Parker’s Chill, Cuomo’s Crony Capitalism Fever

by Carola Von Hoffmannstahl-Solomonoff

While down with the flu in January, I read a lot of Richard Stark. Aka Donald Westlake. A pile of volumes from Stark/Westlake’s Parker series towered on my nightstand. The adventures and misadventures of Parker, an ultra cold hearted professional thief, were the perfect antidote to fever.

The late Donald Westlake grew up in Albany, New York. When interviewed in 1995, Westlake sounded sardonic and oblique about his youth in the capital city. And while a number of books in the Parker series take place in upstate New York, Albany is never a central location*. Characters pass through it or around it. Usually in a stolen car.

In Backflash (Mysterious Press, 1998) Albany as the seat of state government is central to the plot, yet few scenes are set in the city. A complex heist and series of murders are put in motion by Hilliard Cathman, a retired fiscal planner for the state. Cathman whiles away his retiree time as a public policy consultant with a low rent office near the “huge dark stone pile of the statehouse”. He is, as Parker puts it, one of the “camp followers of state government”.

Due to his opposition to legalized gambling, Cathman is an unsuccessful camp follower. His potential clients in legislative places are eager to tap into a major new source of revenue; Cathman won’t give them his consultant stamp of approval. His objections to gambling are arguable but reasonable. But as Parker suspects, Cathman’s ego investment in being proven right has become unbalanced.

To prove his premise that gambling draws crime, Cathman recruits Parker to rob a riverboat casino that’s being allowed to ply the Hudson between Albany and Poughkeepsie as a limited-time experiment. The casino’s political backers hope the experiment proves so successful as to open the door to gambling statewide. As a fiscal planner for the state, Cathman was privy to inside info about the casino’s security arrangements, etc. He feeds the info to Parker and his crew. They successfully pull the heist.

As usual in a Parker book, there are numerous slips twixt cup and lip. Most caused by the greed and stupidity of pilot fish swarming the haul. But the wildest card in the set-up is Cathman. In a final confrontation in Cathman’s home in Delmar (an Albany suburb popular with state employees) Parker discovers just how far round the bend Cathman has gone– and that he has a self-aggrandizing plan which if allowed to play out will doom Parker.

How many times do regular citizens make the same discovery about policy planners? Parker is Everyman!

Speaking of planners with killer bees in their bonnets…

New York State Governor Andrew Cuomo is big on forging more public-private partnerships as engines of state economic development. He said so in his Executive Budget speech on January 17th. (While sick I read non-fiction fiction as well as the real stuff.)

Yes indeed. More crony capitalism will cure New York’s economic ills. And Anna Nicole Smith needed bigger breast implants.

New York is crony capitalism central. The quadruple D example? The public-private partnership of Wall Street and Washington that pumped the housing bubble and sank the economy beneath a mountain of dodgy mortgage-backed investment paper. As assistant secretary and then secretary of HUD from 1993 to 2001, Andrew Cuomo helped steer housing policy when the bubble started swelling and the paper flying. Cuomo’s HUD policies included pushing “a reform that allowed Fannie (Mae) and Freddie (Mac) to receive affordable-housing credit for buying private subprime mortgage-backed securities”**.

HUD was also the parent organization of OFHEO (Office of Federal Housing Enterprise Oversight), the agency then charged with oversight of Fannie Mae and Freddie Mac. OFHEO, under Cuomo and other HUD heads, resisted efforts to change Fannie and Freddie’s murky and ultimately disastrous public-private status.

By the time the bubble popped, Andrew Cuomo was New York State Attorney General. In 2007, Attorney General Cuomo announced that in light of the pop, he was launching an investigation into “industry-wide mortgage fraud”. Fannie Mae and Freddie Mac were prime targets. In a letter to Freddie Mac Cuomo implied that Fan and Fred had colluded with lenders to profit from mortgages based on inflated appraisals. In a matter of months, Cuomo’s investigation dissolved into a payout of $24 million from Fannie and Freddie. No admittance of wrongdoing required. The fraud problem was found to lay mainly with– and could be corrected at– the appraisal level.

Fannie and Freddie’s payout went to establishing the Independent Valuations Protection Institute. The institute, with board members approved by Andrew Cuomo, would monitor lenders for compliance with a new Home Valuation Code of Conduct (HVCC) authored by Cuomo. Though merely a state attorney general, Cuomo’s national clout re appraisal policy was enhanced by support for the code from OFHEO, the agency overseeing Fannie and Freddie.

In the bubble years many appraisers complained about being pressured by lenders to inflate values. Yet equally large numbers hate the reform Cuomo engineered. Some claim he had a conflict of interest when establishing HVCC.

Starting in 2004 and until becoming NY attorney general, Cuomo was chairman of the board of advisors at Appraisal Management Company (AMCO) a Cleveland-based private “independent valuations solutions company” doing business with national lenders. AMCO, a subsidiary of Worldwide Outsource Solutions Ltd., had a board full of HUD; including former HUD secretary Jack Kemp (under Bush 1) and assistant secretary William Apgar (under Clinton). Edward J. Davidson (Ed Davidson), CEO and board chairman of AMCO and Worldwide Outsource, has been a consultant for Fannie Mae.

In October, 2004, Cuomo, Kemp and Apgar told reporters at the Mortgage Bankers Association annual convention that “the integrity of the appraisal process has broken down”. American Banker described the presentation as “part admonishment of lenders, part sales pitch for a vendor”.***

In March, 2005, Cuomo, Davidson, Kemp and Apgar, in a letter on AMCO stationary, pressed OFHEO’s drirector, Armando Falcon, to have a “totally independent source” review the loans within Fannie and Freddie’s “securities field”.

In February 2006, AMCO issued a press release applauding board member Andrew Cuomo’s support for the newly formed non-profit Appraisal Advocacy Coalition. According to Inman News (a real estate publication), the coalition’s missions included protecting appraisers from “unfair competition“.

Maybe HVCC was a much needed reform. Note “was”. The Dodd-Frank Wall Street Reform and Consumer Protection Act is slated to end HVCC. (Then again, it may just be whittled down. Appraisers fear that the reports of HVCC’s death are greatly exaggerated.)

Discerning the true motives of public-private players can be tough. When on the public side, they so often launch investigations and reforms that obfuscate obfuscate obfuscate. I say keep the public public and the private private. It makes the game easier to call.

When Governor Andrew Cuomo touts public-private partnerships as the path to NY economic development, a sizable majority of New Yorkers get starry eyed. Not I.  It took more than the housing bubble and its bad paper and players to make me an unbeliever. Viewing New York’s public-private deal maker, the Empire State Development Corporation (ESDC or ESD), in action has also been instructive…

See corruption and wishful thinking meet and marry! See billions in public money tossed at elephantine projects that come to naught! See ginormous tax breaks produce handfuls of jobs in depressed regions! And oh yeah– see small property owners get dispossessed at the behest of powerful developers. Rampent eminent domain abuse being one of the rottenest of New York’s public-private fruits.

Next up in the fruit bowl: Governor Cuomo’s plan for a massive Las Vegas style casino in New York City. Most likely at the Aqueduct Racetrack in Queens. The casino would be built by the Genting Group of Malaysia. (They already run slots at Aqueduct.) To enhance the project, the state would erect “the largest convention center in the nation”  nearby. And get this; the casino could put all of New York State on “an inside track to expanded gambling”.

I just hope nobody tries to chill the project with a Parker.

As for Cuomo, his crony capitalism fever keeps rising. In late January, corporate campaign donors with their eyes on infrastructure prizes paid $50,000 each to sit next to Cuomo on a panel at a national Democratic Governors Association conference. The confab, which was held in Manhattan, was hosted by Governor Cuomo. No press or public allowed.

Sometimes it pays to go private.

 

* “I’ll leave Albany to Bill Kennedy. He’s found a lot more there to write about than I did.”  Mystery Man award-winning novelist Donald Westlake remembers his Albany haunts, Paul Grondahl, Albany Times Union, 10/21/95

** Cuomo’s HUD career under scrutiny, Buffalo News, 08/21/10

***Fears about Appraisals, and Other MBA Buzz, Jody Shenn, American Banker, 10/27/04

 

 

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Turkey Day at Target: Jim Johnson Carves, Consumers Gobble and Run

by Carola Von Hoffmannstahl-Solomonoff

This year’s hottest Thanksgiving event is being held in Minneapolis at the headquarters of Target Corp. The mega retailer, whose cheap designer duds keep Joe and Jane Doakes looking stylish even during a depression, will be celebrating T-Day in a novel way. Target’s chief execs and board of directors are ditching family gatherings in favor of chowing down together. According to a fly on the wall, the table in the corporate board room has already been set with plastic china. And a bank of big screen TVs has been mounted above the table. More about that in a minute.

Come dinnertime, board member James A. Johnson will be doing the carving. He’s definitely the man for the job. As chief executive of government-sponsored mortgage maven Fannie Mae between 1991 and ’98, Jim Johnson was known for his ability to eviscerate regulators. When congressional number crunchers fretted about taxpayer risk and the danger of consumers carrying too much housing debt, Jim and his fellow bubble chefs at Fannie Mae and Freddie Mac got busy with their long knives. Doing a Benihana on anyone insufficiently convinced re the social benefits of expanded home ownership programs. If profits for the chefs expanded along with the programs, so what? Doing well by doing good was all the rage in that gilded age.

That was then, this is Turkey Day 2011. Great news for consumers carrying too much debt! This year, Target’s Black Friday sales begin on Thursday. Doors open at midnight. Lines will be long. As soon as you’ve choked down the pumpkin pie, grab your credit cards and run. (Tip: time can be gained by skipping grace at the beginning of the meal.)  Leave the dishes in the sink. Heck– don’t even bother to clear the table. Let the dog do the cleanup.

About those TVs in Target’s boardroom– an unnamed source (the fly on the wall wishes to remain anonymous) says the company’s chief execs and board members want to watch– and wager on– consumers racing up and down Target aisles all over the country. Can the hefty gal in the pajama jeans beat the old but spry bald guy to the last marked-down tech toy du jour? Which mom will emerge victorious from the doll scrim in aisle 666? And can Target’s scooters for the disabled roll faster than other shoppers can run?

If not, there will be blood…

After the games are over, T-Day at Target headquarters will conclude on a light note, with execs and board members mugging it up (Jim Johnson allegedly does a hilarious parody of Bob Cratchit) as they read aloud from a petition signed by 190, 000 employees and rogue consumers, requesting that Target move its opening hour back to a leisurely 5 a.m on Black Friday morning.

 

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Update: Gingrich bumps Corzine as Batman’s Two-Face!

by Carola Von Hoffmannstahl-Solomonoff

It takes a lot to shock Hollywood. But the news that Newt Gingrich has bumped Jon Corzine as supervillain Two-Face in the next Batman is making jaws drop in Dream City. Corzine was reportedly in like Flynn; his duplicitous doings at MF Global made him Two-Face to the max. Sure, Jon had heavy competition from the powers-that-be at Penn State, but sports figures often flop on the big screen. (See OJ in assorted  turkeys.) Sources close to Batman’s producers say Jon was already sitting for his Two-Face make-up when a story broke at Bloomberg about Newt Gingrich being paid $1.6 million over eight years for acting as advisor to housing bubble enabler Freddie Mac.

So what sez you, what’s Two-Face about that? Well kiddies, ever since the bubble-derived economic meltdown of 2008, Gingrich has been a humongous critic of Freddie Mac and its partner in crime (the kind that never gets prosecuted) Fannie Mae. Even saying that Massachusetts congressman Barney Frank ought to go to jail for his tight past relationship with Freddie Mac’s lobbyists.

Does this epitomize Two-Face or what? Batman’s producers did a Molly Bloom and said “yes”. Jon out, Newt in.

Prior to 2008, Newt (gotta love that name ) allegedly buzzed into the ears of Freddie Mac lobbyists, telling them how to sell the “company’s public-private structure” in a way “that would resonate with conservatives seeking to dismantle it”. Meanwhile, at the White House, top Freddie Mac lobbyist Mitchell Delk channeled Newt when pitching expanded home ownership programs to President Bush. The channeling took place during the period when Freddie and Fannie were hot to roll out ever more extreme experiments in mortgage-derived madness. (Lest we forget, Freddie and Fannie aren’t lenders; they buy and securitize mortgages, turning them into taxpayer-backed investment fodder.) According to Delk, Dubya was hip to what the political bennies “could be for Republicans and…. their relationship with Hispanics.”

Not that Dubya was all opportunism and no ideals. Remember The Ownership Society? It opened well among neocons, then nosedived into bailout land. So far, Fannie Mae and Freddie Mac (or is it “Mack”?) have raked in roughly $169 billion of rescue. Both say they need more. Much more. Freddie alone is seeking $1.8 billion.

Question: Should Newt Gingrich kick his Batman bux back to taxpayers? I say “yes!” His turn as Freddie Mac’s Janus landed him the way cooler role of Two-Face. He owes us big time…

 

 

 

 

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Mortgage Fraud! Mollusks! Taxpayers Rush to Invest

by Carola Von Hoffmannstahl-Solomonoff

Ah, mortgage fraud. The unsung power tool of the housing bubble. Starting around 1999, the FBI issued repeated warnings that mortgage fraud was surging. Few in government listened. Fraudsters ranged from organized cross-country rings of real estate, banking, and investment professionals, to non-profit profiteers and Joe and Joan Doakes lying on mortgage aps ’cause they just had to have that house. Feeling nostalgic about the big grift that sent no major players to jail but left taxpayers holding the Hefty and the landscape blotted with foreclosures? No need. Boom or bust, the impetus for mortgage fraud is a constant. When housing is hot there’s pressure to keep the market booming, in bust mode there’s pressure to jack it back up.

According to Core Logic (a leading provider of business information), after taking a breather in 2009 mortgage fraud increased more than 20% in 2010. (The Mortgage Asset Research Institute reports that Florida and New York lead the nation at number one and two respectively.) With government now owning or insuring 97% of mortgage bonds via Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), taxpayers are on the hook more than ever. And they’re paying for new twists. Quoting* mortgage fraud attorney L. T. Lafferty, a former federal prosecutor specializing in white collar crime, “fraud is… perpetrated differently when there are different opportunities”.

When one door closes, another opens…

Loan origination fraud, a mortgage fraud staple, is seeing new emphasis on hiding debt and liabilities. (Prior mortgage defaults? No problem.) Due to increased requirements for proof of income, credit, etc., mortgage fraud rings increasingly rely on identity theft rather than fake documents– thereby involving a wider circle of victims. Then there are the homebuilders with a glut of houses or condos who offer buyers financial incentives that aren’t disclosed to lenders. After buyers obtain loans, builders welch on the incentives. Oops, more underwater mortgages. Faked occupancy is on the rise. (Loans for second homes, and for rental properties without an owner in residence require larger down-payments and higher interest rates.) And hey– foreclosure rescue scams are on fire! Loan modification, refinancing, short sales, real estate owned (REO) sales, and government sponsored programs are being mined big time. Of course, almost the entire housing market might now be called a government sponsored program…

To date, taxpayers have kicked in $153 billion just to prop up Fannie Mae and Freddie Mac. Fan and Fred’s oversight agency (an organ of the FHA) estimates that the agencies’ losses through 2013 will require another infusion of between $68 billion to $210 billion. In government speak, a massive transfer of wealth from the general public (roughly one third of whom are renters) to cover a mountain of bad private assets is called an “investment”.

In Washington, the Obama administration and Congress are trying to hammer out a plan for “weaning the $11 trillion mortgage market from its dependence on government”**. The weaning, which will allegedly include the waning of Fannie Mae and Freddie Mac, must be done carefully and slowly so as not to damage the fragile housing market. (When the market was robust, reform was rejected ’cause it might damage the boom.) A time frame of five to sevens years has been mentioned. By then the full wean will be in the hands of the next administration. In the meantime, the real estate lobby is beating down doors in DC, to make sure that nothing (untoward) is accomplished. The National Association of Realtors, the American Bankers Association, the National Association of Home Builders, the National Council of State Housing Agencies, and the National Fair Housing Alliance are united by their determination to protect folks from being cheated out of the American Dream of Home Ownership.

Do Mollusks Dream of Electric Drills?

Mortgage fraud isn’t the only real estate product backed by taxpayer investment. There’s always (forever and ever) urban revitalization. Point of info: investment in urban revitalization does not put the truly needy in safe, clean public housing and bring industry back to fading blue collar cities. Instead it pumps luxury condo enclaves, twee art and restaurant districts, and political corruption. Perhaps no place exemplifies this type of urban revitalization better than Hoboken, New Jersey. A small (one mile square) waterfront town across the Hudson River from Manhattan, which after biting post-industrial dust was reborn as the jewel of government-backed new urbanism. That almost all of Hoboken’s blue collar residents were pushed out of town in favor of wealthier professionals largely employed by Wall Street mattered not. Gazillion urban planners saw the future and it was Hoboken.

What they didn’t see were the mollusks. More about them in a minute. First, the corruption. Everyone saw the corruption. Over the roughly three decades in which Hoboken became the revitalized gem of Jersey’s “Gold Coast”, developers and public officials from Hoboken and its parent entity Hudson County, went down like nine pins; bowled over by federal and state investigations frequently targeting corruption related to government-backed development projects. The U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Transportation were soaked again and again. As were assorted state agencies. Tax breaks were/are crony candy. Hudson County’s other cities revitalized their historic corruption with equal fervor, inspired by Hoboken’s new urban success.

Hoboken eventually became one of the most valuable chunks of real estate in the country. Yet taxpayers have never stopped investing in its revitalization. The promenade that stretches along the city’s condo-lined waterfront was a mega investment. The walkway and its park areas are open to the public. Hoboken’s master builders would have preferred waterfront access to be restricted to condo dwellers but local green space activists fought not only to keep it open, but to expand the walkway into an unbroken strip running along the entire Gold Coast. Since public largess was powering waterfront development, developers had to bend. Pols scrambled to speed their plow, cutting government red tape re construction. In Hoboken the promenade was largely in place by the 1990’s. New Jersey’s Department of Environmental Protection signed off on it every step of the way.

Now we get to the mollusks.

The first cave-in on Hoboken’s promenade occurred in 2007, at Castle Point Park in mid Hoboken. Just a small collapse. No cause for alarm. But two years later, part of a sports field that had been built atop a pier slid into the Hudson. When the field was developed in the 90’s engineers warned that the pier’s pilings were infested with shipworms, a type of mollusk. Shipworms eat wood. Suggestions were made that the pilings be replaced with something less tasty. The suggestion went into the memory hole.

In early 2010, a section of the walkway in the north, near a cove between Hoboken and Weehawken collapsed. Last October, a fifty foot sinkhole opened on Frank Sinatra Drive. (Sinatra was a Hoboken boy.) The drive, which is 13 years old, runs along the river in front of a strip of luxury condo towers– including one which houses former NJ governor and ex Goldman Sachs boss Jon Corzine. The sinkhole, which was also allegedly caused by mollusks, followed two smaller collapses on Sinatra. Recently, engineers determined that the steel beams supporting Pier A, a popular park on the south end of the promenade near Hoboken’s train and ferry stations, need a makeover. Seems the concrete jackets on the beams aren’t covering all they should. No danger from salt water corrosion yet. Just being proactive. Pier A is like, totally safe.

Despite all the wealth that hangs in Hoboken, the city has severe financial problems. Hoboken isn’t the only entity responsible for repairing the collapsing waterfront (as example, Sinatra Drive was a county project) but the city will have to cover much of the rehab. The cost will be more than the entire city budget. Massive debt will be assumed via bonding. According to the New York Times***, Mayor Dawn Zimmer (elected in 2009) is holding out “hope for state and federal aid”. And Hudson County is hoping to obtain federal grants to repair the Sinatra sinkhole. As for the mollusks, they have high hopes for more wood.

*Mortgage Fraud: Worse Before Better, Expect More Schemes and More Regulatory Oversight in 2011, Tracy Kitten, Managing Editor, Bank Info Security, 02/04/11

**Obama Administration Calls for Winding Down Fannie, Freddie, Lorraine Woellert and Rebecca Christie, Bloomberg News, 02/11/11

***As Hoboken’s Riverfront Crumbles, the Cost for Repairs Soars, Richard Perez-Pena, New York Times, 02/08/11

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