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Thursday, February 28, 2013

Is The Justice Department Attacking Capitalism?

Why is the U.S. Justice Department so intent on prosecuting some people for crimes apparently committed abroad?  Whether it's a financier or an elected official, why prosecute those people for crimes when the host country -- the place where the act occurred -- doesn't consider it a crime or hasn't decided to prosecute it?

In this new article, I explore some theories for this new, troubling development.  Is this all a part of a strategy, a policy, to attack capitalism?  Keep reading...

Monday, February 25, 2013

How NOT to Fix Housing

Some Democratic leaders' new proposal, released this morning, is a blueprint for how to keep residential real estate in a state of suspended animation and semi-permanent price depreciation.

The leaders, including former House Speaker George Mitchell and former Clinton Administration Secretary of Housing and Urban Development Henry Cisneros, blame tightened mortgage underwriting standards for the inability of many prospective buyers to get a mortgage and thus to complete a purchase.

Purchasers who represent good credit risks will get mortgages at the most favorable terms.  Mortgage rates and other terms, such as those upfront fees, are set as a way for mortgage underwriters to best ensure they profit on the loan while minimizing their risk of loss on the mortgage.  

When people blame the banks for having too tight underwriting standards, they are really saying that banks should ignore the risk of loss -- the risk of loss which they alone bear -- and grant mortgages to greater credit risks for reasons other than the banks' ability to make a profit.

The problem with this argument is that banks will compensate in other ways for assuming risk, whether voluntarily or through a form of government coercion.  An entirely foreseeable result will be greater costs for all bank loans and an increasing scarcity of credit if (or when) banks respond to this mortgage push by pulling back on credit and related risk in other lending sectors not receiving as much government scrutiny or political pressure.

Proposals urging more lenient lending standards seek to support current home prices.  However, the existence of efforts to support the housing market -- that is, the current values of already-built homes -- concedes that there is price weakness, that there simply aren't enough buyers who are willing or able to purchase homes at current prices on terms which banks are willing (without prodding from regulators or Congress) to extend.  

A true, lasting recovery will occur only when the housing market doesn't need all this type of pump priming.  Unfortunately, a short-term but significant price drop might be what is needed to restore the proper buyer interest plus lender interest in the real estate sector.

Had this approach been adopted in, say, 2007, don't you think the real estate market might have recovered by now?

Instead, we've had six years of ineffective, patchwork, stopgap measures which arguably have made the problem worse, prevented a true recovery and also delayed -- but not prevented -- a still-inevitable day of reckoning.

Thursday, February 21, 2013

West New York Sign Law Makes Business A Crime

The currently-under-federal-indictment mayor of tiny, poor West New York, NJ now can destroy any business in town with a new signs ordinance that makes virtually all commercial advertising illegal and requires all businesses to pay $150 just to apply for a license for each sign.

Doing business in West New York -- or even driving a commercial van through it -- now brings the threat of daily fines.  While the nation suffers through an ongoing recession -- and the entire state of New Jersey suffers through "official" unemployment of almost 10% -- the "poor" town of West New York now seeks to hammer existing businesses with the threat of fines of up to $1,000 per violation, plus the immediate license fee of $150.  By the way, the license fee doesn't assure approval, as the West New York government can now decide in its discretion whether it likes your sign.

Maybe West New York's Mayor Felix Roque -- sorry, that's Dr. Roque --  will decide he really doesn't like your business.  Maybe you're competing with a friend of his down the street.  Or maybe you just haven't greased the right palm.  Any and all of these reasons can result in the town using the sign ordinance as a pretext for their real goal: to soak every dime from you and drive you out of business.

Among the now-prohibited signs are "portable commercial signs" -- that means, all commercial vans need to avoid West New York or pay a fine.

Also prohibited -- any signs which "compete for attention with...a traffic signal."  That could be, well, just about anything.

The cost of doing business in West New York has just exploded.  Essentially, you now need the permission of the town government to do business.  You'll need lawyers to do the application, and maybe an engineer and architect.  You'll definitely need a lawyer if you want to contest the fines which you can expect to be a daily occurrence.  For your reward for trying to be a good citizen, you'll be considered a sucker.  In the meantime, until you do whatever you have to in order to obey the law, you are now viewed as an undesirable. 

You could try to do business without signs, without any advertising.  That way, you avoid any risk of being denied approval.  But if you can't advertise, you soon won't have customers.   

West New York businessowners should simply walk up ten blocks and cross the border into neighboring towns which don't view struggling mom-and-pop storeowners as virtual criminals.   Soon, people who shop in West New York -- most especially the poor without cars who have little choice -- will have no choice but to walk to shops and stores which will have moved in order to survive.  The poor, once again, get hammered the very most by this ordinance.

The irony of the West New York ordinance is that it was introduced by the town's mayor, Dr. Felix Roque.  Dr. Roque should be particularly knowledgeable about the risks of overregulation, overcriminalization and the peril of abusive government power.  Not only is he an emigre of Communist Cuba (as are many West New York residents), but Dr. Roque is presently under federal criminal indictment (along with his son) for allegedly hacking the computers of his political opponents.  

Emulating the nastiest traditions of banana republic dictators and the aristocratic elites from which so many millions fled, and sought refuge in this country, Dr. Roque apparently has no problem with government power.  That is, when he holds it.

This ordinance is not just anti-business.  It's anti-working class. It's anti-poor.  It's anti-American values.  It's anti-immigrant and definitely anti-Latino.  It may even be de facto racist..  It's one of the most elitist, condescending government actions I have seen in my nearly 20 years as a lawyer.

Eric Dixon is a business and corporate lawyer who has been practicing in New York since 1994 and has been admitted to the bar in both New York and New Jersey.

Sunday, February 17, 2013

Hurricane Sandy, Foreclosure And The Insurance War of Attrition

In the wake of the National Hurricane Center's recent release of its study and analysis of last October's Hurricane Sandy, we are hearing about more distressed homeowners who claim to have been wiped out, first by the storm surge (as almost all damage was flooding from the epic surge), secondly by "delays" from insurers in cutting checks to victims, and thirdly from the banks holding the mortgages on the now-damaged homes.

This morning's New York Post profiles one Staten Island couple facing foreclosure on their now-uninhabitable primary home in the Midland Beach neighborhood.  The couple also owns a now-unrentable rental property.  It is still less than four months after the storm but the couple claims to have received just a minimal insurance payout while the lender on the primary mortgage (Bank of America) has started pre-foreclosure proceedings while the holder of the second lien (Citibank) has sent default notices.

I know several homeowners in ravaged areas of the Jersey Shore, the New York City coastal areas such as Sea Gate and Breezy Point, and elsewhere.  The damage was extensive.  But those homeowners -- particularly in the "wealthier" oceanfront areas -- are in better shape.  And that is because they were in better financial shape prior to Hurricane Sandy.

This brings me to my point: Hurricane Sandy has not caused the hardship of these families as much as it already exposed the already very-shaky, precarious financial condition of many homeowners who were one mishap away from being unable to meet their monthly payments.

Many homeowners took advantage of 90-day forebearance agreements which deferred but did not do away with the monthly payment obligations on the mortgage.  But it was and is madness, sheer madness, to take these agreements in the first place.  Forbearance is not principal reduction; it is deferring the payment. Unless one can reasonably amass the funds to make the lump sum payment (small as it is, representing three months' payments) after 90 days, this is merely delaying the inevitable.  But how bad must someone's finances be that they could not make a monthly mortgage payment weeks after Sandy?

The family profiled by the Post "owned" two properties, but is supposedly so cash-poor that they could not pay rent plus the mortgage on their two properties.  Part of this sentence bears repeating: they were supposedly so cash-poor that they could not pay the mortgage on their two properties. That's right, they owned two properties, at a time when they probably had no business owning one.  Many homeowners continue to be overextended and have such meager savings -- under $10,000 if not far less -- that a job loss, even an extended sickness or deadbeat renter, can become the final straw breaking the camel's back and leading to nonpayment. (Of course, this analysis assumes that the people claiming hardship are being genuine and have not purposely sequestered assets away in order to hide them from creditors or regulators, and the better to claim "need" for government grants or loan forgiveness.)

The usual response to this argument is that the evil bankers or insurance companies are to blame for the hardship, that had the too big to fail financial institutions written bigger checks sooner, none of these tragedies would have happened.  (Now, there is some merit to the criticisms. Insurance companies, after all, profit primarily by breaking, or trying to break, every contract they enter, every policy they write.  On the other hand, insurance policies provide a valuable peace of mind which allows for monetary expansion and the deployment of capital from reserves for emergencies and into productive capital improvements or investments.)

The reality is that the best insurance one has is to be self-insured.  That is, to have enough available resources to be able to withstand a tragedy without having to beg for assistance or to depend on an insurance company payout.  This ability gives you leverage. 

Leverage is the best negotiating tool against financial institutions trying to enforce, or avoid complying with, a contract. (I handle these situations routinely as a practicing lawyer who negotiates and investigates.)  It allows you to hire a lawyer -- and the best lawyers do not work on contingency or will select carefully when they will do so.  Leverage allows you to have the ability to say "no" to a low-ball offer that may be extended to you by the other side which hopes to capitalize on your present desperation.  It allows you to hold out for the best offer, the fairest deal, whatever it is that you want. And, after all, leverage is what the big institutions use against the little guy.

Insurance companies should be cautious about making quick payouts, because of the potential for fraud.  (Of course, the banks and insurers have not put enough resources into risk management or fraud detection and in part have made their own messes, but when the federal government has implicitly promised bailouts ad infinitum it is not irrational to take advantage of the skewed playing field.)  But these financial institutions ought not to be blamed reflexively for the delays in making payouts to Sandy storm surge victims.  If government pressure becomes too great, the banks and insurers will simply respond to being forced to assume the greater risk of being defrauded by claimants, policyholders, whomever, by jacking up fees and rates on the mortgages and insurance policies they write tomorrow.

The lesson is that nothing is free.  Someone is paying.  The problem is that many people love to have someone else pay for what they want.

We are all paying for the storm damage, one way or another.  This is why sound public policy post-Sandy should strongly consider the merits of rebuilding any structures on exposed, oceanfront property at sea level. 

Eric Dixon is a practicing corporate attorney who investigates and negotiates complex disputes involving business, political and personal matters. 

Wednesday, February 13, 2013

Sandy Final Analysis: Not A Hurricane At Landfall, But...

Did Sandy strike the mid-Atlantic as a hurricane, or a post-tropical cyclone?  The answer -- and apologies for a Clintonesque parsing of words -- depends on what you mean by "strike."

The evidence comes from the National Hurricane Center's thorough post-mortem report on Hurricane Sandy which was released yesterday.  NHC now states that Sandy made "landfall" as a post-tropical cyclone.  This means that when its center reached the coast, it was post-tropical.  The problem --- and the issue -- is that the storm was so large that hurricane-force winds were felt on the coast while the storm was still tropical in nature.  NHC concedes this very point.

Go to footnote 6 (see page 4) which points out that the effects of Sandy had been felt onshore (that is, on the New Jersey shore) for several hours while Sandy was still classified as a hurricane (perhaps by default, as the classification change always follows or lags the actual change on the ground).  Page 5 of the report notes one reading out of Great Gull Island, New York which supports the NHC finding that "Sustained hurricane-force winds likely occurred onshore over a limited area while Sandy was still a hurricane."  The report adds that "Sustained hurricane-force winds therefore almost certainly occurred in New Jersey, although these are believed to have occurred after Sandy's extratropical transition."  

This is not news to anyone in the mid-Atlantic.  Needless to say, the wind and surge impacts of Sandy (two factors which when felt are indistinguishable from nor'easters) were already felt on the New York and New Jersey coasts while it was still a hurricane (tropical cyclone), and certainly the storm surge was produced over the course of several days as Sandy moved parallel to the Atlantic Coast before making its "Sandy Hook" to the northwest.  As for the surge, the report states that the inundation from Sandy was between four and nine feet in Manhattan and Staten Island, two areas with the most severe flooding damage.  

(An interesting note: The report mentions that Sandy caused blizzard conditions in West Virginia and points out that such "widespread heavy snow" is "exceptionally rare" in a storm having just lost tropical characteristics.)  

This report is interesting because NHC notably held off on expanding the "hurricane warning" area northward from the Carolinas, even as the forecast models increasingly expected Sandy to strike the mid-Atlantic coast.  As early as 96 hours before landfall, NHC advisories mentioned the possibility -- and later, the probability -- of a mid-Atlantic strike.  The report at page 21 discusses the NHC and National Weather Service concerns that the type of warning (i.e., from hurricane warning to gale warning) not change in mid-storm, so to speak.  Whether this is sound policy as opposed to sound scientific protocol is bound to be a topic for much discussion for years.  Certainly, the report discusses the merits and drawbacks of three options, including the option of "intentionally misrepresenting" Sandy as a hurricane when it was not one.  However, this seems to be an overblown concern, certainly as this concern had to have been premised on an as-yet-to-occur extratropical transition from hurricane to post-tropical cyclone status.  If anything, the report may provide a fortuitous rationale (or legal defense, should anyone bring wrongful death actions for the failure to issue hurricane warnings) for the NHC and National Weather Service to have held off on the use of hurricane warnings.  Establishing that Sandy was not a hurricane at landfall helps their position and helps them validate their actions.  

However, in my final analysis, it seems awfully risky, whether with the benefit of hindsight or not, to have withheld a hurricane warning issuance on the prediction that an extratropical transition would occur and complete prior to landfall.  

Wednesday, February 6, 2013

Chris Christie in Union City: Moscow on the Hudson?

Soviet-style government repression of the public's core Constitutional rights to free expression under the First Amendment is in vogue on the New Jersey side of the Hudson River. Some town governments are apparently afraid of their own people.

Under the shadow of New York City's skyscrapers, two postage-stamp-sized towns, West New York and Union City, are proposing town ordinances that evoke horrible memories of Communism in the minds of some older residents who fled Fidel Castro's Cuba. UPDATE -- On February 20, 2013, the West New York, NJ board of commissioners APPROVED the controversial anti-sign ordinance despite heavy public opposition from a crowd of over 200 people who jammed the small town's city hall to protest at the meeting.  In reality, both towns are controlled by men fighting growing local political opposition and using such ordinances to hit back at opponents or even neutral, non-supportive parties. Union City's mayor and state senator, Brian Stack, is somewhat of a media celebrity, having earned not one but two passes into the Fox5NewYork Hall of Shame "for abusing his power."  There is significant danger of serious abuses of power by these overreaching elected public officials.

West New York's town government, run for the moment by a mayor (Dr. Felix Roque) under federal indictment for hacking into political opponents' websites (and whose son is a co-defendant), wants to have the power to tell businesses what type of sign, flag or display they can have.

Under the utopian guise of town appearance, this ordinance would give the town government to determine winners and losers, and to impose fines that could ruin a business or force its owners to sell or move. Such an ability to impose fines for arbitrary penalties is a precursor to bribery and other white-collar felony crimes.

The ordinance will drive up the cost of doing business, and I predict it will drive out good businesses. This will cause the value of West New York real estate to drop -- at least, until the ordinance is declared unconstitutional -- as homeowners find it less attractive.  This ordinance helps no one -- unless you are a business owner with friends in town government and need their interference on your behalf to give you a competitive advantage.  (Hmmm, maybe we're on to something.)

Union City's ordinance is no more respectful of the Constitution. Invoking the need to protect the town's governing board of commissioners from its own people (that is, "to maintain order"), its ordinance seeks to discourage videotaping of meetings by concerned citizens and the news media. If the ordinance is passed, videotapers can be prevented from taping public meetings if they don't give the town 24 hours' prior notice that they want to tape a meeting. Moreover, videotapers will be confined to the back of the meeting hall, so they can get the worst audio and video shots and get blocked by audience members or political thugs. The ordinance all but declares the press and public to be enemies of the state, and clearly is aimed at making it hard for anyone to get an unvarnished, impartial view of their local government in action.

The Union City ordinance warms up with one paragraph that reads:
"WHEREAS, proper preservation of any videotapes made is one means of safeguarding the integrity of the recording and ensuring that the public is afforded all of its rights without otherwise creating disruption and detriment to the public..."
Get this, folks? Union City is getting you ready for the wholesale seizure of your videotape. To ensure accuracy? Let's just have a total embargo on the media and a government-run media monopoly!

Another particular section reads as follows:
"[I]n order to enable the Board of Commissioners to ensure the accuracy of such videotapes and prevent disruption of and detriment to the Board of Commissioners, the public good and the municipality as a whole, a person intending to videotape a Board of Commissioners meeting must give prior written noticce to the City Clerk's office by 3:00 pm on the day before the meeting.  Failure to comply with this requirement may be grounds for denying future taping."
When government officials start invoking "the public good," that is a code word for violating your individual civil rights. It seems the lessons of Dixie, Bull Connor and the Civil Rights Movement have been a guide to learn how to oppress the population.

The timing of the Union City ordinance is not coincidental. It is being introduced after a few months of heightened scrutiny of town government by both citizens' groups and, um, the Federal Bureau of Investigation.

This ordinance revision would replace a current ordinance that actually permits Union City to require anyone videorecording a meeting to provide the city with videotapes, of course, "to ensure accuracy," as a condition to having videotaping privileges in the future. The current ordinance remains on the law books and its enforcement has recently been announced -- to resistance from various concerned citizens' groups.

What's really crazy about the Union City ordinance is that its proponent, Mayor and State Senator Brian Stack, is a key ally of New Jersey's Republican Governor Chris Christie. This ordinance would stop Christie from going on tape without prior notice and providing a tape to Union City as a price to pay for being able to videotape ever again. The inconsistency is solved when you realize Christie's camera-friendly mask is confined to times when it's HIS camera, the event is staged and scripted and the audience is screened and handpicked. This manipulation would not be allowed for 15 seconds on the New York side of the Hudson River...or in Washington, DC, for that matter.

You can see these ordinances are all about control, by elected New Jersey leaders who are insecure control freaks and who love to use (some would say, abuse) government power for personal benefit.

Such attitudes and transformations were the hallmark of totalitarian, repressive, economically-suffering regimes in the 20th Century. There is no reason why these towns, with coveted, enviable locations, shouldn't be havens for development, commerce and luxury commuter-friendly housing. I sense the residents of these towns are starting to agree on this point.

Eric Dixon is an investigative and corporate attorney who is a member of the bar of New York and New Jersey and handles sensitive business, political and personal matters.

Friday, February 1, 2013

Ed Koch And The Transformation of New York City

Those of us who grew up in the 1970s and 1980s remember former New York City Edward Koch -- who died early this morning at age 88 from congestive heart failure (what a few years ago would have been called "peacefully in his sleep") -- as a transformative figure.  Unlike President Obama, who claims that mantle as he pulls America down a few notches, Koch was instrumental in rescuing New York City from near-dystopian depths.

New Yorkers and especially newcomers to the City under the age of, say, thirty-five never saw nor sensed the New York City of the Abe Beame years.  It was a much different city.  

Just consider how popular culture viewed New York City.  Hollywood movies and TV shows provide a great clue.

Today we have "CSI: New York" and "Law & Order."  When Koch was first elected Mayor in November 1977, we had the graffiti-scarred trains of "Welcome Back, Kotter."

Movies portrayed New York City as the city of danger, overrun with criminals and vice.  We had "Death Wish," "The Warriors" and "Taxi Driver."  Best of all, we had a 21st Century New York envisioned as a penal colony, one big ungovernable prison, in "Escape From New York."

Ed Koch pulled New York City out of sharp fiscal doldrums.  The City was near bankrupt in the 1970s and the Ford Administration refused to bail it out of its debt, leading to an immortal (infamous) New York Daily News headline in 1976: "Ford to New York: Drop Dead."  Simply put, the City was imploding under the weight of social program spending, a literally crumbling infrastructure (Exhibit A: The old West Side Highway whose elevated structure over what today is Twelfth Avenue was literally crumbling onto the street below.) and, most notably, a declining tax revenue base represented by a fleeing middle-class, fleeing business owners and homes which were disposed of in either fire sales or in actual fires to collect on the insurance.  (Exhibit B: Howard Cosell on TV during the 1977 World Series, reporting that in the distance over the Yankee Stadium facade, "the Bronx is burning.")

Hard to believe now, but New York City's reported Census population declined by nearly one million, from 7.9 million in 1970 to barely over 7.0 million in 1980.

Ed Koch stood up to the urban decay.  In many ways, he was a pragmatic conservative.  He made the City governable again and safer to live in.  He understood that stakeholders -- businessowners, investors and homeowners -- had to feel comfortable staying here and coming here in order for the City to survive, never mind to thrive.  He paved the way for the Giuliani years and the completion of the City's transformation into an urban oasis.