Sunday, March 22, 2009

Packing the Club

Injustice anywhere is a threat to justice everywhere.

-- Martin Luther King Jr. (1929 - 1968), Letter from Birmingham Jail, April 16, 1963

A time-honored method of controlling a political club is known as “packing” or “stacking” the club. Simply described, either a candidate or nominee operating for a vested interest brings new members into the fold at a moment in time so that at the next vote they will be qualified to make the right choice.

While political clubs have lost their luster, there are still arguments in favor of an organization that expresses the wishes of a community or territory – sometimes pulling broader influence with it.

Downtown Independent Democrats" has developed out of SoHo and has carried the reputation of being truly independent along with it. SoHo itself has evolved from artists who ventured into a gothic jungle of warehouses and printing factories from places like Greenwich Village to escape the status quo. Leaders like Kathryn Freed, Jim Stratton and Sean Sweeney gave D.I.D. a special flavor.
As a result of D.I.D. successes, it is one of the few political clubs that aspirants really care about for endorsements. Scott Stringer, for example, managed to win his race for Borough President of Manhattan due, in part, to the vote in SoHo – and the support of D.I.D. The support of a truly independent club actually does still garner votes.

So, at various times, several political candidates have attempted to pack the club with their supporters in order to control the vote for officers. This past Fall, Julie Menin reportedly attempted a coup (which she denies) – followed most recently by Alan Gerson’s efforts. Gerson was actually supported by D.I.D. in the past but has fallen into disfavor with many rank and file club members. He is rumored to be packing the club so that his upcoming race will gain the support of the club once again. A number of current D.I.D. members who, due to Gerson’s fealty to Bloomberg on term-limits (he supported them) and his dubious record in SoHo, belong to the ABG club – “Anyone But Gerson.” While Menin is no longer believed to be trying to pack D.I.D., as Gerson has continued, Gleason is also reportedly trying to even the score by placing some of his people on the roster.

Gleason has suddenly started to get a serious second look as someone who will respond to the needs of SoHo residents.

There is nothing immoral or illegal about trying to take over a political club but there are certain rules of conduct that have always been followed NOT in the tradition of Tammany Hall. With quality performance in office, a club normally welcomes the enlargement of its membership base from an elected official. Not so, in this case.

The Prosecution Rests

In a recent interview we spoke with Cy Vance, Jr., the frontrunner in the race for Manhattan District Attorney.

It was like a blast of fresh air in a discussion that touched upon his plans for improvements in our criminal justice system. Bob Morgenthau, who is retiring this year, has provided us with a sense of fairness in Manhattan and clearly Vance seeks to improve upon that legacy. The full interview will be published in the April SoHo Journal in addition to next week’s blog. Stay tuned Rangers.

Sunday, March 08, 2009

The Elephant in the Room

The truth is rarely pure and never simple.
-- Oscar Wilde (1854 - 1900)

While everyone is busy trying to point the finger at what happened to cause not only our economy, but also the world’s economy, to implode – consider this?
The total value of the U.S. stock market is under $15 Trillion, the total value of all real estate in this country is under $25 Trillion, and our total GDP stands at about $14 Trillion. The value of the entire world’s stock markets currently stands at under $50 Trillion.

But, what most people do not know is that it is nearly impossible to correctly value the number of derivatives , which are outstanding. These “bets” or contracts that hedge credit obligations – which include bonds, mortgage securities and corporate debts, including credit default swaps – amount to about $700 Trillion. Or, nearly three quarters of a quadrillion dollars. Others believe the amount is larger.

This Wall Street phenomenon is the real story in our economy. It is one problem that years ago Warren Buffet warned us all about and it is one which he recently mentioned when he said he hoped to be out of any derivative positions in “a few years.” Good luck.
So, as most consumers and many banks look askance at the muddled real estate market as well as the non-existent credit markets (insofar as ability to borrow), all are missing the boat as to the source and degree of the problem. We have an inconceivable amount of money (or, rather, the fantasy of such an amount of money actually existing) floating about in the Ether as mutually balanced obligations -- that will never be able to be paid in the event of default. Those defaults are now happening. And, as the defaults wind down deflation (reduction in value) accompanies the entropy.

This, in fact, is what we are grappling with in this economic disaster: The prospect of economic Armageddon. The world does not contain the amount of money or physical assets to balance out both ends of these bets in the event of default. If the buyer of a derivative defaults, having purchased the insurance to cover that “bet” -- and the guarantor (counterparty) of that insurance does not have the resources to cover that defaulted debt – what is there to be done?
Those are the questions being asked about AIG, Citigroup, Bank of America, Lehman Brothers, Bear Sterns, Merrill Lynch and thousands of companies that are defaulting on debts covered by derivative contracts. All $700 Trillion of them.

The Elephant in the room is restless and wants to eat.
And, until he does, there will be no new loans, no expansion of credit for the economy, no new jobs, no food, and certainly no housing. That means the end of the Hamptons economy and a severely diminished Manhattan economy. Expansion and building as we know it is done. A sign of these times is one new phenomenon: vacant lots in Manhattan with "For Rent" signs on them. There is no money to build.

Mortgages imploded due to the phony securities that Wall Street created in order to collect fees and create securities that NEVER had the value ascribed to them. In fact, the subprime situation was only a pimple on the elephant's tail. And, now all of us are paying that price.
It was the derivatives market that spawned the disaster we are now entering. As Thomas Kostigan of Marketwatch reports,

“It isn't the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished -- trading phony instruments to the tune of $700 trillion.”

Interesting notes: Poland’s mortgage market was mostly written in Swiss francs. Nearly 60% of all mortgages are pegged to the value of the polish currency to the Swiss franc.
The polish currency, the zloty, has dropped nearly 50% in relation to the franc. One can only imagine what lies ahead in that situation.

UBS is just the tip of the iceberg with regard to the Swiss banking crisis – spawned by the IRS insistence that all 52,000 foreign (mostly American) accounts be divulged so that taxes and, no doubt, prosecutions, can begin for not paying taxes on these numbered accounts.
It is likely that Swiss banking, the country’s main industry, could be destroyed by this American move. No account secrecy, no deposits.

Sunday, March 01, 2009

Downtown Currents

One of the penalties for refusing to participate in politics is that you end up being governed by your inferiors.
-- Plato (427 BC - 347 BC)

Bob Morgenthau finally withdrew from the election process this week after decades of public service as Manhattan’s District Attorney. For years there had been speculation that Catherine Abate was the heir apparent and was waiting in the wings until “The Boss,” as his staff knows him, stepped aside.
Instead, as the rumors swirled, Abate was sidelined as the likely candidate to oppose Leslie Crocker Snyder in the upcoming Democratic Primary election.
While Downtown, in many cases, is considered a lock for the Jewish female vote, one of the reasons why Alan Gerson, again running for District 1 City Council seat, may still have an edge. Sophie can be heard in the background whenever Alan is on the phone.
Snyder was previously a law and order candidate who supported the death penalty but she took that off the table. Her 40% of the vote showing in the last election gives her substantial credibility.
But, countering Snyder’s move is a possible run by Dan Castleman, Morgenthau’s right hand man in the prosecutor’s office – as well as a serious challenge by Cyrus Vance, Jr.
Vance not only has name recognition but also presents a serious challenge to divvying up the Jewish vote. His father and his family stood out in fighting for the rights of Israel at a crucial point in history.

Little has been heard from Maria Derr lately, former Board #2 Chair, who is running against Chris Quinn in her bid to retain her seat in the City Council race. But, Yetta Kurland, a proponent of gay rights is another contestant in this race and may do relatively well and has some buzz.
However, it is unlikely that Quinn faces a serious challenge. Those who have criticized her (including this writer), recognize her immense political skills. A powerful Speaker who seeks to improve her ties with the community is more to be desired than a novice with a wish list. And, Quinn and her staff have been moving in the direction of building new bridges.

Little has changed in the Gerson/Menin/Gleason/Chin saga for City Council. We should expect sparks sometime this summer as the jockeying heats up.
A few rumors and tidbits have flown about.
Menin’s new blog apparently publishes on Huffington Post and the site apparently has rejected negative comments.

Gleason appeared on network television to dispel the belief that his 9-11 board game is a flight to insanity – rather that the point was to create publicity for the tragedy. Of course, those of us downtown well know that while the disaster may not have been avoidable -- many firefighters and police were unnecessarily exposed to danger and untimely death due to inadequate communications.
Anecdotal reports of dysfunctional transmitters and garbled transmissions are well documented and the anger harbored by those who know the truth about the treatment during and after the disaster are legend.

In Memoriam: Albert Edward Neale 1917-2009. Andy Neale’s 92 year
old father passed this week after a short but severe illness. As Andy describes him, he was “ a reserved man of fierce intellect, a wonderful husband, a decorated war veteran, a compassionate human being and a liberal to the end who thought Obama was the greatest thing to have happened to the USA.”