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Thursday, February 25, 2010

Obama Foreclosure Ban Will Spark New Credit Freeze

The Obama Administration, through the Treausry Department, is proposing an outright ban on residential foreclosures unless the mortgages are rejected for possible modifications.

This proposed ban, if adopted, will have disastrous unforessen consequences for all bank depositors, creditors and anyone potentially seeking new loans or even wanting to keep existing credit. In short, it can push the nation -- if not the world -- towards a new and deeper credit crunch.

This is how it could happen. Banks unable to foreclose -- without much greater difficulty and longer delays than at present -- will not be inclined to extend new loans. In the meantime, the banks' balance sheets will deteriorate and their cash flows will lessen.

As the value of assets (the mortgages they have the right to collect payments on) decline, unless there is permanent relief from mark to market accounting (another point for debate; I say no), the banks' capital ratios signifying the ratio of liabilities to assets will increase. In short, banks will become overleveraged again (2007 redux). The result will be a new credit crunch as banks must avoid taking on new liabilities (read: loans) in order to stay appropriately leveraged. Real cash flow will decline, causing a real liquidity crunch in addition.

Defaulting homeowners who are not subject to foreclosure or who can now enjoy new delays will have even less reason to pay anything, and other homeowners in distress will be encouraged to follow this new approach using the same calculus. The burden will shift more and more towards borrowers (on all loans) who do pay on time; they will get nothing except a greater burden, in return for shouldering a greater percentage of the responsibility. The economy can thus be pushed into a death spiral.

As an analogy, consider what happens in a co-op building with common charges borne by all owners. The charges reflect the entire co-op's expenses. If and when some unit owners default, the remaining owners end up picking up the tab.

In a new credit death spiral, borrowers in good standing will be burdened extra, some will become distressed themselves under the weight of the free-riding deadbeats, and the cycle will only worsen.

We need to stop thinking that stopping foreclosures and propping up housing prices is benign. We must encourage -- if not facilitate and accelerate -- the number of foreclosures and make the housing market "bleed out" the sickness. Only then will we have a recovery.

 Eric Dixon is a New York lawyer who has been practicing law since graduating from Yale Law School in 1994. Mr. Dixon cautions that this article is not legal advice. Mr. Dixon has handled election law and other matters for over two dozen political clients, and also handles corporate investigations, due diligence and sensitive matters including crisis management.  Mr. Dixon is available for consultation or comment at edixon@NYBusinessCounsel.com and 917-696-2442.

Fudging Pension Deficit Numbers to $teal More Money


The Newark Star-Ledger reports today that the state pension fund has an unfunded liability for the fiscal year ending June 30, 2009 of approximately $46 billion, or about 30% higher than the unfunded liability as of June 30, 2008.
The numbers require a closer analysis.   Especially when there is a movement afoot among members of both parties to get the State Government to make up for the unfunded amount -- the deficit -- which is a different way of saying it will come out of the pockets of everyone living, working or travelling through New Jersey.   And more especially, when you consider that this proposal is supported by leaders of both houses of New Jersey's legislature and has, according to other reports, met with the approval of New Jersey's new Governor, Chris Christie.   The same Governor Christie who claims to be taxpayer-friendly and fiscally-responsible. 

Remember when Christie said he became a lawyer because he couldn't do math?   Maybe he needs an abacus.  Let's look at some simple numbers.
From my math, using only the figures provided in the article, pension fund liabilities have actually decreased by $5.5 billion from 6/30/08 to 6/30/09.  I arrive at this number by adding assets to unfunded liabilities (the equivalent of negative shareholders' equity).  Since the unfunded portion grew from $34 to $45.8 billion, and the overall value (the assets) of the pension fund decreased from $83 to $66 billion, this suggests that pension fund payments to current retirees are accelerating, while overall liabilities have actually shrunk from $117.4 to $111.8 billion.

If current inflows continue to be outpaced by outflows and especially if there is another market downturn, the unfunded liabilities will actually grow at a faster pace. But note that these are June 30, 2009 numbers. If the pension funds are getting a rate of return close to the major market indeces (up about 20-25% since then), then present assets may be $13-15 billion higher. That would actually produce a small DECLINE in the unfunded liabilities.
Not properly accounting for the numbers allows people to cry that the sky is falling in order to push through a state constitutional amendment requiring the state to fund any shortfall. Such an amendment should be opposed in all instances. State funding would act as a form of loss insurance for investments, which by definition carry a risk of loss. The private sector taxpayers do not enjoy these benefits and should never be asked to fund loss insurance for public employees. Such a plan would present another moral hazard, encouraging the pension funds to take even more investment risk because it would be "risk-free"; public workers get all the upside if it works, and taxpayers make up for all losses if the investments go bad.  

Nothing can be more fundamentally unfair than a system where private sector residents, in some cases lacking a safety net, can be saddled with an accelerating death spiral of increased tax levies to support the entitlements (er, obligations, that's the snooty word the Grey Poupon set uses with the proles) of the public employee vassals.

Private citizens who put their money in a mutual fund whose manager makes bad investments -- or who simply invests when the entire market unravels -- don't get a bailout. No one deserves loss insurance for failed investments. No one is entitled to a certain rate of return. These are investments, not guarantees.  
Should Governor Christie back this plan, he would do tremendous damage to his credibility as a "fiscal conservative" or "reformer," and would invite -- if not ensure -- a serious intraparty challenger should he run for re-election.   In short, he would reveal himself as a faux reformer. 

If the new Governor approves the equivalent of a taxpayer-funded government bailout of the pension funds -- from your money and from the pockets of our children and grandchildren, born and unborn -- he will show himself to be another believer in a two-tier New Jersey society.   Where all of us are equal, but those of us who govern are more equal than others.   
Eric Dixon is an attorney in New York and New Jersey who handles legal and investigative matters.  Mr. Dixon has substantial experience in the capital markets and offers strategic analysis and commentary on legal, economic and political affairs.  Mr. Dixon welcomes your comments, criticisms and inquiries at 917-696-2442 and at edixon@NYBusinessCounsel.com.

Haiti Missionaries: When "Helping You" Is About Me Feeling Good

It's all about me.

Every so often we hear news reports of wide-eyed American evangelical missionaries going to uncivilized warrens in the Third World to "help" their people.   This harkens back to the days of the Colonial French and their "civilizing mission," under which much evil was done.

This week we read about the evangelical missionaries who went to Haiti after the earthquake, allegedly to rescue children.  They were arrested, possibly on nothing else but a fear that they were really there to kidnap defenseless children under the rubric of a humanitarian purpose.

Let's get something straight.  Many of these missionary efforts -- in fact, much of what passes for charity -- consist of nothing more than the narcissism of their members.   These so-called relief efforts not about "helping" other people.   They are about people wanting to feel good about themselves, generating good publicity and in some cases padding a resume.  Actual help going downstream is a collateral, incidental benefit.

Be forewarned:  Those who have evil motives rarely reveal them.  There is a stated motive, and then there is a real motive.  Scrutiny should be the buzzword of the day with these groups.

Eric Dixon is an attorney in New York and New Jersey who handles investigative matters in addition to civil litigation.   He engages in strategic analysis and legal analysis, and comments regularly on legal, economic and political issues.


Wednesday, February 24, 2010

New Third Parties in New York


Several groups in New York are recruiting statewide candidates for slate tickets as they plan to gain official ballot access as recognized political parties.   These groups may reflect the growing constitutional rights / libertarian and "tea party" movements.   Environmentalists agitated over the possibility of fracking in the Marcellus Shale region have also made noise about reviving some form of the Green Party. 
 
This raises the possibility that the 2010 gubernatorial race will actually have some drama.

In New York, political parties become "official" when they run gubernatorial candidates who receive at least 50,000 votes on their ballot line.  Gaining the ballot is a separate requirement: a statewide candidate must submit petitions with a minimum of 15,000 signatures from registered voters who did not sign a petition for any other gubernatorial candidate, and of these 15,000, at least 100 must come from each of at least 15 of the state's congressional districts.   As such parties are not "official" when they are gathering signatures, they are considered "independent" bodies and the regular petition rules, limiting signers and witnesses to a petition to members of the candidate's political party, do not apply.  (There is a complex, two-volume state Election Law which sets forth numerous other technical requirements far too cumbersome to recount here.)

New York has lost several "third" parties in recent years.   The Right to Life, Liberal and Green Parties each had ballot status in the 1990s but each succumbed to the practice of almost always cross-endorsing major party candidates.   This practice is blamed for the disillusionment among the parties' regulars, whose happiness is critical because an official political party needs to qualify candidates and needs its members (or notaries) to carry petitions.   A political party whose rank-and-file members are unhappy with party leadership will have difficulty finding anyone to carry its petitions, qualifying its endorsed candidates for the ballot and eventually staying in business.   The Liberal Party is perhaps the best example.  

Conservative Party and Independence Party leaders may want to remember events of the past, in order to avoid becoming the next casualties.

Eric Dixon is an attorney in New York City who advises candidates and political committees on ballot access issues and corporate governance matters.   Mr. Dixon is a non-partisan lawyer/consultant who has successfully managed several statewide petition drives for federal and state candidates, and advised on press relations and issue development.   Mr. Dixon welcomes your comments and inquiries at 917-696-2442.



Tuesday, February 23, 2010

Corporate Headquarters, Defined


It just got a lot harder for class actions plaintiffs to bring those actions against corporate defendants in the state courts of their choice.
The United States Supreme Court issued a unanimous opinion this morning in the case of Hertz v. Friend (link unavailable just yet, check back at http://www.supremecourtus.gov/ under 2009 session slip opinions), ruling that a corporate defendant is ruled to be located where its corporate headquarters are, and those headquarters are located not necessarily where the company's operations are, but rather where the operations are directed from by upper management.
Under this reasoning, "operations" can be in state A, but if the corporate headquarters are in state B (and this is often the case for tax and corporate law purposes, such as in Delaware), the class action must be brought in state B.
This may prove to be a very corporate-friendly decision, for it will tend to encourage corporations to locate their upper management in states where "legal precedent" (the body of law comprised of prior court rulings) and the tone of the judiciary are considered pro-business.   Predictability will also be a big factor; corporations and their counsel like to have an idea of the tone of the courts in a state (or county).  Corporations will now have an incentive to locate their management in states which not only offer a nice quality of life and favorable (read: low) tax structure, but which also feature predictably pro-business courts.  

States just got another arena in which to compete against one another to attract business.   And big business just got another powerful reason to move out of New York and New Jersey.    Combine high personal taxes, high corporate taxes, generally onerous and complex regulations (which lawyers who bill by the hour love), unfavorable legal precedent, unsympathetic or outright hostile judges and equally unsympathetic or outright hostile juries, and you have a potentially toxic "perfect storm" for driving big corporations out of the New York metropolitan area.   Now, businesses won't just move their "back offices" out of these states; they can be counted on to move their entire upper management out as well.   After all, Delaware is only 110 miles away.

Eric Dixon is an attorney in New York and New Jersey, concentrating in litigation, investigative matters, and strategic analysis.  He comments regularly on legal, economic and political matters.

Monday, February 22, 2010

Destigmatizing Crime: Going After Toyota

Carmaker Toyota announced Monday that it is under criminal investigation in connection with certain alleged defects in at least one of its models.

Defective parts or design flaws are one thing. The consequences are undoubtedly serious. But unless there is wanton negligence rising to the level of gross, why investigate this as a potential crime?

The criminal law has several objectives. One of them is retribution, the satisfaction of the desire for revenge. Another is deterrence.

A criminal investigation of Toyota may satisfy the former but is unlikely to satisfy the latter. In fact, it may result in criminal prosecution of people who intended no wrong.

There can be an unintended consequence. As more people are prosecuted for unintentional acts (de facto strict liability) the general consensus among the population may shift to a growing skepticism that people under investigation are not just entitled to the presumption of innocence, but that they may be presumed to be unfairly prosecuted. This could mark a reversal of the current state in which a target of an investigation is presumed innocent in the eyes of the law but often viewed as guilty by most news readers and media commentators. This change could be prompted the more you see outcome-based investigations where the decision to assign blame is made well in advance of any collection of genuine, reliable evidence.

Such popular skepticism and outright scorn is the norm in oppressive regimes where the authorities are viewed as corrupt and the rule of law is considered a Kafkaesque joke. We should make sure our authorities use their discretion properly and avoid quick rushes to judgment. For in their haste to chase headlines and pursue personal career ambition, these prosecutors place the popular faith in the authorities in jeopardy and risk actively destigmatizing real crime. A society in which crime lacks any stigma will experience more crime.



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Olympic Hockey: Woe Canada

As our lovable neighbors to the True North try to recover from their great National Debacle, let's think about what the United States' victory over Canada can teach us:

1. Experience is overrated. Canada's defense is either in decline or inexperienced. Their best defensemen were their youngest.

2. Ignorance is bliss. Younger players may not be fully aware of many things, such as the consequences of their actions. This is true, both with typically stupid mistakes of youth and with not realizing how much not winning the gold will destroy the Canadian national psyche.

3. The gatekeeper matters, aka you have to pay the toll to the troll. If the opposing goalie is the best player on the ice, he can negate every other advantage you have. Canada badly outplayed the U.S. most of the game, but Ryan Miller made big saves and Martin Brodeur showed his age (38). Or did Marty just have a bad game at a bad time?

And a quick comment on the curling competition. The American women's team seems to have trouble executing, while the men's team seems to have a really curious, passive strategy. Using multiple rocks to hit out the opponent's rocks is fine, unless you trail in the last "end" and must score. Waiting until the last rock to try to win seems awfully risky and leaves zero margin for error. But plenty of people use this approach -- to their detriment -- all the time and it is not to their advantage. Why should curling be any different?





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Saturday, February 20, 2010

Morons and Oxymorons: John Yoo, The Torture Memo and Outcome-Based Investigations


The latest chapter chronicling the sterling work at the Department of Justice during the administration of Bush the Younger (aka, the Reign of Error) was issued very late Friday afternoon with the release of a heavily redacted memorandum (pdf) (the "Margolis Memo") by Associate Deputy Attorney General David Margolis declining to pursue charges of "professional misconduct" against former Justice Department lawyers John Yoo (now a UC-Berkeley law professor) and Jay Bybee (now a federal judge) stemming from Yoo's April 2002 memorandum arguing that certain interrogation techniques were permissible.   The Margolis Memo was in response to an earlier July 2009 "Final Report" issued by the DOJ's Office of Professional Responsibility (OPR) which found Yoo and Bybee committed "professional misconduct."  The Margolis Memo took a "narrow" approach in what appears to be a whitewash-style dance designed to avoid confronting issues of "professional misconduct" that OPR earlier found Yoo and Bybee to have committed.   Margolis cited the absence of a "known, unambiguous standard" for evaluating these attorneys' work as the main reason for his decision not to adopt the OPR's "professional misconduct" findings. 
The timing of this, during the Winter Olympics, several hours after the Tiger Woods pseudo-mea-culpa announcement and at the close of business on a wintry Friday afternoon, screams of an effort to bury this as much as possible.   That is clear.   Less clear is whom this is supposed to benefit:  the Justice Department, or attorneys Yoo and Bybee.
As a refresher, these torture memos were used to justify certain interrogative techniques like waterboarding.   These techniques are commonly considered torture, and their use has resulted in grave embarassment to the United States internationally and, at least indirectly, endangered American servicemen and civilians throughout the world who may be subjected to harsher tactics and abuse from captors or corrupt local authorities.
Aside from the torture issue, the real danger is the use of the outcome-oriented investigation.   This phrase is an oxymoron.  It refers to an investigative process which starts with a conclusion and then works backward to justify the conclusion, often at all costs and often by disregarding or hiding all countervailing evidence.   Such a process is not an "investigation."   An investigation is a process of searching for the truth, either in the form of what happened, or with legal analysis, a process of candidly and thoroughly examining the applicable legal framework.   A bugus outcome-based investigation by definition is not an "investigation" or a search for the truth, or a true "analysis" of anything.   A conclusion-first, outcome-based investigation has more in common with Soviet-era show trials than anything worthy of inclusion in an American system of jurisprudence which we like to consider the most advanced (although still very needy of improvement) on the planet.  
It is difficult, and arguably troublesome but just as equally necessary, to second-guess these attorneys' work given the subject matter.   I argue today that it is just as necessary to evaluate how their work was developed.   The gravamen of my concern can be stated as follows:  Yoo and Bybee should have been allowed to approach the issue from the starting point of the question, "Can we do this?" as opposed to being given the conclusion and asked (or told) to work backwards to justify a perhaps wholly-unjustifiable conclusion.    If the memo was the product of a conclusion-first approach, the scholarship behind the memo deserved the strictest scrutiny and criticism and its authors roundly criticized.   Such criticism indeed was received by and unrelenting towards Yoo and to a lesser extent Bybee.  
However, if OPR or DOJ engaged in the same approach, the same critique must be made.  The entire process by OPR of evaluating Yoo's memo can be questioned on the basis of the same flaw, that of starting with the desired (in some quarters) conclusions that Yoo's memo was totally wrong, if not arguably criminal, and thus all participants in the memo (Yoo and Bybee) deserve to be punished as harshly as possible, and then working backwards to justify the conclusion.  
These conclusion-first investigations are not just inherently unjust and procedurally fatally flawed; they ignore the root causes of the problem at issue.   The people who advocate such conclusion-first investigations should be removed from their posts and prevented from engaging in such sham investigations in the future. 
These outcome-based investigations should be considered void ab initio.  They often are engendered by a flawed, defective or entirely unwholesome basis which could be political or personal animus.   The potential for abuse should be obvious, whether in the political world or the private sector.   There can be little value, or validity, in the results of any investigation which seeks to critique past work primarily because of its outcome or conclusion -- and pointedly, not because of the process which engendered it.   We must recognize that In such situations the real -- and often actively concealed -- reason for review is the unpopularity or undesirability of the position advocated, and the real -- and consciously hidden -- objective is to deter others in the future from advocating that undesired position by heaping as much abuse and punishment upon the original advocates to serve as a sufficient warning to others not to repeat the "mistake."    Make no mistake about it -- this is about power.   And such outcome-based investigations are started and prosecuted as an exercise in power, where the targets are political and/or personal and where the objective is more often than not to hide the truth rather than to reveal it.   Sometimes, this is done to cover up criminal or illicit activity; other times, it may be done to avoid shame or embarassment.   Maybe some people are trying to cover up and hide their mistakes.   Many people are reluctant to admit their mistakes and will go to great lengths to avoid having to apologize.   Do not underestimate this possibility.
None of my analysis should be viewed as a defense or advocacy of either the torture memos or their authors.  These are seriously flawed lawyers whose advancement within the Bush Justice Department (and with Bybee, wihtin the judiciary) should continue to raise many questions about exactly how and why the people who were hired and promoted during the Bush Administration got selected.  
Eric Dixon is an attorney practicing in New York and New Jersey.   Mr. Dixon provides strategic analysis and legal analysis in connection with various investigative matters for clients.   Mr. Dixon welcomes your comments, criticisms and inquiries at ericdixonlaw@gmail.com


Friday, February 19, 2010

Tiger Woods Distracts and Hides

In today's public announcement, golf pro Tiger Woods admonished the paparazzi for chasing after his toddler-age daughter.

This statement was among various statements in which he admitted to having been "wrong" and "irresponsible."

Apologies require contrition. Tiger's apologies should go to his family...and not necessarily to anyone else.

The mention of the paparazzi was a bad strategic move, for it will be viewed (as this corner does) as an intentional distraction and a plea for sympathy. It screams, "feel sorry for me." It does not scream, "I screwed up" which is the real message he ought to have conveyed.

I would never have advised Tiger to make these statements. This attempt at damage control may actually have made his image worse.

(Eric Dixon is a lawyer in New York and New Jersey who handles damage control and strategic analysis, among other things.)

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Thursday, February 18, 2010

Criminal Defense Lawyer Shelnutt Hits Back At His Prosecutors Under Hyde Amendment

Georgia criminal defense lawyer Mark Shelnutt is fighting back against some federal prosecutors and, as he alleges, a "rogue" government investigator.   Shelnutt was prosecuted on and acquitted of money laundering charges arising from his acceptance of legal fees from the proceeds of criminal activity.   Shelnutt is using the Hyde Amendment to sue the federal government for recovery of about $225,000 in legal fees for his defense.   Shelnutt claims prosecutors and investigators fabricated evidence against him in the course of a criminal investigation and prosecution.
 
Crime, Politics and Policy has covered both the Shelnutt and Ben Kuehne prosecutions (charges against Kuehne have been dropped) as examples of the federal government pursuing defense attorneys who are either apparently too good at their profession for their own good, or -- as is more likely -- who are prominent enough to make an appealing, newsworthy and hence potentially career-defining target for an ambitious, morally atavistic prosecutor looking to make a name (and career) for himself/herself and is eager to ruin someone who is much more accomplished in pursuit of sheer ambition. 
 
In bad economic times, the "big law firms" make few partners.   In some cases, very prominent East Coast firms made no partners in 2009.   As the traditional model of work-ten-years-make-partner dissolves, alternatives such as making a name for oneself in government service arise as a way to bypass the traditional (and low probability) firm lockstep process for rising to partner.   It is generally accepted that we are in the worst economic downturn since the Great Depression; in some professions, there has been a paradigm shift which has caused the erosion or eradication of economic models of doing business and the traditional law firm model may be one casualty.   Hence, these unprecedented "hard times" are sparking a wave of new prosecutorial ambition, rooted in economic uncertainty, which threatens the "accomplished" within certain industries -- i.e., the entrepreneurial or meritocratic class -- with reputational and financial ruin and loss of one's freedom as ambitious, atavistic and financially-desperate prosecutors aim for their one chance to "make it" with a career-definiing bust.   Arguably, with such a mentality on the rise, the threat to freedom and Constitutional rights of the class of "achievers" within society has never been greater. 


Sports Arena Games: New Jersey Nets to Newark

The New Jersey Nets have concluded an agreement, just announced, to move to Newark's new Prudential Center for at least the next two seasons.   This means the Nets will be playing in Newark starting in 2010-11.  As for beyond the 2011-12 season, the new Barclays Center arena has yet to break ground and there is no assurance that it will ever be built, much less on time.  
 
From an economic standpoint, the Nets are doing a good thing (and their new, Russian oligarch owner surely agrees) by moving to a superior facility that fans will enjoy going to and getting to.   The Nets currently play at the Izod Center (nee Continental Arena, nee Brendan Byrne Arena), which became outmoded about 20 years ago -- i.e., it became obsolete only a decade after its construction -- for sports teams requiring multiple revenue streams from high-rolling fans and corporations.
 
Many years ago, I did substantial research and contacted the operators of most New York area sports venues regarding arena rental fees and related contracts in connection with an effort to launch a new professional indoor soccer franchise in the New York / New Jersey market.   Rest assured, these operators move heaven and earth to get in anything which pays.   A dark night is a money loser for any building.   Ideally, these arenas would operate 365 days a year, and even host multiple events in one day.  (The Pru and MSG routinely have multiple sports events in one day, generating multiple revenue streams through eyeball counts for ads, pleasing sponsors, concessions, and even local parking.)  Sometimes these buildings will take a "chance," offering to take a cut of the gate receipts as an alternative to a fixed, upfront fee.  
 
The Nets' move to Newark is a win-win.   The acoustics at Izod have been terrible, with the noise going straight up into a vacuum.  For a sports event, it is equally terrible.  (Ironically, at the outdated and cramped Nassau Coliseum, acoustics and sightlines are great, but the building is built for 14,000 fans and has rest rooms for fewer.)
 
Eric Dixon is an attorney and strategic analyst who has previously been involved with potential indoor soccer franchise management groups, and who handles legal and strategic analytic matters for various clients.
 
 
 


Wednesday, February 17, 2010

Stiglitz: Manufacturing at 1997 Levels

As heard on Bloomberg Radio:
There's your recovery.
Government statistics mislead (at least some of the time -- depending on what statistics you use). Your eyes do not. Neither does your nose, especially if you've been on the C or E trains in midtown Manhattan.  Trust your senses.

Bogus Victims Were Yesterday's Winners in Housing Bidding Wars

Many of the foreclosed homeowners/borrowers claiming to be victims of predatory lending today were the winners of the home bidding wars, circa 2005.

These people beat out other would-be homebuyers, in large part because they threw caution to the wind and ignored the risks of resetting adjustable rate mortgages. As home prices continued to rise, these people at some point had enjoyed home price appreciation of 20-25 percent annually, coming out to a real increase in some cases of 500-600 percent on their equity (minimal as it was).

If these people cashed out at the right time they benefitted greatly from their luck, buying essentially on margin.

Now that the tide has turned, how does the evaporation of nothing but good fortune turn these people into objects deserving of sympathy and loan forbearance and principal forgiveness (all paid, indirectly, by the rest of us)?

Beware of people who claim too loudly to be victims. These are bogus victims and frauds.  The real victims were the people priced out of their desired locales in years past.

Eric Dixon is an attorney who provides strategic analysis on a variety of legal, economic and public policy issues for clients. 

Real Unemployment 20 Percent, says Joseph Stiglitz

The noted economist and Columbia University professor Joseph Stiglitz just announced that "real unemployment" was close to 20 percent. Statement in response to question on Bloomberg Radio about how valid the federal government's 9.7 percent stated unemployment (so-called U-3) rate is.

Eric Dixon is an attorney who provides strategic analysis on legal, economic and public policy issues in addition to practicing as an attorney.

Monday, February 15, 2010

Perot Redux: Independent Voters and the Tea Party Movement

I recently was invited to a Tea Party meeting in the middle of New Jersey. Former Republican gubernatorial candidate Steve Lonegan was scheduled to speak, so I thought this was worth the long drive out to Wayne, NJ.

The event and the atmosphere immediately evoked memories of the movement that arose, virtually out of thin air, in 1992 and coalesced around the presidential campaign of H. Ross Perot. Right down to the same smell of animal fat, in the burger, steak, fries and beer joint known as Gabriel's (I guess this is fine dining right off of Interstate 80), I could see why all these thin, gray-haired, cantankerous folks seemed at home. No suits in attendance; this was a blue-collar, retiree crowd whose idea of a fine beer was Budweiser. No microbrews here. These people were polite, but here to protest. And they don't take kindly to being bossed around.
Jersey has a new governor, Chris Christie. I sense from the Tea Party crowd that Christie is one misstep away from becoming the new target-du-jour of the Tea Party movement.

Indeed, Lonegan came to stoke this sentiment. He made clear that while he remains a Republican, if Republican elected officials don't remain true to fiscal issues (read: lower taxes and controlling government budgets), he believes in either challenging those officials in primaries or forming a third party.

Lonegan: "I believe in primaries."

The history of the 1992 reform movements shows that would-be reformers must be genuine and consistent. The 1992 campaign season gave rise to several reform movements, including the Concord Coalition and Third Millenium. The New Jersey event evokes comparisons, because all seemed to attract people who put principles first and people/candidates second. Indeed, some of Perot's most ardent 1992 supporters became the most vociferous opponents of his seemingly handpicked puppets when he sought to create, and then control, the national Reform Party.

Many Republicans will seek to appeal to and get the endorsement of so-called Tea Party groups. However, the question must be raised whether these candidates will have the fortitude (or honesty) to remain true to the rhetoric. The wave of popular anger may turn out many Democrats and some Republicans too; however, this tide, being more principle-based than personality-based, threatens to become a strong, anti-incumbent movement that will seek as complete a regime change as possible in the 2010 elections. These Tea Party types will not support or vote for a candidate merely because of party identification; they've already made the break.

Independent voters fall into several categories. Some have no allegiance to a party, others may lean towards the conservative or liberal "poles" but still not identify with or even have any preference for a party, and yet others may have a preference but be actively suspicious enough that they will cast protest votes in order to "send a message." This class of voters does have one unifying theme: character matters. Values and principles matter. Being trustworthy matters.

The longer the economic downturn continues (and it is already the most severe since the Great Depression), the deeper and more intractable the anger will be and the more formidable will be the reformers and protestors. Republicans who ignore the primacy of character and principles may be making a huge and career-ending mistake by treating the Tea Party crowd as unsophisticate simpletons. Democrats who make the same mistake may be surprised when no-name opponents beat them riding a wave of anti-incumbent sentiment. This crowd would be happy to shut down state capitols and Washington, DC to send its message.
The atmosphere is rarely conducive for a third party, but the ingredients for a perfect storm are here and in greater quantities than in 1992. In this environment, no incumbent is safe, in either party. For now, we have post-party conditions which make handicapping any race difficult. The policy implications will be that most significant legislation will be dead on arrival for at least this year.

Eric Dixon is an attorney who advises campaigns, party committees and candidates on ballot access laws and has successfully managed many petition drives. Eric Dixon engages in crisis management and other matters. Mr. Dixon cautions readers that this article is not legal advice. Mr. Dixon may be contacted for further comment through edixon@NYBusinessCounsel.com, or at 917-696-2442.


Thursday, February 11, 2010

New Jersey on "edge of bankruptcy"?

This morning new New Jersey Governor Chris Christie declared a fiscal "state of emergency" and stated the state was on the "edge of bankruptcy.". This may pave the way for a series of emergency spending cuts.
This dovetails with the recent, and welcome, publicity about a slew of allegedly very overpaid public employees. The way to frame this debate is, in my humble opinion, to highlight the choice of municipalities to cut either from the ranks of "administrators," the so-called managerial class (of which the members arguably are paid much better than their private sector counterparts) or from the actual rank-and-file (and much lower paid, and paid more closely with private sector counterparts) service providers upon whom residents actually receive services and benefits.

Christie's approach is antagonistic. Indeed, he was compared (hilariously) to the legendary Southern sheriff Buford Pusser (the inspiration behind some tv movies and a short-lived NBC series starring Bo Svenson in the late 1970s) by The Record's Charles Stile (see http://www.northjersey.com/). He may face stiff resistance, but at least his efforts are matching the campaign rhetoric and showing that the influence of his Republican reformer and gubernatorial primary opponent Steve Lonegan remains among the populace. It seems that if Christie does not provide the promised reforms, he will be the next one chucked overboard by the tea partiers.

The problem with Christie's approach is that it does not eliminate the root cause, that of the "deciders" on the local and county levels who get to direct how funds are spent.   These "deciders" are the ones who are on the payroll, along with friends and family.   It is not likely they will cut their own salaries or "bennies."  They are much more likely to cut salaries, or entire jobs, of the rank-and-file real service providers.   These are the teachers, sanitation workers and social workers. 

Christie is thinking he can coerce change, by shaming local and county leaders.   This may be a highly mistaken assumption.   The shameless cannot be shamed.   Even worse, it is possible that this is just a disingenuous -- if not Machiavellian -- way of passing the buck, of shifting the blame.






Sent from my Verizon Wireless BlackBerry

Tuesday, February 9, 2010

Nonprofit Slush Fund Scandal: Larry Seabrook To Face Criminal Charges


Breaking news:  The New York Daily News reports that former City Councilman Larry Seabrook has been arrested on federal criminal charges arising from the ongoing CIty Council nonprofit-organization "slush fund" investigation. 
Crime, Politics and Policy covered and analyzed this extensively back in the summer of 2009. 
Another good website to visit on this issue is http://www.bloombergwatch.com/ (which covered many things other than its outrage over Bloomberg's overturning of term limits referenda).


Monday, February 8, 2010

Reasonable Doubt As To Ed Cheatam; Why Leona Beldini Might Be Acquitted

The jury deliberations in the federal criminal trial of Jersey City deputy mayor Leona Beldini begin Tuesday morning. The federal government has argued that the appearance of Beldini on tape agreeing to "flip the pile" and cut through "red tape" is proof of her guilt on bribery and official corruption charges. They might prevail.   Certainly, Beldini's reputation has taken a beating.  Even if acquitted, she has been shown to keep extremely poor company and willing to conduct business the Hudson County way, which is to say, to extend special favors.  Even if her conduct is not found to be "criminal," she appeared to be too close to the ethical netherworld of the special treatment which is the hallmark of New Jersey government and the absolute bane of its citizenr.

I believe the federal prosecutors could have emphasized more Beldini's potentially huge windfall from the phantom real estate development, to wit, her being "granted" the exclusive right to broker all the units in the development.  The real estate commission could easily run into the millions of dollars. Perhaps the press reports (and it is good to see this case get the intense coverage it deserves) have focused on more salacious details of the case.


The key is whether the jury considers why two people on the tape did not testify. Jersey City mayor Jerramiah Healy and Hudson County affirmative action director Ed Cheatam both made appearances on Solomon Dwek's version of Candid Camera. Neither appeared as a witness. More peculiar, Cheatam has pleaded guilty, but did not testify, unlike his fellow admitted-felon (and in a heap more trouble) Dwek.

In this observer's mind, the fact that Cheatam was integrally involved in and directly implicated in the meetings (and by his own words on tape), when combined with his nonappearance on the stand and the fact that his absence presents a stark contrast to Dwek's presentment on the stand under similar circumstances (both need a break on sentencing), raises reasonable doubt.   It certainly raises the question as to why the U.S. Attorney's Office had less than full confidence in Cheatam in the role of cooperating witness / supporting actor.


Of course, I am no ordinary observer.


I presume one of two theories.  The first theory is that the government was afraid Cheatam might hurt their case and raise the reasonable doubt sufficient for a conviction. Remarkable, given Dwek's performance. Dwek was essential because of the tapes. But does this mean the government preferred Dwek as a witness?

The second theory is that the government intentionally withheld Cheatam from this case in order to save him for more prominent defendants.  However, this theory rests on the premise that the government was able to choose which case(s) to bring first, which it was not able to do with Beldini because her attorney Brian Neary pushed from the get-go for a "speedy trial."   This pressured the government to prepare her case first before other defendants.  


If the second scenario holds true, then the reasonable doubt theory becomes far weaker.




Saturday, February 6, 2010

Too Effective? Jury Nullification Warning from Jersey Corruption Judge

The first of the promised big huge "Bid Rig" series of federal corruption cases is going to a jury next week, following closing arguments Monday in Newark federal court in the case of U.S. v. Beldini.

Federal district judge Jose Linares warned Leona Beldini's defense lawyer Brian Neary (Code Name: Bow Tie) not to use a "jury nullification" argument to the jury.   This argument rests on the theory that, essentially, a jury can actively disregard a judge's instructions on the applicable law, rulings on evidence or pretty much anything else and find a defendant innocent if they believe the case, the law or the judge to have been unfair or unjust.  (Some would argue this happens all the time, but that the concept of jury nullification is rarely cited.  See People v. Simpson, O.J.)  

To his credit, Neary protested, seeing this warning as an effort to induce him to provide a less than vigorous defense for his client.

The recent cases of Mark Shelnutt and Ben Kuehne (detailed previously by Crime, Politics and Policy in 2009) show what happens when a defense lawyer becomes too much of an obstacle in the pursuit of a conviction.   (In Kuehne's case, he wasn't even the defense lawyer, merely the outside lawyer giving a legal opinion on the legitimacy of the origin of funds used to pay the legal fees of the very noted Florida defense lawyer Roy Black.)   In the Beldini case, we don't see the prosecution going after the defense lawyer; we see the admonition from the judge.

As an aside, why prosecutors don't relish the intellectual challenge more is mind-boggling.  Perhaps they are persuaded to keep their mental gymnastics occupied through conjuring up new theories of criminal liability, criminal sanctions for what essentially are civil or regulatory violations, new methods of circumventing the Fourth Amendment, or even new quasi-rules of evidence. 

As for the Beldini case, Crime, Politics and Policy has written earlier this week on the amazing repugnance of the star witness in this case, a man whom today goes by the name Solomon Dwek (nom-de-guerre: David Esenbach).  Why the federal government allowed (or recruited) this man to solicit bribes, instead of someone much more honest (say, someone who was not an admitted felon and not extremely desperate to please in order to get a sentence reduction for "substantial cooperation" with the government ) is even more puzzling.

I will not predict the outcome of jury deliberations, but I do predict there will be some interesting  grounds for appeal. 





Friday, February 5, 2010

Unemployment Figures and Official Deception


The numbers on unemployment released this morning are deceptive.
The main number ("U-3") is down from 10.0% to 9.7%.   This figure, however, excludes people out of work for more than six months "who have stopped looking for work."   There is plenty of discretion in making that judgment.   Remember, these figures can be subject to manipulation to reach the desired objective.
Note that payroll numbers are also down.   This means that employment income has dropped, either because fewer people are working, people are working fewer hours or people are getting paid less. 
The economic media is likely "looking for the good news."  
If you are anything but a ward of the state, I suggest you try looking for the unvarnished, unadulterated truth.


Jersey Corruption Trials: Political Crime


A few comments regarding the federal criminal trial of Leona Beldini, Jersey City Deputy Mayor and one-time burlesque dancer.
This trial is about bribery, and it is about Beldini's allegedly criminal conduct.   It is, however, also about the government's principal witness -- who today has the legal name of Solomon Dwek.  

If (1) Dwek's storytelling is the main supporting evidence in the remainder of some several dozen cases to a bunch of videotapes suggesting -- but by no means clearly demonstrating beyond a reasonable doubt -- less than wholesome conduct, (2) the bribes never went to defendant Beldini but instead went to another defendant named Ed Cheatam (as captured on videotape, and who pleaded guilty), and (3) Cheatam was not called as a witness by the prosecution, it suggests that the evidence against Beldini merely suggests she was in bad company, may have been imprudent, foolish or flat out stupid.   But it just does not seem to be anywhere near the conclusive evidence of criminal wrongdoing.   Remember, when the case is about sending someone to jail, the sketchy concept of "probably" does not satisfy the requisite "beyond a reasonable doubt" standard of proof.   Each of the three enumerated items above provide, or at least suggest, the presence of reasonable doubt.

When do we start wondering whether any of the other cases going to trial will be dropped?  

If the evidence, seeming weak in light of the high standard of proof in a criminal trial, is of this caliber, what does this say about all the prosecutioin bluster this past summer?  

Does law enforcement lose some of its hard-fought credibility?  

Did someone just try too hard to make some cases because political corruption cases had sex appeal, both in a political context and career advancement angle?

Were people like Beldini prosecuted, not for actual, provable crimes, but because they were public officials and/or involved in politics?  Did the real crime become engaging in politics?  In other words, were they prosecuted, not for what they did, but for who they were?

Eric Dixon is a New York lawyer and strategic consultant for businesses, political campaigns and individuals. Mr. Dixon is available for comment or consultation at edixon@NYBusinessCounsel.com and 917-696-2442. 


Historian Hans Trefousse, 1921-2010


The study of history is instructive across all sorts of disciplines.   It helps scholars, statesmen, scientists, lawyers, commentators and historians.   This is because history is not merely a recitation of the past; it is the study, in many ways, of human behavior.   Its allure, and the joy of its analysis, is that it allows one's imagination to run free (well, within reasonable bounds) and speculate what the future will hold in light of measured human behavior and patterns of reactions to various events.   It allows one to play an endless loop of "What if?"   
As if:  What if the Japanese had never attacked the United States at Pearl Harbor?   What if Nazi Germany had never opened a second front against the Russians, instead concentrating on the West?
These thoughts come to mind with the news that noted Civil War historian and author Hans Trefousse passed away earlier this year.   A wonderful tribune to Professor Trefousse (a mentor to Crime, Politics and Policy's author back when he owned little but the clothes on his back and books in his bag) is in this morning's New York Times.
Professor Trefousse was a professor of history at Brooklyn College and also taught at the City University of New York's Graduate Center.   There were many top echelon professors in the CUNY system.   Professor Trefousse was among the very best.   He was also, notably, in my opinion, a fine gentleman and someone whose genial manner and demeanor was a model for many of his students.   Sometimes the best lessons are not the ones from books.   He will be fondly remembered by his many students and colleagues.


Tuesday, February 2, 2010

Discrepancy in Self-Identification Could Prove Dwek Not Credible


The federal trial of Jersey City, NJ Deputy Mayor Leona Beldini for bribery continued today in Newark federal court.   Beldini's lawyer Brian Neary (code name: Bow Tie) took more swings at scamster-turned-star government witness Solomon Dwek today.
Courtesy of this Star-Ledger update, Neary prompted Dwek to declare that one dozen public officials turned down his overtures for bribes, as if to implicate Neary's defendant Beldini on the basis that she did not turn down the overture in the same manner.   Note that, so far, none of these responsible public officials have been identified; one can question whether there is any truth to that story.
But note that when Dwek described the rejections, he testified that these unidentified officials told him:
"Dwek go to hell."
Notice his claim that the officials used his real last name, Dwek.   However, during all of the successful stings Dwek (whose arrest in 2006 for mega-million-dollar bank fraud was widely reported) used a "nom-de-guerre" of David Esenbach.   Unless Dwek's success in his sting operations depended solely on his use of an alter ego, this discrepancy -- this excited utterance elicited by defense counsel Neary, who has reportedly been rattling the witness -- should seriously undermine Dwek's story.
From the various reports, it is beginning to seem as if this case rests largely on innuendo and implication, on statements which suggest, but do not conclusively lead to the inference of, an illicit transaction.   Remember the criminal standard of proof is "beyond a reasonable doubt."  


Monday, February 1, 2010

Solomon Dwek Hurting Feds' Credibility: Crime, Politics and Policy Was First On That Topic


The Solomon Dwek -- er, Leona Beldini -- federal corruption trial resumed this morning in Newark.   The Star-Ledger's columnist Bob Braun weighed in this morning (click here) on the issue of the federal authorities' wisdom in using Dwek, whom Braun describes as "repugnant."
This issue was first addressed by Crime, Politics and Policy in various articles throughout January 2010 and, most recently, in articles on both Friday, January 29th and Sunday, January 31st.  Please scroll down and see for yourself. 

It is nice to shape the debate every so often.

The defense attorneys (here, Brian Neary, he of the bow tie) will make Solomon Dwek the focus.   The prosecutors will try to get the jury to focus on what the tapes have defendant Beldini saying.   Let's hope the prosecutors are intellectually honest enough to avoid trying to recharacterize what is said (or not said) and conjure a story out of thin air in order to pad their resumes.

Eric Dixon is a New York lawyer and strategic consultant for businesses, political campaigns and individuals. Mr. Dixon is available for comment or consultation at edixon@NYBusinessCounsel.com and 917-696-2442.