A tale of regulatory capture involving the New York Fed and Goldman; what about regulatory capture regarding Atlantic Yards?
It's an important concept regarding Atlantic Yards/Pacific Park, since evidence of regulatory capture has emerged several times, as I explain below.
The Fed vs. Goldman Sachs
As summarized by Bloomberg View columnist Michael Lewis, in his 9/26/14 column The Secret Goldman Sachs Tapes:
Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.After an internal study noted failures in regulation, the Fed hired new regulators, including "a strong-willed, independent-minded woman named Carmen Segarra," who was assigned to regulate Goldman Sachs and stationed at that office. But Segarra was surprised how much Fed employees deferred to Goldman, and alarmed by the internal pushback to her questions that she began to record her meetings, until she was fired.
That may very well change today, for today -- Friday, Sept. 26 --- the radio program "This American Life" will air a jaw-dropping storyabout Wall Street regulation, and the public will have no trouble at all understanding it.
The reporter, Jake Bernstein, has obtained 46 hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.
More from the ProPublica article, Inside the New York Fed: Secret Recordings and a Culture Clash
In a tense, 40-minute meeting recorded the week before she was fired, Segarra's boss repeatedly tries to persuade her to change her conclusion that Goldman was missing a policy to handle conflicts of interest. Segarra offered to review her evidence with higher-ups and told her boss she would accept being overruled once her findings were submitted. It wasn't enough.Note that, as the Fed defended itself, Massachusetts Senator Elizabeth Warren called for congressional hearings on the issue of deference. (There's been no coverage in the Times, and brief mentions in the New York Post, New York Daily News, and Wall Street Journal.)
"Why do you have to say there's no policy?" her boss said near the end of the grueling session.
"Professionally," Segarra responded, "I cannot agree."
The New York Fed disputes Segarra's claim that she was fired in retaliation.
Regulatory capture in New York State: EB-5
Empire State Development, the state agency overseeing/shepherding Atlantic Yards, has certainly demonstrated periodic if not total evidence of regulatory capture.
It has deferred to Forest City, in small ways, such as forwarding Construction Alerts prepared by the developer without vetting, and sometimes in much larger ways.
|Davidson presents an ESD proclamation to a migration firm|
Consider the decision, approved by then-Governor David Paterson, to send ESD official Peter Davidson to China in 2010, helping Forest City Ratner get a low-interest loan under the EB-5 program for immigrant investors.
Davidson, at the request of the private firm packaging the EB-5 investment, prepared vaguely worded proclamations saluting the Chinese immigration brokers--private, profit-making firms--key to the process.
The low-interest loan saved perhaps more than $100 million on conventional financing. The state asked for nothing in return.
Meanwhile, however legal, the fundraising didn't create new jobs--the purported justification for giving investors green cards--and thus subverted the mission of the EB-5 program.
As EB-5 analyst Michael Gibson told Business Week, when a project “substitutes EB-5 capital for more expensive bank financing or bond funding or even equity, that isn’t really creating new economic activity. It’s margin for the developer.”
The cover-up of a falsification
As I wrote 7/25/12, documents suggest the agency and its environmental monitor, Henningson, Durham & Richardson (HDR), condoned a cover-up of a Forest City contractor's falsification.
Forest City was supposed to hire its own On-Site Environmental Monitor, meeting daily with contractors and observing site conditions. But the developer dragged its feet.
"During the second quarter of 2010, HDR expressed concerns with lack of oversight," a report stated. "Chuck Baldwin of Turner Construction was hired to handle the position until mid-July and HDR noted an improvement in on-site compliance."
However, that compliance relied on a wink and a nod, according to documents I discovered.
Each week, HDR compiles an "Atlantic Yards Field Inspection Report" for ESD. According to the non-public draft of the 5/20/10 report, monitor Baldwin passed on to HDR sobering information: five pieces of heavy equipment lacked the required diesel particulate filter, aimed to reduce asthma-causing exhaust.
Baldwin told HDR a corrective action plan was requested from Hunt Construction, though no penalties were mentioned; in turn, HDR planned to talk with Forest City.
That damaging admission vanished from the final Field Inspection Report made available to the public.
|Final report, edited|
“As the herd of pedestrians comes out, we shut down Atlantic Avenue for cars and get the people across the street for about ten minutes and then we let the cars flow,” Schwartz said. “It hasn’t backed up traffic much.”
Paying for police
At a June 2012 community meeting, Community Board 2 Chairman John Dew, noting announced plans to bolster security both with off-duty law enforcement officers (aka “paid duty”) as well as an increased police presence, asked who’d pay for the latter.
A Forest City staffer, a former cop, noted that, as with any large-scale event, police officers would be moved.
“I think we all know that, but this takes from resources,” Dew pressed on. “In this particular instance, is there an opportunity to bill back to Forest City Ratner?”
“The answer is no,” replied Forest City Ratner's Ashley Cotton, taking the question, though there were city police and special projects officials in the room. Just as with new housing being built on Flatbush Avenue, said Cotton, a former city official, “the city has to adjust... The arena is not alone in adding new work to the city.”
I reported 10/17/12 on a community meeting regarding operations of the arena, which had been open for some three weeks.
Responding to reports of arena neighbors feeling bass from the Jay-Z concert on their apartments and in the streets, Geraldine Kelpin of the Department of Environmental Protection said, “we did hear, on the street, sound from the concert... we're somewhat perplexed.”
She said DEP “staff did go to someone's apartment... we heard it, but it wasn't a violation.”
Resident Wayne Bailey, who said he was present when the noise was measured at Newswalk, offered a contrary account: “they didn't measure when the concert was playing.”
Jim Vogel, a resident of Pacific Street east of Fourth Avenue, said, “I live a block away... my windows were throbbing.” He went on to question whether the arena was sufficiently soundproofed.
“Thank you, Geri,” concluded Arana Hankin, then Director, Atlantic Yards Project, for ESD. “I’m confident that the work they’ve done was sufficient to date."