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The fiscal tsunami triggered by the collapse of Wall Street’s investment banking giants is poised to drown an entire county in Alabama. According to a report in Fortune magazine, Jefferson County, AL, which includes the city of Birmingham, is on the verge of filing for Chapter 9 protection in what would be the largest municipal bankruptcy in U.S. history. Fortune says that Jefferson County has fallen ”hopelessly behind” on payments to service $3.2 billion it borrowed on ridiculous terms from the financial geniuses on Wall Street during the past decade to build a new sewer system. Despite desperate pleas from Alabama Gov. Bob Riley to the federal government, the Jefferson County Commission is said to be just days away from an official bankruptcy filing. Riley reportedly has placed several urgent phone calls to Treasury Secretary Hank Paulson’s newly named bailout czar, Neel Kashkari, and told him that the impending fiscal disaster in Jefferson County is ”the single biggest threat to the municipal bond market today and a poster child for how the subprime mortgage crisis is hurting Main Street America.” According to a legal study cited by Fortune, bankruptcy filings by municipalities have been extremely rare in the United States. Since the bankruptcy laws were written in 1934, fewer than 600 localities have filed under Chapter 9. By comparison, roughly the same number of private sector entities file for Chapter 11 bankruptcy protection every two weeks in this country. The Chapter 9 protection provides for the reorganization of the municipality. The folks in Jefferson County may want to start with the officials who thought it was a great idea to finance their new sewer system with exotic financial instruments hawked by the snake-oil peddlers at the big Wall Street investment banks. Two of the county’s biggest counterparties in derivatives trades used to finance the sewer project were the now-defunct Lehman Brothers and Bear Stearns, according to Fortune. To make matters worse, an ongoing federal corruption probe in Jefferson has thus far yielded 21 convictions. The mayor of Birmingham, who previously served as president of the Jefferson County Commission, is said to be a prime target of the probe. The people of Jefferson County thought they were going to get an end to constant overflows of raw sewage when a $250 million project to improve the local sewage system was approved in 1996. What they got was a $3.2 billion piece of the Great Fiscal Flood of 2008, which smells even worse.
In the opening scene of one of our all-time favorite TV series, mob boss Tony Soprano is chasing a guy through a Jersey parking lot with a baseball bat. The guy owes Tony some vigorish. Vigorish is local vernacular for the weekly interest payments that loan sharks charge to their borrower community. These payments don’t actually reduce the amount owed, they are kind of an ”insurance policy” — as in, you pay the vig and you can keep your kneecaps for another week. The global financial catastrophe took an interesting turn this week, when Iceland became the first country to officially go belly up. With the country’s banks melting like salt in its famous volcanic hot springs and its currency, the krona, collapsing, Iceland sent out a financial 911 call to Europe’s central bankers. The Europeans, busy arguing over whether the continent’s financial Maginot Line will be located in Britain or Germany, told their insolvent cousins in Iceland to call back later. So the government of Iceland did what anyone desperate for cash might do. No, they didn’t sell grandma’s wedding ring to the local metals trader, now offering almost $900 an ounce for gold. They asked Boris and Natasha to give them Vladimir Putin’s phone number. After some brief consultations with their new friend in Moscow, Iceland’s leaders hastily announced that oil-rich Russia had agreed to loan the country $5.4 billion, roughly the equivalent of a third of Iceland’s GDP. Prime Minister Geir Haarde said he had no choice: Iceland’s banks had run up debts that totaled 12 times the size of the country’s economy. Not so fast, said the Russians. Deputy Finance Minister Dmitry Pankin cleared his throat in Moscow and informed the world that no decision has been taken on the loan to Iceland, though his government ”may consider one in theory.” This requires ”the approval of many agencies [in the Russian government] and is not a decision that can be made quickly,” Pankin added. Here’s a ”theory:” the agencies that must approve this decision are all named Putin, and the decision will be made as fast as the Russian navy can open its new base in Reykjavik. Boris gets the volcanic waste management franchise and Natasha will be the executive director of Iceland’s new Museum of Trucking and Industry.
In June, we took note in this space of Sheriff John Green of Philadelphia’s refusal to enforce court-ordered foreclosure auctions in the city. The soul-searching stance of Sheriff Green (we called him ”Not the Sheriff of Nottingham”) prompted city officials to set up a unique program to facilitate negotiations between financial institutions and homeowners in danger of losing their property to foreclosure. We are very pleased to report that, according to an article in Sunday’s New York Times, the city-sponsored plan has averted almost 80 percent of the foreclosure sales of properties referred to it in its first three months. The plan, started in June by the city government and the Philadelphia Court of Common Pleas, requires all owner-occupied properties scheduled to be foreclosed and auctioned off to have their mortgages reviewed by borrowers, lenders, and the court before they can be sold. The Times reports that of the 522 homes referred to the program during the past three months, 230 were permanently removed from sale, and 200 had their planned sales postponed for up to five months. The program is administered by Judge Annette Rizzo of the Court of Common Pleas. Like everywhere else in the United States, the subprime mortgage crisis produced a tsunami of foreclosure filings in Philadelphia in the past two years. Since the beginning of 2006, more than 14,000 foreclosure filings have been recorded in the City of Brotherly Love. This depressing state of affairs seemed beyond the control of local officials until Sheriff Green decided he was fed up with forcing his friends and neighbors out of their homes. Sheriff Green, who has worn a badge for 37 years, astounded the legal and financial movers-and-shakers in Philly when he refused to hold court-ordered foreclosure auctions. Without the sheriff and his 241-person department on board to enforce the court’s action, foreclosures in Philadelphia ground to a halt. Soon after, the City Council opened a legal umbrella over the sheriff’s unilateral (and illegal) action by unanimously enacting a temporary moratorium on foreclosures, and Judge Rizzo asked civic leaders, lenders’ attorneys and housing advocates to set up a process that would determine which homeowners deserved a delay, aid through government programs, or at least a ”graceful exit” from their house. This committee also developed a streamlined process to make loans more affordable for delinquent homeowners who still live in their houses, and homeowners were offered free lawyers for court-supervised ”conciliation sessions” with their loan-servicing companies. The nation’s attention has been focused in recent days on the U.S. […]
Here’s the understatement of the year for you: The United States is in some pretty deep trouble. As our presidential nominees debate whether or not to have a debate tomorrow, our current head honcho, George Bush, broadcast himself into our living rooms to tell us “our entire economy is in danger.” Thanks, W, for that update from the Department of the Obvious. He must still be trying to determine how many zeros to write on that $700 billion bailout check. Meanwhile, the $27 billion in damages caused by Hurricane Ike this month has left large swatches of Texas and the Gulf coast in disarray. The storm also caused gasoline prices to surge throughout the nation, which already is in an energy crisis. Offshore drilling is a contemptuous issue enough, but it does not help our unstable situation that one of our primary oil suppliers, Venezuela, is controlled by Hugo Chavez, an ardent American antagonist who unceremoniously sent home the U.S. ambassador nearly two weeks ago on September 11–coincidence? I think not. Last week, our embassy in Yemen was blown up and, just yesterday, Iranian figurehead Mahmoud Ahmadinejad declared to the UN assembly that “the American empire…is reaching the end of the road.” This statement comes from the man who infamously told Columbia University that there are no homosexuals in Iran. Brilliant. Did I forget to mention that our troops (and dollars) are still…in…Iraq? Here’s a simple idea: Let’s bring our women and men home and use some of the millions of bucks we are spending in the Persian Gulf to give them jobs in Ohio, Michigan, Louisiana..we have 50 places to choose from! We can call this plan Economics 101. Sarcasm aside, it sure has been a rough several weeks, months, years for the United States. When things get this dire, it can be difficult to find that clichÅ½d light at the end of the tunnel. But as I flip through my calendar, I do see something to look forward to. It’s called Election Day, and it’s November 4. If you aren’t registered, don’t know where to vote, or need an absentee ballot, check out www.stopandvote.org. This may be the most important election of our lifetime.
When you turn the ignition key in your car and nothing happens, the first thing most of us do is get out and check the battery. Well, if you happen to be sitting behind the wheel of General Motors’ hydrogen-powered Chevy Equinox, don’t bother. Just wait for the red light on the dashboard to turn green — that’s the only way you are going to know that this car of the future is ready to roll. We were invited this week to test drive one of the 100 fuel-cell powered Equinox cars GM has hand-built at the General Motors Fuel Cell Activities Center in Honeoye Falls, NY, a few miles from Rochester. We have to admit we had some trepidation about taking a ride in the Equinox prototype. The last time we inspected a hydrogen-powered vehicle, we were looking at some grainy photos of the Hindenburg’s ill-fated arrival in Lakehurst, NJ. Our jitters were not eased when, immediately upon arrival at the Honeoye Falls facility, GM execs seated us in a conference room a few feet from the front door, pointed to the door, and said ”this is the fastest evacuation route if something happens.” They didn’t tell us what ”something” might be, but we had a vague feeling it might create a cloud shaped like a mushroom. All these concerns evaporated when we pulled out of GM’s parking lot and headed up the road into a beautiful fall afternoon in the Genesee Valley. Also evaporating was the Equinox’s ”exhaust” — the only thing the car emits out of its tail vents (no need for pipes) is a fine mist of water vapor. We are pleased to report that this Chevy of the future — disguised as a run-of-the-mill SUV crossover to limit cultural shock — is a fine cruising machine. GM says it’s as safe as any other car on the road (Jay Leno is driving one around Hollywood), and when we put it to the test on a local hill it accelerated effortlessly. The fuel-cell design features a single-gear drivetrain, which lets the driver power up to 100 mph without so much as a shudder. Most amazing of all was something that was completely missing — noise. The only sound coming out of the car was the quiet hum of the tires on the road. Add an eight-speaker stereo and you’re in vehicular heaven. We jokingly told our GM guide that we were tempted to try and receive the first hydrogen-powered speeding ticket. Never mind, he replied: he’s […]
In one of our favorite Honeymooners episodes, Ralph Kramden’s buddy Ed Norton is bragging about an investment he just made in a new firm called ”Merrill Lynch Pierce Fenner and Ziggy.” The guy who sold him the shares was Ziggy. Ziggy worked in the sewer with Norton. This week, the U. S. Treasury gave an $85 billion loan to the largest U.S. insurance giant, AIG, to keep it from collapsing. According to U.S. Treasury Secretary Hank Paulson, this emergency infusion of swag is a temporary, two-month ”bridge loan” that will be repaid by selling off AIG’s assets. The loan is secured by the transfer of 80 percent of AIG’s equity to the government, which means that while they were sleeping on Monday night the American people became the proud owners of a huge financial conglomerate that is in the final stages of bleeding to death. Not to worry. Paulson promised American taxpayers that he would try really, really hard to make sure that they aren’t stuck with the bill for AIG’s staggering debts, which of course were accumulated in the drunken speculative orgy that has consumed what used to be known as the international financial system. The day before AIG was granted this spectacular rescue package, Paulson looked the other way while another financial giant, Lehman Brothers, bled to death. There was still a wall on Wall Street when the brothers Lehman set up shop in the mid-19th century. Paulson is beginning to look like a haggard surgeon in an overwhelmed Army Mash unit, desperately hooking up financial transfusions in a battlefield littered with critically wounded bankers. He apparently began running low on ”blood” supplies a few weeks ago, so now he is draining the walking wounded to keep the basket cases going for another few days. President George W. Bush, presumably busy packing up his cowboy boots in advance of his eagerly awaited retirement, trotted out his spokesperson to explain why AIG had to live and the Lehman siblings had to die. AIG’s failure was much bigger than Lehman’s, she explained, therefore AIG needed to be rescued and Lehman did not. Message: If you are going to fail in America, fail BIG. This lesson was quickly absorbed by America’s Big Three automakers, each of whom is teetering on the brink of bankruptcy. While everybody was distracted by the carnage on Wall Street this week, GM, Ford and Chrysler quietly tapped Congress on the shoulder and reminded it that somebody in Washington promised them a $50 billion ”bridge loan” a […]
Within months of the hideous terrorist attack in 2001 that destroyed the World Trade Center, state and city officials in New York unveiled ambitious plans to build five new skyscrapers, a solemn memorial, and a gleaming new transit hub designed by Spanish architect Santiago Calatrava at the 16-acre site that is known as Ground Zero. The plans called for two reflecting pools that would sit atop the Twin Tower footprints next to the entrance to a permanent memorial to the 2,751 victims of the September 11 atrocities in New York. The new Freedom Tower would rise a symbolic 1,776 feet over the Manhattan skyline. Calatrava’s breathtaking design for the train station features the wings of a birdlike structure over a huge glass-covered portal. Seven years after the attack, while some foundation work has been started, the only things that seems to be rising at the mainly empty site are construction estimates for the project. City and state officials, meanwhile, continue to argue over who is to blame. Earlier this week, in an op-ed column in The Wall Street Journal, New York Mayor Michael Bloomberg proposed scaling back the multibillion-dollar transit hub and abolishing the agency that approved the redevelopment plans for Ground Zero. Bloomberg wants to end the Lower Manhattan Development Corp.’s (LMDC) role at the World Trade Center site in order to ”eliminate one redundant layer of bureaucracy” that has stalled rebuilding. The mayor also said that the underground mezzanine of the commuter transit hub, which overlaps with the Sept. 11 memorial, ”is too complicated to build.” Bloomberg, who helped raise $350 million in private funds to build the memorial, said officials should commit to opening the memorial by the 10th anniversary of the 9/11 attacks, in 2011. The city has been mud-wrestling for seven years with state development officials, a private developer and the Port Authority of New York and New Jersey over the WTC site. Three months ago, Gov. David Paterson of New York ordered the Port Authority to re-evaluate all the Ground Zero projects. His predecessor as governor, Eliot Spitzer, branded the LMDC ”an abject failure.” According to the Port Authority, all of the projects are ”over budget and behind schedule,” including the transit hub, now said to cost at least $1 billion more than its original $2.5 billion estimate. The only thing certain at this point is that in coming months there will be more official reports, dire predictions and finger-pointing from political leaders and developers. The people who died at the World Trade Center—and […]
When I was an undergraduate student in Bethlehem, PA, I made a friend from California who told me something I still remember to this day: “You belong in Los Angeles.” I didn’t understand fully what she meant, and she didn’t elaborate. I had always been an East Coast guy—raised at the Jersey shore, and spending a lot of my teenage years and early twenties in the glorious frenzy of Manhattan. But shortly after graduating from college, I boarded a jumbo jet in Newark and soon descended into LAX. I was awestruck by California’s natural beauty—the tallest palm trees I had ever seen soared into the pink-tinged, dusky sky. My friend picked me up in an Infiniti, we opened the moonroof and windows, and hit the highway to Pasadena! We also hit traffic. A lot of traffic. My friend said, “There are more cars than people in LA.” Impossible, I thought. But an hour later, I believed her. “You need a car to live in LA,” she said. “Why don’t people use public transportation?” I asked. My friend looked at me in incredulous horror. “There are buses,” she admitted. “But no one would be caught dead in them.” Turns out that I do love California. From the over-the-top glamor of Hollywood to the beaches and art of Laguna, way up to the vibrant hodgepodge of San Francisco, Cali is an amazing state. But the state of its traffic problem is dire (as is NYC/NJ at rush hour, admittedly). Fortunately, California is on the verge of passing a bill that will mandate “smart growth” throughout the state. This trailblazing land-use initiative of Sen. Darrell Steinberg will require each metro region to enact a “sustainable community strategy” that will encourage development of compact housing options closer to where people work. Shorter commutes equal less greenhouse gas emissions and less traffic. In the urban/suburban sprawls of Los Angeles County, this plan could make residents breathe much more easily—cleaner air and less road rage. For a more detailed explanation of the smart growth proposal, you can check out this article from the LA Times. Business Facilities LiveXchange conference, held in Huntington Beach, CA this November, also will address the topic of smart growth. Here’s an inside peek at our expert speaker.
When we last left the Federal Deposit Insurance Corp., the Depression-era aqency that backs up our bank accounts was trying to keep a lid on a ”secret” list it had compiled of 90 U.S. banks teetering on the edge of failure. FDIC’s big brothers over at the Securities and Exchange Commission warned everybody not to spread any unsubstantiated ”false” rumors about this list, lest it spawn another wave of financial heebie-jeebies. Well, it turns out that there are not 90 banks on the FDIC’s critical list. That’s because the FDIC is now publicly reporting that 117 U.S. banks are about as stable as the San Andreas fault. Even worse, the FDIC chairman went over to the Treasury Department this week and banged a tin cup on the big iron door in front of the place where they print our George Washingtons and Ben Franklins. Apparently, FDIC’s $45 billion reserve fund is not sufficient to cover the deposits in the banks that are now on life-support. Since the 1930s, FDIC has backed up every deposit up to $100,000 in most U.S. banks. FDIC has informed Treasury that it may have to tap into some ”short-term lines of credit” that were established in the early 1990s to deal with the last widescale banking crisis in the U.S. When the federal banking guarantor last dipped into this emergency federal well in 1991, it needed more than $15 billion to bail out the banking speculators. The money was repaid by the end of the following year. This year’s emergency ”loan” from the national pocketbook will probably be a lot larger and will take a lot longer to be paid off, since it may take years to sell off the assets of this year’s domino-chain of collapsing banks. Fortunately, not all of the financial news coming out of Washington this week was gloomy. Over at the IRS, they announced that the number of individuals reporting more than $20 million in annual income has grown in the U.S. by 62 percent during the past 20 years. There are now nearly 47,000 ultra-rich Americans, up from 26,000 in 1998. Now, if we can just convince some of these really fat cats to invest in a few failing banks…
Does the cube farm in your office have the population density of Shanghai? Do you eat your lunch next to the copy machine because the nearest restaurant is five miles away? When you plug your work address into MapQuest, do you get a response that says ”page not found?” Well, have we got a deal for you! According to this week’s edition of Crain’s New York Business, there currently is a whopping 54 blocks of large office space—defined as 100,000 square feet or more—available in Manhattan. Not only that, says Crain’s, at least 15 buildings in the heart of the Big Apple are totally empty as of this writing. Office vacancies in New York City have increased by about 35 percent during the past year. The imbalance between supply and demand is so extreme in the large-space market that rents are expected to plunge in the long term and tenants are going to be reluctant to rush into new leases in the short term, according to Crain’s report. Struggling financial firms in the nation’s business capitol apparently are dumping space as quickly as they can lay off employees. We assume that among them are some of the characters who inflated the housing bubble until it imploded like one of those galactic cataclysms recorded by the Hubble space telescope. Unfortunately for them, it didn’t take 14 million light years for the ramifications to show up in midtown. Some of the fanciest addresses in the city are begging for tenants, including a gold-plated location on Park Avenue that boasts wraparound terraces, a private parking garage, and ”branding opportunities”—along with 440,000 square feet of primo office space. We like the branding part. Already know what we’ll call the place: ”This Dump Ain’t Trump’s .” Grin and bear it, Donald.