Monday, March 17, 2008


The following article by Michael White appeared on the Huffington Post today. It was posted by Daniel Goldstein of Develop Don't Destroy Brooklyn. The tenor of it is reasonable, if severe, on the Bush driven dole to make the wealthy wealthier. That program has been supported by Mayor Bloomberg and manipulated by developers such as Bruce Ratner. Mr. White ably captures the history of what Mr. Ratner did to get where he is and why with the Atlantic Yards. It is worth your time to read just for the sake of clarity.

If you happen to be watching the John Adams series on HBO, the contrast is remarkable between the founders of the American Revolution and those currently in charge of the nation and its treasure. Both times set a high priority on property, but the men who met at Philadelphia saw the right to own and use property as a way to enhance the natural freedom of all. The current Bush followers, on the other hand, believe they should enjoy special freedoms which would grant them the special right to seize property.

Saturday, March 15, 2008


Yesterday Chase Morgan bailed out Bear Stearns by buying mortgage bonds insured by the Fed after a run of investors on Bear Stearns. Bear Stearns is a very aggressive investment bank that has built a huge fortune on tenuous speculation like these very same mortgage bonds.

When Toll Brothers try to do something here in Brooklyn, they borrow the money somewhere, which means that they are depending on the same banking system that is currently in genuine and very dangerous crisis. The last run on a bank of this sort was in 1929, and if a domino effect takes control over investors, many of these aggressive far-flung banking operations will be without cash.

A bank without cash is a dead entity. It cannot tread water because it has nothing for depositors much less investors. If a bank is holding a massive amount of worthless paper, like mortgage bonds, they are moving toward the coroner’s slab.

The important thing here is that Chase bailed out Bear Stearns by buying mortgage paper from them backed by the Fed, so while it may look as though BS got shored up, it is really the case that the financial whizzes in and out of government have perpetuated the same stupid system.

Banks should not be investors, and certainly not insurers. They should be conservators of their depositor’s assets. When bankers take a flyer with the public’s money as they did with mortgage paper, the loss is born by their clients who never had a say in the matter. Like many pension funds now, these entities are permitted to gamble with other people’s money. Those people, as in the case of Enron, have to absorb the losses when stupid decisions are made.

Banks are the lifeline of developers, builders, contractors and such so even if the price of real estate holds in NYC as it will relative to the rest of the country; we will take some painful temporary losses. If the idiot banking practices of the last 30 years really come home to roost, that may turn into something that is the modern equivalent of the Depression. If that happens, we will all be very unhappy no matter where you have deposited your assets.

Sorry to be grim, but this administration is not going to address the need to re-regulate banks and put some sort of controls on the sale of mortgages as speculative investments. So we should get ready for a rough ride, though of all the cities in the US, NYC is the most likely to come out in one piece. Most of the value of real property has some genuine base here because there are fewer places to live than people want. That is not likely to change in the foreseeable future.

Of course, if global warming floods us, the value of property will tend to decline rather sharply. What's more you can be sure that no one currently in the White House has any idea what global warming is, nor do they want to be told.

Monday, March 10, 2008


New Yorkers, and Brooklynites in particular should note that the administration is now finally getting ready to take the economic downturn seriously. In a real estate market like Brooklyn, which is relatively strong, that could hold the promise of renewed stability in housing prices. That in my view is where we want to be given that most of the price escalation of the last two or three years was simply built on air given the slipshod government policy on banking regulation.

New Yorkers could salvage this situation by instituting a citywide bailout tax on all real estate transactions done on credit. A borough like Brooklyn then would be free from the vagaries of the free marketeers, and the borough’s primary asset, privately owned housing, would be protected. That in turn would slow the downturn in other credit driven segments of the economy at least locally.

Bankers should not be speculators, nor should they be insurers. They should focus on the careful retention of asset worth, a lesson Americans thought they had learned from the Great Depression. Since the time of Reagan, however, bankers have been more and more deregulated into businesses for which their institutions are unsuited and inclined to folly. Thus private mortgages were created on unsupportable risks like interest only loans and ungoverned variable rates.

Worse still is the sale of mortgages to investment funds. The half-baked notion was that spreading the risk around reduced its volatility. That is exactly like assuming you can insure the value of your chicken ranch by betting on hundreds of horse races. It is the idiocy that always overtakes business, when business becomes so enthusiastic that it forgets about economics.

Americans no longer read very much, so they do not like the word regulation and we are not likely to see insurance, investment, and banking divided again any time soon. What do we do about the mess created by their coming together?

Can Paul Krugman be wrong? Very rarely in my experience, but in Monday’s editorial in the NY Times, he comes relatively close to it by a sin of omission. He argues that the current housing crisis with all its attendant financial fallout may be arrested by yet another interest cut from the Fed. Given the problems of personal debt, currency devaluation and unemployment, that may help the markets but it will do nothing for the American citizen. He adds though that shoring up the bond market is a good way to cool the economy while keeping capital in play. I would agree but that does not fix the bank problem.

He seems right in his analysis but like all the economists of our time, he has no instrument in mind to protect the actual victims of irresponsible banking. They are we, the public who use these institutions under the assumption that somewhere, somehow they are held in check from total instability by something.

If we cannot regulate banks, we should institute a bailout tax. Thus any bank or lending institution should be taxed according to the risk of the loans they make. The revenue should go into a fund like the FDIC. The banks create the risk for themselves, but as we are seeing – and saw with the Savings and Loans debacle of the Reagan administration – they cannot absorb their own losses when their judgment is arrogant, stupid, or simply bad. In fact, with the exception of a few closings among the most egregious offenders, the banking industry never pays for its errors at all. We do.

Let the corporation that owns the bank assume the lion’s share of the risk they allow banks to create. Given the housing market as it stands now, that would also work well with developers. Any developer getting any sort of government subsidy would have to pay a risk tax so that cost over runs, delays, and tax abatements would be balanced out in the public’s interest by this fund into which the developer pays.

Franklin was right that nothing focuses a man’s mind like the knowledge that he will be hanged in a fortnight. It would be a great boon to our community if bankers knew that each time they sold mortgages as a high-risk security to investors, they would have to pay through the nose to do so.

Steven Hart

Thursday, March 06, 2008


The history of New York City is an architectural crapshoot. Sometimes that
has worked out to create really strong communities like the urban
neighborhoods in Manhattan and downtown Brooklyn. Sometimes it has produced
the splendid isolation of the towers above 2nd and 3rd Avenue in Manhattan
where people are units living in units. Then there are the disasters like
Penn Station which is simply a no man's land of transitory passage. It is a
monument to cheap ugliness and the concept that the industrial look can be
somehow tarted up to seem human when it cannot. I would say the same of
Lincoln Center, though the style is less like a Dairy Queen and more like an
Assyrian royal tomb.

Americans sneer at art because they are childish and naïve about esthetics.
They refuse to see that what you look at each day forms your view of the
world as much as the interaction you have with people. Is the desolation of
the Atlantic Yards empty space worse than what has already been erected to
replace it? No, because the former has the promise of possibility, whereas
the latter is an inescapable blight upon the spirit. The builder, Ratner,
will now live in a 19th century townhouse on 62nd St. in Manhattan far from
the hideous abuse he has heaped upon Brooklyn. The distance is esthetic,
not in feet and miles. He has openly despised 'brownstone Booklyn' only to
place himself in exactly that esthetic space.

What Americans really don't like about esthetics is that they require a
collective sense of compatibility to make good public spaces. Unlike Ratner
and his aged architect, who impose their ideas by imperial fiat, effective
architecture requires cooperation. First that means a social contract for
the common good, a notion that modern free marketeers regard retrograde if
no simply a myth, but it is none the less essential to a functioning
society. The second is that public spaces, when planned and managed well
are worth the public's investment, but they may restrict rugged

Eminent domain is not an inherently bad idea. It is not a tool of slum
clearance. It is what makes possible such needed creations as the Brooklyn
Bridge. What is bad is when it is used to override the social contract as a
tool of imperial enforcement. The Gowanus Expressway was not wrong because
of where it is and what it does. It is wrong because it was built with no
thought to what it would do to those who must live with it. There is no
greater good served by eminent domain if the common good is undermined.
The fundamental error of the last 30 years which is the assumption that what is profitable
for anyone is a benefit somehow at some point to everyone. It isn't.

That is not a lesson easily taught in the city of New York where those with
the money have always done what they liked with impunity. However, there
was no general literacy through much of that, no real middle class, and
certainly no internet. So the times have been a changin' and this list is a
reflection of that.

The outcome is uncertain. Penn Station may be remodeled and kept as it is.
The stupid ideas of today can always be bested by the stupid ideas of
tomorrow. Across the street from me there is a new building that is
essentially inoffensive but also essentially another study in bland and
cheap, tarted up with shoddy materials and a measure of bad taste. The
builder used various shades of grey to complement the base color of concrete
thus creating the vivid feel of a Stalinist suburb. The apartments are
composed of tiny rooms piled up on assorted levels so that you are forever
climbing stairs for a towel and then back down to reach the shower. They
want the moon for these things and they will fail to get that.

Ratner's fall, if it comes, could leave us with a wasteland of fast food
joints and big box stores in a hodgepodge. In some ways that might be
preferable though because it could be dismantled piece meal just as it would
be built. What would serve us all would be structures of modest height that
blend with the surrounding brick but that also have some genuine character
and design. Brooklyn does not need concrete monoliths or an imported sports
team that will go instantly into debt on the public cuff. It sounds pretty
easy when you put it that way.

The difference lies almost solely and entirely on our willingness to embrace
a new social contract where the meaning of prosperity is redefined in two
subtle but important ways. First, bigger means nothing as it is not
necessarily better in any substantive practical or financial sense. It is
just more money thrown around all at once and the real costs are that much
further deferred. Second, short term financial gains are enticing but they
are anathema to communities and all long term interests like people, who are
and will be the consumers of the future.

The hysteria that is now growing out of the failure of the banking industry
to make prudent choices about mortgages, is excessive. If we have another
long and deep recession, sloppy banking will not be the root cause, it will
be the result of bad thinking or simply the lack of it, for 30 years in all
phases of the economy. That has been facilitated by utterly stupid
government policy. The party is over, and what a relief in some ways. The
gaudy excesses of the 80s and the 90s can be stripped away. Then we can get
together calmly and build something worth keeping.

Steve Hart

Sunday, March 02, 2008


The Brooklyn Papers inform us that Ed Towns and other Democratic superdelegates of that party are going to vote for Hillary Clinton’s nomination despite the fact that the district voted for Obama. We all have our thoughts about the promise and capabilities of the Democratic nominees for president. However there is a profound danger in making the vote of the people irrelevant.

Yes, it is a party primary and parties are created to function in their own interest. It is not an election, but our national sense of unity has been shattered over the last seven years. It is also a fool’s errand to think that, “anyone but Bush” will be better. A new president won’t necessarily change things that much because the president will face a wall of opposition from the Republicans in Congress while dealing with the festering wounds created by the Bush Administration. Most obvious is the fact that the economy has been profoundly mismanaged since the Reagan Administration and the bill has now come due.

There is a lot of corruption, neglect and incompetence that will have to be faced and rethought. The real symbol of our nation now is the City of New Orleans. That ruined and abused community represents much of what the Republican Party has done to many aspects of our nation here at home and abroad. Patience, reason and prudence will have to return to the national agenda, but none of that will replace our sense of hope.

There is one thing missing from the current political agenda and it has been disappearing since the days of Nixon and is nearly absent due to the current President Bush. We have all but lost our trust in each other and in government, and with that, hope that democracy can work. No party, no ideology, no burst of prosperity, nor any short-term fix can repair that damage.

Americans have lost hope that their system of government is theirs. They sustain it with the fortunes, their effort and their lives. They participate as voters, and yet, after the election of 2000, it became clear that elections can be shanghaied to accommodate the agendas of a small minority. The Republicans -- bolstered by the marriage of two groups of thugs, the Religious Right and the Neocons -- relished that power. With the White House in hand, that tiny coalition took over Congress and now it is nearly as inert as the latter days of the Politburo.

If the Democratic Party is going to adopt the cynical Republican tactics and force the views of their leadership on the electorate, Americans will more and more turn away from government as Europeans do. It will simply be a corrupt obstruction for our citizens – much like organized crime – to live with and get around. Cynicism may be facile and childish, but often it is the only option when those in power encourage it.

The problem is not Mrs. Clinton, nor is Mr. Obama the solution. The problem is that we have become a nation of top down politics with no balance to ensure that the will of the people is somehow at least felt in the operations of government. The two party system as it stands now is making voters irrelevant.