Two More Federal Convictions Of New York State Senators -- For What?

If you read the tabloids here in New York, you can't help noticing the string of recent federal convictions of state pols.  Just the past few days have brought two new convictions of high-ranking members of the New York State Senate.  On Wednesday July 22 a federal jury in White Plains (Southern District of New York) convicted Senator Tom Libous, Republican of Binghamton, who had until recently been the Deputy Majority Leader of the State Senate.   (The recent Majority Leader, Dean Skelos, Republican of Nassau County, is also under indictment in the Southern District.)  On Friday July 24 another federal jury, this time in Brooklyn (Eastern District of New York), convicted John Sampson, Democrat of Brooklyn, who served from 2009 to 2012 as leader of the Democratic Conference of the same body.

So what were Libous and Sampson convicted of?  Turns out that in both cases the pols were convicted of obstructing an FBI investigation or lying to the FBI -- and of no underlying crime!  Really???  In the case of Sampson, it appears that at least there was a bona fide underlying crime under investigation, but the prosecutors blew the statute of limitations.  In the case of Libous, it is highly dubious that there was any underlying crime at all.

Here is the Libous indictment.  There is only one count, and it is for "making materially false, fictitious and fraudulent statements and representations" to the FBI, under 18 U.S.C. Section 1001.  What are the alleged false statements?  There is no allegation that any of the false statements were made under oath.  The basic idea is that Libous leaned on a small and struggling law firm to give his son a job, and in the process made a statement to the effect that the firm "would have to build a new wing" to accommodate all the business it would receive.  Then, when questioned by the FBI about the subject, Libous allegedly said things that included that "he could not recall how his son began work at Law Firm I," "no deals were made to get his son the job at Law Firm I," and "he never promised to refer work to Law Firm I." 

So it's not just that there was no charge or conviction of any underlying crime.  It's also that it doesn't appear that there ever was any underlying crime at all.  Yes, "deprivation of the intangible right to honest services" is a (completely phony) federal crime, never mentioned here, although the Supreme Court has said that that fake crime can only be prosecuted constitutionally when there is proof of a bribe or kickback.  Anyway, this indictment doesn't even mention the existence of that "crime."  Moreover, for a bribe or kickback there has to be consideration going to the pol, and the only consideration mentioned here is a job for the kid -- nothing is mentioned going to Libous himself.  And would the quid pro quo be this business about "hav[ing] to build a new wing" to accommodate the gusher of work?  If Libous actually used those words, would any sane person take it as anything other than pure puffery, stated with an obvious tone of humor in recognition that it could well not happen?  Libous was a State Senator -- he didn't have any ability to deliver New York State's legal work.  So maybe he could recommend this firm to some of his political supporters, and maybe some of them would hire the firm?  So????

The charges against Sampson stemmed from an investigation into whether he had embezzled some $500,000 from funds entrusted to him as court-appointed referee for foreclosed properties.  Here is a July 24 Daily News article discussion the charges and conviction.  But all the substantive charges against him were dismissed for failure to comply with the statute of limitations:

Last year, Federal Judge Dora Irizarry dismissed the embezzlement charges ruling that the statute of limitations had passed.

That means that we are not going to find out if Sampson actually committed the embezzlement.

I'm certainly not going to stand up for the overall honesty of the New York State Legislature.  But it is deeply troubling that the prosecutors constantly investigate all the legistors, find nothing to prosecute them for in their conduct of their job and life, but only accuse them of crimes arising out of their response to the investigation itself for essentially "dissing the prosecutors."  And this prosecutorial conduct is particularly troubling as to the New York State Senate, which hangs in precarious Republican control in this very blue state, and thus where prosecutions of Republican leadership or Republicans in swing districts could greatly affect the political balance.

Meanwhile the Southern District prosecutors got a superseding indictment a few days ago against the recent (Republican) Majority Leader, Dean Skelos.  I covered the previous indictment here.  As far as I can see, the new charges, like the old, all involve a job for Skelos's son, and no personal benefit to Skelos himself.  Well, at least there's an alleged underlying wrong, and not just dissing the FBI in the course of the investigation.  But it still sounds even thinner than the charges of which the next previous Senate Majority Leader, Republican Joe Bruno, was acquitted.  

Watch Out For Rule By The "Smart" -- Part II

A little over a year ago I wrote an article discussing the extent to which human intelligence is noticeably limited.  (Watch Out For Rule By The "Smart")  The amount that any one person can figure out in a lifetime is very small.  Meanwhile, what are seemingly the "smartest" people not only don't figure out important things, but regularly get taken in by some of the most preposterous scams and fallacies.  Worse, they come up with bad solutions to perceived societal problems and in their hubris (because they are so "smart") they seek to impose those solutions through coercion on everyone else.  The particular focus of last year's article was the so-called "Risky Business Coalition," consisting of Mike Bloomberg, Hank Paulson, and Tom Steyer, falling for the climate hoax and then seeking to have the government force everybody else to drastically cut carbon emissions (while for themselves, of course, they continue to move among multiple homes in fleets of private jets).

For today's example, consider Friday's column from Official Manhattan Contrarian Worst Economics Writer Paul Krugman.  The title is "The M.I.T. Gang."  Krugman points out that a remarkable number of the Grand Pooh-Bahs in the top economic policy positions in the world today were contemporaries of his in the economics Ph.D. program at M.I.T. in the late 1970s. Ph.D. in economics from M.I.T. -- now there's "smart"!  And today these brainiacs are running the world!  Surely we can trust them to come up with good policies.  Right?

Name a few names, Paul:

It’s actually surprising how little media attention has been given to the dominance of M.I.T.-trained economists in policy positions and policy discourse. But it’s quite remarkable. Ben Bernanke has an M.I.T. Ph.D.; so do Mario Draghi, the president of the European Central Bank, and Olivier Blanchard, the enormously influential chief economist of the International Monetary Fund. Mr. Blanchard is retiring, but his replacement, Maurice Obstfeld, is another M.I.T. guy — and another student of Stanley Fischer, who taught at M.I.T. for many years and is now the Fed’s vice chairman. 

Any others?

And yes, I’m part of the same gang.  

I like that part about Blanchard being the "enormously influential chief economist of the International Monetary Fund."  This is the guy who has spent the last seven years -- otherwise known as the period since the financial crisis -- advising governments in trouble because of overspending to never, ever cut government spending under any circumstances.  All of the European countries with government spending at 50% of GDP or more languish with stagnant economies, and Blanchard is so mesmerized by his Keynesian models that he can't recognize overspending as the problem.  Worse, he so completely believes the fake statistics that count government spending -- no matter how wasteful -- at 100 cents on the dollar in GDP, that he doesn't realize that these big spenders actually have declining economies.

Don't believe me?  Try this: When France (government spending 56% of GDP) had an economic contraction in 2013, here's what Blanchard had to say:

France's growth is forecast to be slightly negative in 2013, reflecting a combination of fiscal consolidation, poor export performance, and increasingly, so, low confidence.

"Fiscal consolidation," for those not among the cognoscenti, is IMF/MIT Ph.D.-speak for some combination of cutting government spending and raising taxes.  So if economic contraction is to be blamed on "fiscal consolidation," then the correct economic policy for a government is to borrow absolutely as much money as you can get your hands on and waste it as fast as possible.  These people actually believe that.  They are really, really, really "smart."

But don't worry, Blanchard is about to retire.  His replacement is Obstfeld, another M.I.T. Ph.D. guy from the same era.  Here is what Tyler Cowen has to say about the appointment of Obstfeld:

Overall I would say this reflects the continuing preeminence of MIT-style macroeconomics in the current policy community, his MIT Ph.d. is from 1979 and his work has been very much in that vein. 

I don't know why Tyler is being so circumspect in his verbiage.  As far as I know, saying that someone's "work has been very much in the vein" of an "M.I.T. Ph.D.  . . .  from 1979" is saying that he believes that the best economic policy for any country is borrowing as much as you can and wasting it as fast as possible.  So that's going to continue to be the official advice that the IMF offers to any country in financial trouble for the next God-knows-how-many years.

Here is Krugman's take on Blanchard's tenure at the IMF:

The I.M.F.’s research department, under Mr. Blanchard’s leadership, has done authoritative work on the effects of fiscal policy, demonstrating beyond any reasonable doubt that slashing spending in a depressed economy is a terrible mistake, and that attempts to reduce high levels of debt via austerity are self-defeating. But European politicians have slashed spending and demanded crippling austerity from debtors anyway.

Yes, Blanchard's "definitive work" proves that borrowing as much as you can and wasting it as fast as possible is the best policy.  It's "beyond a reasonable doubt."  So who is the Manhattan Contrarian to be questioning these great M.I.T. Ph.D.s?  (Has anybody looked into whether it is all just an artifact of counting wasteful government spending at 100 cents on the dollar in GDP?  Not Blanchard or Obstfeld or Krugman.  They're too "smart" to have that kind of self-doubt.)  

Things You Will Not Read In The New York Times -- Income Down, Poverty Up For Blacks Under Obama

In an article today appearing in both Town Hall and Real Clear Politics, Larry Elder does a real service in compiling statistics about the economic condition of African Americans in the United States in the age of Obama.

Perhaps you might think that Obama's economic program has been "helping" blacks.  The big "stimulus" of 2009-11; Obamacare with its maze of subsidies for the low income; big increases in welfare and handout programs like TANF, SNAP, EITC, Obamaphones,  Medicaid and SSDI; increased support for labor unions; and so forth.  All these things at least are designed to sound like they are "helping" the poor and the little guy against the rich and/or powerful.  Surely that should mean that the economic position of African Americans would be improved.  Right?

But actually, anybody who understands our economic statistics would immediately realize that additional spending on such programs would harm the measured economic position of the supposed intended beneficiaries.  That's because the economic statistics measure things like "income" and "employment," which are not improved by subsidy and handout programs.  Most of the handout programs do not count at all in measured income; that's certainly true of Obamacare subsidies, Medicaid, Obamaphones, SNAP, and EITC, just for starters.  And then there are the negative incentives that all of these programs provide to keep incomes (or at least visible incomes) low so that the benefits will continue to flow.  Put those factors together and it is almost certain that measured income and employment will decline as the handouts increase.  And that is exactly what we see.

And I'm not saying that the decline in the economic condition of blacks is just an artifact of the statistics.  You could argue about whether the statistics as defined give an accurate picture of economic well-being, and I have certainly done that.  But I would still agree that "income" earned at a job is a fundamentally different thing from a government handout.  Handouts are very restricted and just not worth nearly as much to the recipients as cash from a job.  For example, New York spends some $10,000 per year per Medicaid beneficiary.  I'll bet not one in ten of the "beneficiaries" would take the Medicaid enrollment if given the choice between that and the $10,000 cash.

So with that introduction, here are some of Elder's findings about the changing economic condition of African Americans since 2009:

  • Poverty.  "In 2009, when Obama took office, the black poverty rate was 25.8 percent. As of 2014, according to Pew Research Center, the black poverty rate was 27.2 percent."
  • Income.   "CNNMoney says, 'Minority households' median income fell 9 percent between 2010 and 2013, compared to a drop of only 1 percent for whites.' The Financial Times wrote last October: 'Since 2009, median non-white household income has dropped by almost a 10th to $33,000 a year, according to the U.S. Federal Reserve's survey of consumer finances.'" 
  • Unemployment.  Elder acknowledges that  "[i]n 2009, black unemployment was 12.7 percent, and by 2014, it had fallen to 10.1 percent," but points to a very different story told by labor force participation:   "The drop in labor force participation was sharpest for African Americans, who saw a decline . . . [under Obama] to 60.2 percent."   Another way of looking at this is that if black labor force participation were "normalized" to the overall U.S. rate of about 63%, they would have an unemployment rate of close to 15% today.
  • Home ownership.  "According to Harvard University's Joint Center for Housing Studies, the picture is ugly: 'Homeownership rates have fallen six percentage points among black households -- double that among white households. ... More than 25 percent of mortgage homeowners in both high-poverty and minority neighborhoods were underwater. . . .'" 

So to what extent has the decline in blacks' economic condition been driven by the explosion of government programs intended to "help"?  I'll let you draw your own conclusions, but it is clear that the government programs have indeed exploded.  HHS puts out an annual report called Welfare Indicators and Risk Factors.  The latest one I can find is about a year old from July 2014, and I can't find one for this year yet.  The information in the Report is somewhat dated depending on the category.  A few examples from various sources:  SNAP recipients from 27 million to 46 million; Obamaphone expenditures from $800 million to $2.2 billion; Medicaid expenditures from $375 billion (2009) to $449 billion (2013)(follow link to NHE Tables); SSDI from about $110 billion to about $160 billion (chart at the link); and so forth.  

The Greatest Scientific Fraud Of All Time -- Part VI

It's been over a month since I wrote an update on "The Greatest Scientific Fraud Of All Time," so it's time to check in on it again.  For those not following this, the fraud in question is the world temperature data tampering fraud, by which the keepers of historical world temperature records adjust temperatures in earlier years downwards in order to create or enhance warming trends and support the narrative of catastrophic global warming.  The principal perpetrators of the fraud are U.S. government employees in the agency known as NOAA (National Oceanic and Atmospheric Administration).

Readers of the previous articles know that NOAA has been caught red-handed over and over adjusting earlier temperatures downward.  They uniformly provide no explanation beyond something like "our homogenization algorithm is working appropriately," refuse to give any details, and expunge the earlier raw data to make it as hard as possible for anyone to prove the fraud.  My previous articles are herehere, here, here and here.

Numerous examples of NOAA's pervasive and unexplained adjustments have been published on websites including ICECAP, RealScience, NotaLotofPeopleKnowThat, WattsUpWithThat and others.  And numerous independent researchers have done a lot to thwart NOAA's data deletion efforts by archiving earlier versions of the data.  You can't follow this issue at all without knowing that there are very credible and thoroughly demonstrated instances of pervasive data tampering by NOAA.  You also can't follow this issue at all without knowing that there are several other independent data sets, most notably the two satellite data sets of UAH and RSS covering the period 1979 to present, that do not show the warming that the NOAA data shows.

And yet, with this background, NOAA keeps putting out press releases, more or less monthly, trumpeting alleged new high temperature records, and supposed "news" outlets pick up the releases and put out stories with one scary headline after another, never mentioning that other data sets do not show the same records or warming, and never mentioning that serious and thoroughly-proved allegations of data tampering have been made against NOAA and never refuted.

Not meaning to pick specifically on Bloomberg News, but their website front page has made a point for several months of having a global warming scare headline up there at nearly all times.  For example, today there is "World Breaks Temperature Records As Climate Summit Nears."  ("Global land and sea surface temperatures from January through June were 1.53 degrees Fahrenheit above the 20th century average, the highest since recordings started in 1880, the National Oceanic and Atmospheric Administration said in a report.")  Yesterday it was "Monster El Nino Makes Record Hot Year Look Inevitable."  ("This has been the hottest start to a year by far, according to data released today by the National Oceanic and Atmospheric Administration.")  Or try June 18, "This Year Is Headed For The Hottest On Record, By A Long Shot."   ("Last month was the hottest May on record, and the past five months were the warmest start to a year on record, according to new data released by the National Oceanic and Atmospheric Administration.")  Or April 17: "Global Temperature Records Just Got Crushed Again."  ("March was the hottest month on record, and the past three months were the warmest start to a year on record, according to new data released by the National Oceanic and Atmospheric Administration.")  Notice that every time the source is specifically NOAA, without any mention of other data sets that do not show the same thing, nor any mention of the well-established allegations of data tampering against NOAA.  Pathetic.

Believe me, Bloomberg is not the only one.  To give just a couple of examples, here is NBC News from yesterday, "Another Month, Another Global Heat Record Broken."  ("Off-the-charts heat is "getting to be a monthly thing," said Jessica Blunden, a climate scientist for the National Oceanic and Atmospheric Administration. June was the fourth month of 2015 that set a record, she said.")  Or the New York Times from March 18, "Winter Sets Global Heat Record Despite US East's Big Chill."  ("Federal [NOAA] records show that this winter and the first two months of 2015 were the hottest on record globally, with a chilly U.S. East sticking out like a cold thumb in a toastier world.")  Always NOAA and only NOAA.  Never any mention of other data sets or what they show.  Never any mention of known NOAA data tampering.

A website called NoTricksZone has a good roundup  today comparing the latest NOAA data showing supposed "records" with data from the other independent (and also more accurate) satellite data sets.  It's just as you'd expect:

NOAA claims that the global surface temperature reached a new all-time record high with an anomaly +0.88°C – the warmest since recordkeeping began in 1880!  However measurements taken by satellite Remote Sensing Systems (RSS) show that although June 2015 indeed was a warm month at +0.39°C, it was only the 4th warmest June ever, and more than 30 other earlier months have seen greater positive anomalies [in records going back to 1979]  Satellite data (revised) [also data going back to 1979] taken by the University of Alabama in Huntsville UAH show that the June 2015 temperature anomaly was +0.31°C, a warm month but not the hottest June ever as three other June months were as warm or warmer.  Moreover plots of the RSS and UAH data continue to show that global temperatures have been flat for now close to 20 years.

NoTricksZone then has the following comment from meteorologist Joe d'Aleo:

“The problem is that the same staff responsible for creating the reports about the climate . . . and running some of the greenhouse models that project the scary scenarios . . .  are also responsible for the databases that validate the forecasts. . . .  There is a lot of control available for modelers to predict a desired result, and data source inconsistencies allow NOAA to be creative – and the result is a hybrid of data and models (with their adjustments like TOA, infilling and homogenization) to show whatever the puppet-masters in government require. It may be that some really believe in their science and work hard to mine the data, achieving a form of bias confirmation. In other cases it is ideologically or politically driven or a matter of job security.”

Also at NoTricksZone from a couple of weeks ago (July 7) is the latest discovery of yet another example of widespread NOAA data tampering.  A guy named Michael Brakey is an energy consultant in Maine, and for his job had reason to archive older temperatures to keep track of how his home efficiency solutions were working.  To his amazement, on repeated visits to NOAA's website to collect data, he found that older temperatures had been systematically altered downward:

In early 2015, I revisited the NOAA website and updated my HDD [heating degree day] and cooling degree-day (CDD) data for a local television presentation. Here I was shocked to discover that NOAA had not only rewritten Maine climate history for a second time in the last 18 months, but with all the tinkering they also screwed up southern interior Maine averages.

There's lots more detail at the link, including additional discovery of massive data tampering with archived temperatures in Ohio and Tennessee.  The tampering is always in the same direction -- earlier temperatures get cooler, thus enhancing warming trends, and making the latest data look like a "record."

Brakey asked NOAA to explain, and got this:

“…improvements in the dataset, and brings our value much more in line with what was observed at the time. The new method used stations in neighboring Canada to inform estimates for data-sparse areas within Maine (a great improvement).”

Replacing actual, observed temperatures in Maine with observations from "neighboring Canada" supposedly brings the value "more in line with what was observed at the time"?  It couldn't be more preposterous.  Bloomberg, NBC, New York Times, and the rest of you: do you realize the extent to which you are getting scammed?  Or are you part of the scam?  It's just beyond belief.

 

Lower West Side Of Manhattan Versus Lower East Side

Even readers who have never been any where near New York probably know that Manhattan is a long skinny island running roughly North to South, coming to a V-shaped point at the Southern tip known as the Battery.  Lower Manhattan then has two distinct waterfront districts, one running up the Lower West Side, and the other running up the Lower East Side.  In Manhattan's heyday as a port, both the Lower East Side and Lower West Side waterfronts were lined with piers.  The first couple of blocks inland were devoted to uses related to the port:  warehouses, factories, freight-handling facilities, and low-rent housing for sailors and dock workers.

Today the port has long since disappeared.  As I have said multiple times on this blog, there is no longer any active freight pier in Manhattan, and there hasn't been for decades.  Both the Lower East Side and Lower West Side waterfront districts have been redeveloped in the years since the port went away.  But the two districts have taken completely different paths to redevelopment.  On the Lower East Side, governments at all levels (federal, state and local) followed a socialist model of government redevelopment, building dozens of government-owned "projects" that line the waterfront for almost three miles.  On the Lower West Side, the government mostly left things alone.  Today, the Lower West Side waterfront has become some of the most valuable real estate in the world.  And the Lower East Side?  I would say that it is an unmitigated disaster.  It's not just that the buildings are hideous, although they are.  But it's also that what should be equally valuable real estate is instead completely valueless, and the people who live there are considered "poor" even as they occupy what would be multi-million dollar apartments in any rational world.  Am I wrong?  You be the judge!

The port had gone into serious decline at least by the time of the Great Depression in the 1930s.  By the 1950s, large portions had been abandoned, and the abandonment was complete by the 1970s.  When I moved to Greenwich Village in the mid-1970s, the local waterfront (West Side) was lined with abandoned piers, while the first couple of blocks inland featured lots of underused factories and warehouses, mixed with a few early residential conversions.  Here is a 1978 picture looking across the decrepit Charles Street pier and toward the Bethune Street pier, which had just suffered a collapse:

Looking across Charles Street pier toward Bethune Street pier after 1978 collapse 

Looking across Charles Street pier toward Bethune Street pier after 1978 collapse
 

On the Lower West Side, with a couple of notable exceptions (West Village Houses, Westbeth), the various governments left the situation alone to lie fallow.  Not so on the Lower East Side.  There the governments (federal, state, and local were all involved) leapt into action to fill the vacuum with the trendy thing of the day, which was low income public housing.  Beginning in the late 1930s, and continuing into the 1960s, they took the stretch of waterfront from the Battery to East 14th Street -- about 3 miles in total -- and filled about 80% of it with "the projects."

Today, all of those projects are still there, one after the other:  Smith Houses, Vladeck Houses, Baruch Houses, Wald Houses, Riis Houses, and I'm sure I've missed some.  All are of the brutalist "towers-in-a-park" style, totally without ornamentation of any kind.  If there is anyone alive who actually finds these things attractive, I have never met the person.  I'll give you a couple of pictures for flavor, but don't feel that you are missing anything because I have not provided a picture of every project.  They all look exactly the same.  This is one of the Baruch Houses from the waterfront side:

Do you like those big stretches of blank wall in what could be somebody's waterfront view?  Hey, this is the government at work!  Here's a picture of Riis Houses from the inland side:

On a Google Maps view of this area, I count just under 100 of these buildings in the projects lining the Lower East Side waterfront.  At an average of about 200 apartments per building, that would be around 20,000 apartments.  The value of these 20,000 or so apartments is precisely zero dollars and zero cents.  Nobody can sell them and nobody can buy them.  Tens of thousands of people who live in them are officially designated as poor, despite living in waterfront apartments on what ought to be some of the most valuable real estate in the world.  And did I mention that the rents in these buildings only cover about a third of their operating costs?  And that they have billions of dollars of deferred maintenance waiting to be done with no money to pay for it?  Yes, it is classic socialism.

How valuable could this real estate be in a private enterprise model?  We can get a very good idea by looking at the Lower West Side, which, one would think, would be highly comparable in every way.  But the governments took a different tack, and that has made all the difference.

Over on the Lower West Side, when the governments mostly didn't try to do anything, not much happened for decades.  In the early 90s the state government announced the intention to clear out the abandoned piers and build a park that would include some rebuilt piers plus the narrow strip of land about 100 feet wide along the water.  Construction of the park began in the late 90s and has continued since -- it's still not done.

Here is a relatively recent (2014) view of the Greenwich Village waterfront.  At Bethune Street, they removed the pier shed and nothing remains but a field of piles.  The Charles Street (shorter) and Christopher Street (longer) piers have been redeveloped into recreational green space.

 

Construction of new privately-financed housing did not really get going until around 2000, but is now really reaching its peak.  I'll give you some examples of the buildings that have gone up, or soon will go up, on the Lower West Side waterfront, and of their values.  Among the first top-end buildings to get built were twin towers designed by Richard Meier at 173 and 176 Perry Street.  They were under construction in 2001 when the much taller twin towers of the World Trade Center fell.   A third building, just across the street at 165 Charles Street, designed by the same architect, was added in 2005.  These three buildings replaced (1) a vacant lot, (2) a one-story metal garage, and (3) the "Pathfinder" book warehouse, long known as the storage place for communist tracts.  The three Meier buildings appear in about  the center of the picture above.  Here is a view of them from across some water:

Left to right, 173 Perry Street, 176 Perry Street, 165 Charles Street, Greenwich Village, New York City 

Left to right, 173 Perry Street, 176 Perry Street, 165 Charles Street, Greenwich Village, New York City
 

 In 165 Charles Street, a 4500 square foot penthouse is currently listed for $40 million, close to $10,000 per square foot.  A 2500 sq.ft. three-bedroom asks $9.75 million. 

Just to the North at 400 West 12th Street is a building built in 2009 designed by architect Robert A.M. Stern.  It has the name "Superior Ink" because it replaced a prior abandoned ink factory by that name.

400 West 12th Street, the "Superior Ink" Building, Greenwich Village, New York City
 

A 1400 sq.ft. two-bedroom apartment in this building is on the market for $5.5 million, almost $4000 per square foot.  That apartment doesn't even face the water!

Farther South, below Canal Street, multiple waterfront buildings are currently either under construction or about to begin construction.  Just today, the most recent entry had renderings posted on the YIMBY website.  This one is to be built at the corner of Vestry Street.  Robert A.M. Stern is again involved as architect, this time along with Ismael Leyva.

Rendering of future 70 Vestry Street, Tribeca, New York City
 

Without doubt the developers will be expecting to achieve values comparable to their now-established companions on the Lower West Side waterfront, namely $3000 per square foot or more.

When you compare the Lower East Side to the Lower West Side, it is clear that government policy has intentionally destroyed tens of billions of dollars of real estate value.  Worse, it has trapped tens of thousands of families in poverty even as they receive an annual gift from the taxpayers of at least $100,000 per family as measured by the rental value of comparable real estate.  Actually the $100,000 per family assumes a value of about $2000 per square foot, well below the $3000 to $4000 per square foot that is becoming standard on the Lower West Side.  So maybe the annual taxpayer gift to each family in the projects is as much as $150,000 to $200,000.  Only to see the families trapped in "poverty" and their buildings crumbling.  It is almost impossible to conceive of such a huge disaster.

So what is the take of the New York Times on this?  It's not too hard to guess.  From a May 26 editorial, commenting on Mayor de Blasio's new plan to "save" the New York City Housing Authority:

Of all the monumental tasks that Mr. de Blasio has set for his administration, none may be more important than saving the New York City Housing Authority.

OK then, let's throw away a few more tens of billions in our unending striving to keep the poor poor!

In Case You Thought The Chinese Know What They're Doing

A few years ago (September 2009), with China's economy apparently leaping from success to success, Thomas Friedman of the New York Times wrote a famous column singing the praises of the supposedly enlightened authoritarianism of China's leaders.  Excerpt:

[W]hen [one-party autocracy] is led by a reasonably enlightened group of people, as China is today, it can . . . have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. 

Well, who would the mere Manhattan Contrarian be to quibble with the state-directed capital allocation choices of these enlightened geniuses?  Of Friedman's list of investments favored by the Chinese autocrats (electric cars, solar power, energy efficiency, batteries, nuclear power and wind power), my bet is that only two, energy efficiency and nuclear power, will actually add to the people's wealth in the end, versus subtracting.  Maybe these guys have a perfect crystal ball.  If so, they would be the only people in the world who do.  More likely they are committing the well-being of their citizens and taxpayers to vast investments in risky projects, most of which will fail spectacularly.  Time will tell.

But if you are one of those people who think that the Chinese autocrats might actually know what they are doing, you really need to take a look at what they are doing today.  It seems that about a month ago the Chinese stock markets started to go into sharp decline.  After peaks in mid-June, within a few weeks the two main indices had fallen by about 30% (Shanghai) and 50% (Shenzhen).  In the past week or so there has been talk of various measures by the government to support stock prices.  And now today they announce a fund of some 3 trillion yuan ($483 billion) to buy stocks to keep the prices up.  From Bloomberg News this morning:

China has created what amounts to a state-run margin trader with $483 billion of firepower, its latest effort to end a stock-market rout that threatens to drag down economic growth and erode confidence in President Xi Jinping’s government.  China Securities Finance Corp. can access as much as 3 trillion yuan of borrowed funds from sources including the central bank and commercial lenders, according to people familiar with the matter. The money may be used to buy shares and provide liquidity to brokerages, the people said, asking not to be named because the information wasn’t public.

To give some perspective, the entire GDP of China is about $9 trillion (if you believe their numbers), which would make this new stock-buying fund more than 5% of annual GDP.   

Is there any level on which this makes any sense?  A July 6 article in Fortune gives the P/E ratio of the Shanghai market as 23 and of the Shenzhen market as about 50 -- and that's after most of the recent declines had already happened.  By contrast, the current P/E of the Dow Jones Industrial average is under 17, while the P/E of the S&P 500 is about 21.   So even after the recent declines, the Shanghai and Shenzhen markets remain substantially overvalued on general world standards.  Here's the take of Minxin Pei (of Claremont McKenna College), the author of the Fortune article:

Chinese leaders tend to view economic issues from a purely political perspective. Unsurprisingly, the performance of the stock market has been made a barometer of the popularity of the current regime. The head of China Security Regulatory Commission not too long ago called the soaring market “a reform bull market,” suggesting that investors were giving a vote of confidence in the leadership’s promised reform programs. A plunging market would imply a loss of confidence and falling popularity of the current leadership—an intolerable prospect.

So, to protect their political image and narrative, the great leaders of China are in the process of transferring some 5% of GDP from their taxpayers and citizens into the pockets of stock market speculators, in a completely futile effort to prop up stock prices that with a high likelihood are destined to fall no matter what.  Yup, that makes a lot of sense.

But Pei points out that this is just the latest of multiple examples of the Chinese leaders opting to commit the government fisc to shoring up markets on the brink of collapse.  Other recent examples in China have occurred in the real estate market and in the market for local government debt:

In addressing the real estate market bubble, Beijing has opted to keep insolvent developers alive by forcing their lenders to roll over the loans. Consequently, the glut of unsold inventory hangs over the real estate sector. Because there is such an excess in the supply of housing, it is unlikely that those zombie real estate developers will return to life and pay their creditors in full.

Beijing has used a similar recipe for shoring up its debt-laden local governments. After the bond market rejected Beijing’s plan to float the debt issued by local governments earlier this year, Chinese leaders simply ordered state-owned banks to buy such debt, adding assets of dubious quality to their balance sheet.

So far the infinite credit card seems to be succeeding at covering over all the problems.  The official measures of GDP continue to show big increases.  They count new real estate developments at 100 cents on the dollar in GDP, even as the developments sit totally empty.

You can cover it over just so long, and then when it falls apart, it happens all at once.  And no, they don't have any idea what they are doing.  They've had a run of good luck, but it won't last forever.