thankfully, the project never came before the staff of the agencies before I left public service and we never had to deal with the project as public servants.

A Pre-PACB Approval Conversation with Councilman David Yassky: New York Times Vs. New York Magazine

One regret I had after the New York magazine article led me to become better informed was that I missed the opportunity to give our representative City Council Member David Yassky timely advice on the project. I remember being at a party one December long before the Public Authorities Control Board (PACB) and other approvals were in place. Councilman Yassky was earnestly looking for advice and reactions to the project. We discussed it with him briefly as a constituent and neighboring Brooklyn Heights resident. Unfortunately, all our information about the project up until then had come from the New York Times, which was inadequately reporting the reality of the project. The Times has still not caught up with its responsibilities and though it has occasionally run some good stories since it has a lot to make up for. It is not only a question of whether you report the news well, but when you report it well. The most important time for the Times to have been reporting well about the project was before initial approvals like the PACB’s were in place.

It was also unfortunate that we assumed that other public servants who were working on Atlantic Yards were adequately performing their jobs. That was an incorrect assumption.

As such, we did not sound the alarm with Mr. Yassky. We expressed some concerns about how bad sports arenas are for central city locations (cf. Madison Square Garden) and wondered about the exact location being picked for the arena, but mostly we missed the slew of issues that should have been brought up. The Times let us down and we, in turn, let down Mr. Yassky. Thank you, New York magazine for doing the job the Times did not do.- - Just a little too late.

We have since that time been vigilant in keeping Yassky apprized of where he should be in terms of Atlantic Yards.

Yassky and Atlantic Yards this Week

This Monday evening we had another conversion with David Yassky about Atlantic Yards when we ran into him. We told him that we want to do a Noticing New York interview with him on the subject of how people can make up for the fact that the City Council term limits extension vote is a net negative and setback in terms of properly ending Atlantic Yards. Yassky with his affirmative vote on the term limits extension is importantly among those responsible for this setback. (Our mention of an interview was actually a reminder because we had previously left a message with his office to this effect.) As it was, we began to discuss the subject right then and there.

Councilman Yassky suggested that some confidence could be put in the notion that Atlantic Yards was no longer a threat because the economy was killing it. I expressed concern that until it was truly killed there was continuing concern and that the developer, Forest City Ratner, would no doubt be trying to lure the Obama administration into the grave mistake of finding funding for this project. (We think that the Atlantic Yards megadevelopment is representative of the kind of thing that caused the current economic crisis and is certainly not its cure. More on this later in another piece.)

Yassky asked us why we thought the term limits vote was a problem for Atlantic Yards. We said because Bloomberg is a problem for Atlantic Yards. (We didn’t mention Marty Markowitz, who is less of an issue compared to Bloomberg.) Yassky suggested that Bloomberg had little to do with it. He suggested that Governor Paterson should be exercising his ability to pull the plug on the project. We disagreed that Bloomberg is not central to the problem. We pointed out that, if Bloomberg were not supporting the project the plug would already have been pulled. For instance, the project can’t go forward without housing subsidies. I noted that the state agencies (where I used to work), while they are state not city agencies, would never give subsidies to a project to which the mayor was opposed. The same is true about the Empire State Development Corporation (ESDC) the agency accountable to Paterson that can now easily pull the plug on Atlantic Yards.

What Yassky should have told me is that earlier that morning he was at a meeting where Forest City Ratner was making a plea to a collected group of elected officials for a redirection of housing subsidies in order to shift affordable housing to earlier phases of the project. (Developer of Atlantic Yards project delays condo plan, by Jotham Sederstrom, Tuesday, December 23rd 2008.) The housing subsidies Forest City Ratner wants can also come from the city housing agencies such as the New York City Housing Development Corporation. In fact they may probably come from the city agencies if they are awarded. The mayor has substantial control over what those city agencies do. Ergo, back to our original point. The term limits extension vote and Bloomberg are a problem in putting the stake in the heart of Atlantic Yards. (BTW: A “delayed” building of the condos doesn’t mean that fewer condos and more rental housing would be built, only that in a poor economy Ratner wants to more subsidy diverted to him sooner.)

We still want to do the interview with Councilman Yassky about how the negative effect of the term limits can be countered. (Bloomberg is a problem on other things too: Not only on the 30-35 acre monopoly Bloomberg wants Forest Ratner to have in the Atlantic Yards area, but also the swaths of the city Bloomberg is handing out in other areas like Willets Point and the West Harlem Neighborhood being given to Columbia.)

The Daily News story that reported on the Monday meeting of elected officials with the Forest City Ratner officials looking for a handout ended with a Yassky quote:

"I don't believe the project approved by the state is going to be going forward anytime soon," said Yassky. "Forest City Ratner should return the taxpayer dollars, and start talking about what actually can be built."

Develop Don’t Destroy Brooklyn commenting on that article, said, “We second that thought Councilman Yassky.”

Reclaim the Project: No Entitlements

We do not wholly second the Yassky thought. While we do think that "Forest City Ratner should return the taxpayer dollars,” we do not think it should be up to Forest City Ratner to be “talking about what actually can be built." It is up to our public officials to be talking about what should be built. The plug should be pulled. The project should be taken away from Forest City Ratner and a properly conceived and designed project that is actually bid out should be built by multiple developers, preferably, Forest City Ratner not among them.

Atlantic Yards Report ran a story today about how Forest City Ratner is speaking in terms of its being entitled to build Atlantic Yards (and by definition being entitled to a decades-long 30+ acre monopoly on this section of Brooklyn). (See: Wednesday, December 24, 2008, Who's in control? Forest City and the indirect subsidy value of its "entitlements.") Fact is, no one is proposing to build what was ever “approved,” there are no commitments from Ratner and there are no entitlements. (In fact, “entitlements” is a just a made up term. It stands for nothing legal and, at best, a claim upon politicians not the public.) The plug ought to be pulled now and the public funds should be retrieved just as Mr. Yassky says. Then perhaps Mr. Yassky can, as a candidate for City Comptroller, subsequently as City Comptroller Elect and then as City Comptroller start plugging those figures back into the city budget so they can be spent appropriately.

Run, Mike, Run With What You Made Off With

In light of the recent Bernard Madoff scandal, we cannot help but revisit the Daily News editorial that recommended that Mayor Michael R. Bloomberg should run for a third term and that term limits should yield in order to let him do so. (See: Run, Mike, run, Monday, September 22nd 2008.)

Daily News Endorsement Based on Perception of Bloomberg’s Financial Expertise

The recommendation was made largely based on the News’ endorsement of what they touted as Mr. Bloomberg’s ostensible financial expertise. To wit, we offer these extracts:

Michael Bloomberg must stand for reelection to a third term as mayor in 2009. Run, Mike, run.

New York is only beginning to weather the damaging effects of the worst financial crisis to hit the U.S. since the Great Depression.

* * * *

New Yorkers deserve to select the person they feel is best qualified to pull the city through the crisis from among a full field of candidates.

Bloomberg must be in the pack.

* * * *

The decisions that await New York, home of Wall Street, epicenter of the financial meltdown, will be extraordinarily tough, far tougher than anyone imagined just a few weeks ago.

With the city's main economic engine headed for a sustained period of weakness, this mayor and his successor . . . . must have the know-how to draw businesses in rising new sectors that can pick up the slack in the coming decades.

* * * *

Put simply, Bloomberg knows what he's doing. . . .

* * * *

Run, Mike, run.

Perceived Expertise Ain’t Always What It’s Cracked Up to Be (See Madoff)

What the Madoff scandal teaches us is that perceived financial expertise is not the equivalent of actual financial acumen and dependability. We think that the case strong that Bloomberg’s vaunted financial expertise is mostly myth and that the reality is quite the contrary. (See: Thursday, October 23, 2008, Bloomberg Qualified Financial Crisis Leader? He Can Learn Says Schumer! and Saturday, October 25, 2008 More Discredit of Bloomberg as Qualified Financial Crisis Leader.)

Bloomberg, a Politician to Watch (Not Listen To: Powerful Reasons Why)

Politicians like Bloomberg work hard to promote myths so one needs to be especially conscious of the realities they would have you ignore. Mike Lupica in an excellent recent Daily News sports piece that looks at the how the Yankee Stadium financing scam* “will tell you everything about the way Bloomberg's New York actually works for the rich and the powerful” puts it exactly right: “As always with the current mayor, pay close attention to what he does, not what he says.” (See: It's a wonderful lie, Saturday, December 20th 2008) That’s good advice for dealing with our politician-mayor and, if followed, would probably also serve to keep you from losing money in a pyramid or Ponzi scheme like what Mr. Madoff was running.

* (There is a hearing on it coming up on January 15th.)

Madoff Victim: Daily News Owner Mort Zuckerman

A particular reason for revisiting the Daily News’ endorsement for a Bloomberg third term is that it turns out that Daily News owner Chairman and Publisher Mort Zuckerman was among Madoff’s victims. (See: Madoff Scheme Kept Rippling Outward, Across Borders, by Diana B. Henriques, December 19, 2008 and Daily News Owner Mort Zuckerman Madoff Victim, By Chuck Bennett and Frank Rosario, December 15, 2008). His charitable trust is reported to have lost $30 million.

To be fair, Mr. Zuckerman says the loss was not due to his own investment decision and that the money was “invested through a fund manager who hired Madoff without Zuckerman's knowledge.” (See: Losses rise in collapse of Bernie Madoff's Ponzi scheme, by Douglas Feiden and Thomas Zambito, Daily News Staff Writers, Tuesday, December 16th 2008.) The Wall Street Journal published a correction to make clear that it was the the Mortimer B. Zuckerman Charitable Remainder Trust that invested assets through a fund firm into Bernard L. Madoff Investment Securities that faces losses and not Mr. Zuckerman himself (December 15, 2008, Corrections & Amplifications). Mr. Zuckerman says “the losses won't keep him from making promised charitable contributions.”

Trusting Those Who Trust

It might not therefore be fair to say that Mr. Zuckerman put his trust in Mr. Madoff when he shouldn’t have. As he says, his $30 million was lost only because he trusted someone who in turn put his trust in Madoff. But how do these things work anyway? How close do most of us really get to knowing or considering everything we should know about underlying numbers and transactions? The fact is the way whole Madoff thing worked is that there were too many people around trusting Madoff and too many people around trusting those people who trusted Madoff. Yes, maybe by his account, Mr. Zuckerman was one step back in the trust chain but it is close enough to think about the issue of where he recommends we should put our trust. Why do certain people “trust” Bloomberg: Because there are a few too many people talking about how they trust him rather than paying close attention to what he does rather than says.

How the Daily News Made its Decision to Tell Us To Trust Bloomberg

Understand how the Daily News endorsement of a Bloomberg third term (for reasons of his purported financial acumen) came about: It came about from the top down. Bloomberg who had been using a pollster to gage public reaction and structure his approach to securing the term limits change reached out to:

fellow media titans—including Arthur Sulzberger of the Times, the Post's Rupert Murdoch, and the Daily News's Mort Zuckerman.

(See: The Transformation of Mike Bloomberg: How the benevolent billionaire with no political debts ended up owning us all, by Wayne Barrett, Tuesday, November 18th 2008.)

The Daily News then issued its editorial endorsing the Bloomberg third term in lockstep with the issuance of editorials by the New York Times and the New York Post using similar language and a similar themes. The New York Post even used exactly the same title for its editorial. (See: The New York Post’s Run, Mike, Run, September 30, 2008 and the New York Times’ The Limits of Term Limits, September 30, 2008.) Is it possible that before the lockstep issuance, Mr. Zuckerman’s Daily News editorial page conferred with its city news staff team before deciding what to recommend concerning Bloomberg’s financial expertise? The evidence is that this did not happen at the Times. (See: Saturday, November 15, 2008, The Mayor, The Times’ Timing, and a Proper Ordering and Thursday, October 23, 2008, Bloomberg Qualified Financial Crisis Leader? He Can Learn Says Schumer!)

How Trustworthy Was Daily News Conflicted Endorsement of Bloomberg?

Did we get from the Daily News the best recommendation it could have given with respect to Bloomberg’s having good qualifications to run the city? At least in one context you could say that Mr. Zuckerman had seen Bloomberg up close in a business context: The above-linked Wayne Barrett Village Voice story points out that Mr. Zuckerman had done his share of conflict-of-interest-raising business with Mr. Bloomberg. (Conflicts of interest abound since, observes Mr. Barrett generally, “Many New Yorkers have an eerie feeling now that Mike's money is literally everywhere and that a city, said to be for sale in the era of the big-time bosses, has actually been bought by a mayor so much bigger than they ever boasted of being.”)

When Bloomberg ran for mayor in 2001 and the Daily News was the only paper to endorse him, he held more than a half-million dollars of stock in Boston Properties, the publicly traded real estate company that Zuckerman controls (Bloomberg may have actually owned more, but, by law, he was required only to disclose dollar amounts up to that ceiling). Bloomberg had to give up those holdings when he took office, prompted by an earlier COIB [Conflict of Interest Board] ruling, and the Bloomberg administration ended up doing its share of deals with Zuckerman's company—like air rights and other approvals on the company's 39-story tower at 250 West 55th Street. At an October 8 investors' conference, Boston's senior vice president Robert Selsam boasted of the company's success with City Planning, recounting how the firm had secured three complicated variances across five zoning districts that allowed it to maximize floors and footage. "The key," said Selsam, "is knowing how to effectively navigate the review and approval processes" of the city. He didn't, however, mention that he might have a bit of an edge at that game.

Bloomberg’s Financial Expertise Failings (Including Special Relationship to What Daily News Mentioned as Important)

But does Zuckerman’s personally having done business with Bloomberg qualify him to know that Bloomberg has the financial acumen to run the city? We say no and we think evidence of it is right in the language of the above-quoted Daily News editorial.

The worst things about Michael Bloomberg’s financial administration of the city are:

1. He took us deeply in debt in a time of plenty. It was a time when the city was unusually awash with unsustainable windfall cash and should have been saving for a rainy day. (See: New York Will Survive Without Bloomberg: The mayor never bothered to prepare the city for any lean years, by Jason L. Riley, October 16, 2008.)
2. He has played an insiders’ game with both Wall Street and the big developers of the real estate industry. In both cases his deals short-change the public.

3. As a consummate crisis-insider he has failed to see the crisis coming or have appropriate perspective on its solutions.

4. He put all the city’s eggs in the Wall Street basket . . . And this is where we quote from the Daily News editorial: “this mayor and his successor . . . . must have the know-how to draw businesses in rising new sectors that can pick up the slack in the coming decades.” The fact is, the Mayor Bloomberg and his Doctoroff minions have had only scorn for anyone who tried to suggest cautious consideration of a future for the city that was not based nearly exclusively on the Wall Street economy. That scorn was because other sectors could not compete with the inflated values that Wall Street was generating.

Inflated Values With Which Wall Street Made Off: Krugman Analysis

That is exactly what those Wall Street values were: inflated. Paul Krugman volunteered an assessment of Wall Street’s inflated values, taking it one step further with an analogy to Madoff’s Ponzi scheme (We provide extracts below but it is a piece we highly recommend reading in full):

. . . surely I’m not the only person to ask the obvious question: How different, really, is Mr. Madoff’s tale from the story of the investment industry as a whole?

* * * *

. . . surely those financial superstars must have been earning their millions, right? No, not necessarily. The pay system on Wall Street lavishly rewards the appearance of profit, even if that appearance later turns out to have been an illusion.

Consider the hypothetical example of a money manager who leverages up his clients’ money with lots of debt, then invests the bulked-up total in high-yielding but risky assets, such as dubious mortgage-backed securities. For a while — say, as long as a housing bubble continues to inflate — he (it’s almost always a he) will make big profits and receive big bonuses. Then, when the bubble bursts and his investments turn into toxic waste, his investors will lose big — but he’ll keep those bonuses.

* * * *

So, how different is what Wall Street in general did from the Madoff affair? Well, Mr. Madoff allegedly skipped a few steps, simply stealing his clients’ money rather than collecting big fees while exposing investors to risks they didn’t understand. . . . the end result was the same ..: the money managers got rich; the investors saw their money disappear.

We’re talking about a lot of money here. . . . . — we’re talking about $400 billion a year in waste, fraud and abuse.

But the costs of America’s Ponzi era surely went beyond the direct waste of dollars and cents.

* * * *

Most of all, the vast riches being earned — or maybe that should be “earned” — in our bloated financial industry undermined our sense of reality and degraded our judgment.

Think of the way almost everyone important missed the warning signs of an impending crisis. How was that possible? . . . . The answer, I believe, is that there’s an innate tendency on the part of even the elite to idolize men who are making a lot of money, and assume that they know what they’re doing.

After all, that’s why so many people trusted Mr. Madoff.

(Emphasis supplied. See: The Madoff Economy, by Paul Krugman, December 19, 2008.)

Selling Wall Street’s Inflated Values: Bloomberg Made Off

The Daily News editorial told us to trust Bloomberg in these echoing words: “Put simply, Bloomberg knows what he's doing” . . . .

. . . . Yet, isn’t it time to check our assumptions about Bloomberg’s expertise and what he actually knows? In Bloomberg we must certainly have an almost perfect example of what Krugman means when he describes the tendency “to idolize men who are making a lot of money, and assume that they know what they’re doing.” Bloomberg put his faith in the inflated values of the nontransparent Wall Street financial system. He was selling those inflated values to the city without an end game or exit strategy. Personally, as a participant higher up the chain Bloomberg may have done well, but with his clubby deals benefitting insiders at the expense of the public, how much is Bloomberg to be trusted?

Mr. Zuckermen lost $30 million to Mr. Madoff. He may or may not have put his faith directly in Madoff, but when he recommends that we put our faith in Bloomberg does he recommend an individual who is really that much more deserving of our trust or capable of delivering a substantially different result?