Looks Like Bharara Will Definitely Not Do The Right Thing

In my post Wednesday I asked whether SDNY U.S. Attorney Preet Bharara would now "do the right thing" with respect to the dozens of innocent people out of whom he has improperly coerced guilty pleas in his multi-year jihad against non-insider insider trading.  Well, it only took Bharara a few hours to put out his own statement telling the world that doing the right thing is just not part of his make-up.  Since the statement is short, I'll quote the whole thing:

Today’s decision by the Court of Appeals interprets the securities laws in a way that will limit the ability to prosecute people who trade on leaked inside information. The decision affects only a subset of our recent cases, and in those cases – as in all our criminal cases – we investigated and prosecuted misconduct based on our good faith assessment and understanding of the facts and the law that existed at the time. We are still assessing the Court’s decision, which appears in our view to narrow what has constituted illegal insider trading, and are considering our options for further appellate review.

Wow -- Don't they realize that they are dealing with the criminal law and that peoples' lives are at stake?  They have put legitimate companies out of business, put hundreds of people out of jobs, conducted midnight FBI raids over conduct that we now know was wholly legal all along, put dozens of honest hard-working people who committed no crime in jail, forced the expenditure of hundreds of millions if not billions of dollars to defend against their prosecutions, seized billions of dollars of fines and forfeitures without legal basis, and all they now have to say is they are "considering [their] options for further appellate review"?  Well, I predict that their appeal is going nowhere in the Supreme Court, but meanwhile they are keeping these innocent people in limbo for another year while we wait for the denial of cert and they work on landing their next job.

I find it amazing how long this travesty has continued.  As Charles Gasparino points out in this morning's New York Post, there never was any theory under which this non-insider insider trading had anything to do with causing the recent financial crisis.  But in our prosecutors' thirst to produce scapegoats, somehow we have without thinking completely lost track of the principle that you can't be sent to jail for a federal crime unless you violate a statute passed by both houses of Congress and signed by the President and that clearly prohibits what you did.

And thus we have endless amounts written about this non-insider "insider" trading program by people who refuse to acknowledge this fundamental issue.  Start with the headline in the New York Times yesterday in their front-page article about the Second Circuit reversal:  "Appeals Court Deals Setback to Crackdown on Insider Trading."  Just no.  This is not about a crackdown on insider trading, but rather about a crackdown on trading by non-insiders that the feds would like to make illegal without statutory basis because they think they can get a jury angry that somebody made too much money.  Or consider former AUSA Patrick Cotter quoted by CNBC:

"The stunning decision ... has the potential to rewrite the book on insider trading, while also dealing a body blow" to Justice Department and the Securities and Exchange Commission efforts, former assistant U.S. attorney Patrick Cotter said in a statement to CNBC.

Well, isn't dealing a "body blow" to government lawlessness the whole reason we have courts?

I haven't seen any article give a short clear statement of the law on this subject, and the Second Circuit's opinion itself really makes the whole thing seem far more complicated than it actually is.  So for those who want to understand the basics, I'm going to tell you what you need to know about the application of insider trading law to non-insiders in the next fourteen sentences:

The underlying common law of fraud in the United States in general applies to false statements and not to omissions.  That is, if you say nothing to your counterparty in a business transaction, you have not committed fraud, even if you know something important that your counterparty does not know; sometimes this is phrased as there being no "general duty to speak" to your counterparty. There are some exceptions, but very limited.  The federal securities laws then have their own obligations, which do include a general duty to speak, which applies to the issuer of the securities.  In the massive text of the federal securities laws, going on for mind-numbing hundreds of pages, you will not find anything about a general duty to speak applying to those other than the issuer, including those who trade in the security.  Corporate insiders of issuers, who could include officers and directors at the top end down to the lowliest messenger or clerk, are then their own special case.  While there could well be exceptions, assume for these purposes that insiders of the corporate issuer are subject to the issuer's general duty to speak.  But now consider non-insiders, such as investment professionals who do not work for the company: the statutes do not mention anything specific about a duty to speak by such people.   And yet the government criminally prosecutes dozens of them for trading without first disclosing everything they know to the marketplace.  How?  The entire basis for criminal prosecutions, out of all the hundreds of pages of statutes, consists of the following in Section 10(b) of the Securities Exchange Act of 1934:

It shall be unlawful for any person . . . [t]o use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance . . . .

Can you find a general duty to speak in there when it does not exist anywhere else in our common law or in our normal understanding of the words "manipulative or deceptive device or contrivance"?   We're talking here about criminal law, where people who violate it go to jail.  The fact is, it's not there, and certainly not in a form specific enough to give anybody reasonable notice of what is and is not legal.

The government starts with a position that if you bribe a corporate insider -- hand over a bag of money -- for information on which to trade, you thereby become subject to his and the corporation's duty to speak, and thus can be prosecuted for insider trading.  My view is that this position  is wrong:  this being a criminal law, if Congress wants to prohibit such conduct, they need to say so specifically.  It's not that hard to do.  If I were on the Second Circuit, the government would lose on the bag of money non-insider insider trading prosecution.  But actually, the Second Circuit has specifically bought into that one.  You can look at the statutory text above and form your own opinion as to whether the government's position on the "bag of money" case is reasonable.  You don't need to be some kind of fancy lawyer to form an opinion on this.  There is nothing about it any more complicated than the statutory text quoted above and the underlying fact that there is no "general duty to speak" in our society, certainly not in a criminal context,  unless a statute specifically imposes it on you.

And anyway, in Newman/Chiasson and many others of the current round of non-insider insider trading cases, we are way, way past the bag of money.  In fact the government's position is effectively that if you know anything sourced from an insider of the company and you make too much money trading, you are going to jail.  They have even phrased their position as being that "friendship" alone constitutes a sufficient "quid pro quo" to make any trader take on the issuer's duty of disclosure.  Is it "friendship" if you once had dinner with the guy, or if you talked to him one time before this time?  Suppose (like Newman and Chiasson) you don't even know the insider who provided the information or anything about the relationship between him and the guy he first gave the information to?  Too bad, you're guilty too.  And now we have thousands of Wall Street professionals who make what they think is an honest living casting about among friends and acquaintances for tidbits of information and tips, with no way to know or find out about the circumstances by which the information was first obtained, and the government's position is, if you made enough money it's a crime if we want it to be.

We find then on the website of Cornell Law School the following statement of the current state of the law on insider trading:

Because friends do not satisfy the definition of an insider, a problem arose regarding how to prosecute these individuals.  Today, a friend who receives such a tip becomes imputed with the same duty as the insider.  In other words, a friend must not make a trade based upon that privileged information.  Failure to abide by the duty constitutes insider trading and creates grounds for prosecution.        

Well, that was never more than the government's phony position and was completely wrong, and as of two days ago the Second Circuit has told us why.  (Cornell has not yet taken its statement down.)  Shame on them for unquestioningly buying into the government's outrageous position without taking a critical look at whether there was any basis for it in the underlying statutes.

Even the Second Circuit in my view does not go far enough.  The Second Circuit opinion says that non-insider insider trading liability will now be limited to situations where the corporate insider received "something of consequence" in return for the information.  Well, what is that?  Forgive me for being soft on Wall Street, but I think that people trying to earn an honest living are entitled to fair notice of what conduct is criminal and what is not.  And that fair notice cannot be something made up by a prosecutor's or regulator's whim, but must get through majorities of two houses of Congress and a signature by the President.  Is that so complicated?  This "something of consequence" standard still gives the government plenty of room for abusive conduct, and we have no reason to believe that the current crop of people occupying the prosecutors' offices will not abuse every bit of power that they are given.

OK Mr. Bharara, Will You Now Do The Right Thing?

Back in July, in a post titled "The Impending Demise Of The Insider Trading Jihad," I predicted that the convictions of Messrs. Newman and Chiasson for alleged insider trading in the stock of Dell and NVIDIA would be reversed by the Second Circuit.  It took a while, but several hours ago, that occurred.  Here is the unanimous decision.

This decision completely undermines the basis on which literally dozens of financial professionals have been wrongly convicted of non-crimes and had their lives ruined by the overreaching prosecutors of the Southern District of New York, led by one Preet Bharara.   Find yourself the subject of one of these prosecutions and first you get fired from your job; then you face unbelievably huge legal fees that start at about $5 million and can go as high as $20 million, which your former employer may or may not pay (with the government constantly putting on the pressure not to pay); and on conviction you get sentenced to something like 54 months in jail (Newman) or 78 months (Chiasson), and fined another million dollars (Newman) or five (Chiasson), and then hit with "forfeitures" of another almost million (Newman) or two (Chiasson).  And you did absolutely nothing wrong.

Among the cognoscenti, the betting for a long time has been that the Second Circuit would reverse these convictions, but it was not known exactly how they would reverse.   For example, if the court of appeals finds what it believes is a relatively minor defect in the jury instructions, it can direct that the jury instructions be changed and send the case back to the district court, where the prosecutors can proceed to re-try the case with the new instructions.   Well, not this one.  Here the court of appeals also found that the prosecutors "failed to present sufficient evidence" to get to a jury at all, and they remanded "with instructions to dismiss the indictment as it pertains to [Newman and Chiasson] with prejudice."  Ouch!

How could the prosecutors have gone so badly off the rails?  The broad answer is that the prosecutors in our current regime believe that the job of ferreting out information and then making money by trading on that information in the financial markets is wrong, and if you make too much money doing it they will put you in jail whether they have a statute to back them up or not.  The particular subject of this "insider trading" prosecution was what the court of appeals calls "remote tippees," that is, people who were not corporate insiders at all but rather financial professionals who make a living by trolling around in the marketplace for tidbits of information on which to trade.  Here the tidbits of information originally came from corporate insiders, but the defendants were several levels removed from the insiders, had not compensated the insiders in any way, and knew nothing about whether the insiders had been compensated or not.  And in fact, the insiders had not been compensated at all, although the government had a theory, appropriately ridiculed by the court of appeals, that there was "compensation" in the form of sharing information about possible job openings, or something like that.

Here are some key quotes of the court of appeals very appropriately putting the government in its place:

The Government’s overreliance on our prior dicta merely highlights the doctrinal novelty of its recent insider trading prosecutions, which are increasingly targeted at remote tippees many levels removed from corporate insiders. . . .   [W]e find no support for the Government’s contention that knowledge of a breach of the duty of confidentiality without  knowledge of the  personal benefit is sufficient to impose criminal liability.  Although the Government might like  the law to be different, nothing in the law requires a symmetry of information in the nation’s  securities markets.

So let's tote up where the government's so-called insider trading jihad stands today.  Just a few months ago when I wrote my prior post in July, the SDNY was claiming a string of 85 straight "insider" trading convictions, a large number of them, as the court of appeals notes, not involving insiders at all, but rather these "remote tippees."   Oh, and approximately 79 of the government's 85 convictions were guilty pleas, while only approximately 6 were convictions after trial.  The July post was inspired by the first loss after this string, in the prosecution of Rengan Rajaratnam, another "remote tippee."  That prosecution crumbled when the district judge refused to buy the government's remote tippee theory, dismissed two counts, let the third go to the jury on a jury instruction unfavorable to the government, and the jury promptly completed the acquittal.  That put the government at 1 acquittal and 6 convictions at trial.  With today's reversal that record goes to 3 and 4.  Oh wait, another on the convicted-at-trial list is a guy named Steinberg who is an even more remote tippee in the same information chain as Newman and Chiasson.  His conviction is finished.  That makes it 4 acquittals to 3 convictions.

And how about those 79 guilty pleas, Preet?  How many of those are remote tippees who did nothing wrong under the law?  How many completely innocent people have you had frog-marched into court and forced to falsely admit guilt and feign contrition in order to avoid 5 year (or more) prison terms and $5 million fines and another $5 million of legal fees, while you get yourself some big headlines in the paper as the "sheriff of Wall Street"?  Are you now going to do the right thing for these people?  I for one am not counting on it.    

Response To Comments On "Letter To A Manhattan Resident"

A post I wrote a couple of weeks ago titled "Letter To A Manhattan Resident" has drawn a large number of comments (more than 50 to date), most of them over at the City Journal website where the article was first posted.  Some of the comments raised points that I thought deserved a response, so here goes.

Several commenters somehow came away with the impression that I was describing a New York in "shambles" where the people are miserable.  For example, here is Ed Johnson:

I get out often, and not many of them [New Yorkers] look miserable to me. Come, enjoy the smell of Pretzels roasting over live charcoal by Rockefeller Center while you look at the windows at Saks, Macy's and Lord and Taylor.  This image you've been sold of a NYC in shambles full of violent homeless and Liberals is, well, you know. A stupid lie.

Well, you won't find anything about New York being a "shambles" or the people miserable in the article he's commenting on, or for that matter elsewhere on this website.  Actually, over on my "About" page my summary of living in New York over the past 40 or so years is "All in all, it has been a great place to live and raise a family."  My criticism is not that things aren't pretty good,  particularly after 20 years of Republican mayors who did great work in bringing the City back from the brink.  Rather, my criticism is that it could be so much better.  We fall far below our potential, mostly due to the drag of way over-expensive progressive policies that completely fail to accomplish their stated goals of ameliorating poverty, income inequality, homelessness and the like.

On a closely related subject, a number of commenters point out what appears to them to be a contradiction between the obvious wealth in Manhattan and my contention that high taxes and expensive redistributionist policies are a drag on the economy.  For example, a commenter calling himself "I love NY" writes:

You point out that we live in the richest county in the country and that we have the highest taxes. By the simplistic logic your favorite news channel often employs does this not prove that high taxes are not a problem for wealth creation?

Another commenter named Nancy Groutsis collects some data on per capita GDP by state, grouped Red and Blue:

Gallup’s top red states (Utah, Wyoming, Idaho, North Dakota, Nebraska, Kansas, Alabama, Montana, Alaska) had an average state GDP of $43,738 which is less than the $48,843 per capita GDP of its top blue states (Hawaii, Maryland, Rhode Island, New York, Massachusetts, Connecticut, Vermont, Illinois, Delaware) (Real Per Capita Gross Domestic Product by State, University of New Mexico, 2013).

The fallacy here is looking at a snapshot rather than at rates of growth and change.  High taxes and overly-expensive government do not bring about economic devastation overnight.  As I have written many times, for example here, the consequence of high taxes and overly-expensive government is a slow, gradual decline relative to other areas that have lower taxes and less expensive government.  New York (state) does have higher GDP per capita today than most of the most-Red states (however, not Alaska, North Dakota or Wyoming), but the recent trend is that most of the Red states are growing solidly and some rapidly, while in New York the economy of the City is growing a little and the economy upstate is somewhere between stagnation and absolute decline.

Go back to the 1920s, and New York was enormously dominant in the national economy.  Check out this IRS publication of income data from 1920:  New York State represented about 17% of the national total.  Today it's down to about 7%.  Slow, gradual, relative decline.  Per capita taxable income in New York was about two and a half times that of Texas in the 1920 data, and at least 50% higher than even "rich" states of the time like Pennsylvania; today, we're hanging on to about a 15% edge in per capita GDP over Texas.  How much longer will that last?  The decade of the 1920s was before New York's taxes and spending got way out of line, and for a time its growth and economic dominance continued.  In just the ten years from 1920 to 1930, New York City's population grew from 5.6 million to 6.9 million, reaching about 5.7% of the entire population of the U.S., with over 23% growth in one decade.  But in the 1950s and 60s New York adopted the model of government spending as the solution to all human problems, to be financed by ever-accelerating taxes.  By the early 1970s combined New York State and City income taxes for the top bracket had reached about 19% -- and the City lost about 800,000 people, about 10% of its population, in the decade of the 70s.  Today, we've gotten the combined top state + city tax rate back to about 12%, and all of our neighboring states have helped our competitive position by adopting their own income taxes.  That plus 20 years of decreased crime and competent management in City Hall, and New York City's population has grown from about 8.0 million to 8.4 million since 2000, 5% growth in 14 years.  But our taxes are still the highest in the country, if not by so much, and the relative decline continues.  Our population of 8.4 million people is now only about 2.3% of national population, and low tax jurisdictions like Texas and Florida are far outgrowing us.  It is only a question of time until they overtake us in per capita income as well.

But don't get me wrong -- it can be a lot of fun hanging around in a decadent, very slow-growing, but very civilized place.  Can anybody say "Europe"?

On Scams And Hoaxes, And Those Who Fall For Them

My wife regularly accuses me of thinking that most everything about life is some form of a scam or a hoax.  That is an exaggeration, but like all exaggerations it starts from a germ of truth.  I definitely think that huge numbers of things accepted by many and most people without questioning or thinking are scams and hoaxes, and that if you don't have your scam and hoax radar up all the time you will regularly get taken in.

Most recently we see this phenomenon playing out in the UVA gang rape story that appeared in Rolling Stone on November 19.  By now, just two weeks later, the story has substantially fallen apart.  Is the story a complete hoax or does it have some underlying elements of truth?  That's impossible to know, and I'm certainly prepared to accept that the large majority of reports of rape are truthful.  But this one had lots of objectively verifiable details that were easily ascertainable to be false.  Examples:  the fraternity had no event on the alleged date of the event, September 28, 2012; UVA fraternities accept new pledges in the spring rather than the fall; the victim alleges she was led out on a side staircase, but the fraternity's building has no side staircase; and so forth. 

Meanwhile, lots of the usual suspects had not only accepted the story hook, line and sinker, but had also declared skepticism on the subject of allegations of rape to be completely out of bounds, and on that basis gone aggressively after anyone who dared to express it.  Michael Moynihan at the Daily Beast has a good roundup of some of these, like Mark Hoofnagle at Denialism Blog ("Can we call this anything but typical victim smearing? How dare the New York Times thoughtlessly promote this unethical critique of Rolling Stones reporting and this rape victim."), or Amanda Marcotte (“it’s really time for people to understand that rape denialism is like Holocaust denialism: a broad refusal to face reality.”), or Rebecca Traister of The New Republic ("symptomatic of exactly the patterns of incredulity and easy dismissal of rape accusations that keep many assaulted women and men from ever bringing their stories to authorities or to the public.”)  And Moynihan has lots more of same.

Sadly, as much as rape victims need and deserve support, skepticism is just a necessary approach to dealing with human beings.  Rule skepticism out of bounds on any given subject, and it follows as the night the day that the scamsters will come out to flourish.  One would think we had learned that lesson in the area of spectacular gang rape allegations from prior incidents that include the Tawana Brawley hoax of 1987 and the Duke lacrosse allegations of 2006, both of which were completely debunked, but only after upending the lives of falsely accused perpetrators.  In the end, lack of skepticism is no favor to those who truthfully report rapes.  For example, it would be far preferable from the point of view of the next legitimate rape victim for the Rolling Stone reporter to have asked a few questions, uncovered a few discrepancies, and then not run with this story, as opposed to the current situation of having it blow up spectacularly.

If you think there are areas where truth and justice are so sure to be on one side that all skepticism can be ruled out of bounds, well, you are going to get taken in by lots of hoaxes.  Plenty of people who should know better find themselves with egg all over their faces for exactly this reason.  A good example are the 88 members of the Duke faculty who signed a statement of support for the accuser in that situation at the early stages of that process. 

Meanwhile, the phenomenon of attempting to rule skepticism and dissent out of bounds is by no means limited to the area of allegations of sexual misconduct.  Indeed it is a key part of the playbook to today's political Left on many subjects.  Exhibit B is the field of climate alarmism, where even mild questioning of any element of the orthodoxy brings upon oneself the epithet "denier" and the comparison to holocaust deniers (as Marcotte does with rape allegation skeptics above).  Among those heaping abuse and name calling on anyone daring to question the climate orthodoxy, see for example Think Progress here, or Canadian environmentalist David Suzuki here.  Result: lots of people who should know better getting taken in by preposterous claims about global warming and the supposed dangers of fossil fuels.  How about over 200 members of the Harvard faculty here?

And don't even get me started on the "poverty" scam.

A Tale Of New York's Thoroughly Corrupt Advocacy Community

Bill de Blasio has been our Mayor for almost a year, and if you are a typical (meaning "progressive" and ridiculously naïve) New Yorker you very likely think that he must have started to make some progress against the scourges that he talks about so endlessly like poverty, income inequality, homelessness, and so forth.  Without doubt, the tide of stories in the mainstream press complaining about inadequacy of City efforts on these issues has greatly ebbed.  Surely, that must be an indication that something is working.

Of course, the truth is exactly the opposite.  What's actually going on is that de Blasio is making income inequality, homelessness, etc. worse by his progressive policies, but the advocacy organizations and the complicit press are refraining from criticizing him precisely because more income inequality and more homelessness are the best things that could happen for their business.

The Wall Street Journal (and thank God we have them) puts a fairly deep scratch in the surface of this issue with an article in yesterday's Greater New York section by Mara Gay titled "Antipoverty Groups Give Mayor Wide Berth."   Gay reports on various groups that spent the previous 12 years going after Mayor Bloomberg but now can't be heard to say a critical word about de Blasio.  Groups that Gay identifies as having suddenly gone silent on de Blasio range from the New York City Mission Society, to The Black Institute, to The Children's Aid Society, to the Coalition for the Homeless, to the New York City Coalition Against Hunger, and several more.  For example, here is Joel Berg of the Coalition Against Hunger:

Mr. Berg said it “makes no sense” to criticize the mayor over a single issue when he had “done more for our issues in the last year than his two predecessors did in the previous two decades.”

Or Mary Brosnahan of the Coalition for the Homeless, questioned as to why her group has not criticized the City over the case of a 3-year-old kid who was beaten to death in a homeless shelter:

Ms. Brosnahan, of the Coalition for the Homeless, said in a phone interview that her group’s response to inquiries about Jeida’s death was “more a matter of logistics,” which were challenging because she was receiving conflicting reports about the incident.

So if de Blasio is "doing more for these issues" than his predecessors have done in decades, what is the measurable progress?  As to poverty and income inequality, those numbers come from the Census Bureau with big lags, so we don't yet have them for the de Blasio era.  But not so for homelessness, where New York City puts out up-to-the-minute numbers regularly.  From another article in the Wall Street Journal Greater New York section, this one by Laura Kusisto today:

The city put the number of people sleeping in its homeless shelters at 58,562 as of Nov. 20, including more than 25,000 children. A year ago, the population was 51,110.

Yes, that would be a 14.5% increase in the homeless shelter population in the less-than-one-year of de Blasio's tenure.  Some would call that an "explosion."  What's going on?

It's not too hard to figure it out.  Here's the back story.  New York's subsidized NYCHA public housing, approximately 170,000 units, has a waiting list of over 200,000 families.  But since nobody ever leaves, only about 5000 families get in off the waiting list each year.  Some people (e.g., victims of domestic violence) get priorities on the waiting list, and given the length of the list, if you don't have one of these priorities you are never going to get in.  Back in the early part of the Bloomberg administration, the City gave priority on the waiting list to families that had been determined to be "homeless."  That created a scramble among thinking low-income people to get themselves into homeless shelters in order to claim the priority.  In 2005 the Bloomberg administration figured out what was going on and ended the priority for those in homeless shelters.  From the WSJ November 24:

In 2005, Mr. de Blasio’s predecessor, Michael Bloomberg , ended the policy of giving the homeless priority for NYCHA apartments. The Bloomberg administration argued that giving preference to homeless families encouraged people to enter shelters to jump to the front of the line on the public-housing waiting list.

That Bloomberg administration policy was reversed by the Housing Authority in July 2014.  The Daily News reported it here, saying that the reversal was done "quietly" and "during a special meeting that was not listed on a public schedule."  Kudos to the Daily News for picking up on it promptly.

Of course, the inevitable has occurred.  Poor people may be poor but they are not stupid.  A subsidized NYCHA apartment could well be worth the equivalent of $50,000 annual income or more.  The scramble is back on to become "homeless" and get to the top of the NYCHA list.  The homeless shelter population is surging.

And how do they feel about this over at the Coalition for the Homeless?  Do you think they would be horrified by policies that cause a surge in homelessness?  If so, then you really need a little understanding of what this organization and its ilk are about.  For some insights, check out their most recent Annual Report here.  Do you think that they actually provide housing to the homeless?  Puh-lease.  Here are a few key facts:

• Their total annual budget is about $10 million.
• The total amount they spent on "housing" is a big $718,675.  Contrast that to the amounts they spend annually on "advocacy" ($1,184,399), "fund raising" ($981,267) and "management and general" ($350,224).  In short, these people do not deem it a worthy use of their own money to house the homeless; instead they lobby to have you be forced to spend your money on housing the homeless.
• Of the $10 million budget, about $3.1 million comes from "government grants."  Likely these are for some specific purpose, but still it's the same corporate entity whose core focus is lobbying to have the government spend more money on services to the homeless.  Am I the only one in the world who thinks that's just not OK?

Meanwhile, the budget of public funds of the New York City Department of Homeless Services is over $1 billion.  In other words, the extent, if any, to which the Coalition for the Homeless actually provides some meaningful services to the homeless with its own funds is completely insignificant in the overall picture.  That's not what they're about.  What they're about is lobbying for more government funds for homeless programs, some small part of which they can then skim off for themselves.

And for that purpose they are always better off with more homeless people rather than fewer.  That's why, when push comes to shove, you can find them advocating for policies that they know will drive up the number of homeless, like public housing priority for those in shelters.  As long as their buddy de Blasio is in office and the homeless services budgets balloon along with the number of homeless, they'll keep their criticisms to themselves.  As soon as someone comes in who actually tries to decrease the number of homeless, or get some of the homeless into a life free of government dependency, or -- God forbid -- get some control over the budgets spent on the homeless, then these people will scream bloody murder.

MTA Reinvention Commission Misses The Elephant In The Room

Back in June, Governor Cuomo and his MTA announced, to some fanfare, the appointment of a Reinvention Commission to think some big thoughts on how to improve regional transit in this area.  Co-chairs would be Ray LaHood (recently exited Secretary of Transportation under Obama) and Jane Garvey (head of FAA under Clinton).  Uh-oh, already the signs are not good.

Now, God knows that our transportation infrastructure around here needs some help.  We are very geographically challenged, with a huge mile-plus wide river/estuary on one side and an only-somewhat-less-huge half-mile-wide river/estuary on the other side, and a couple of million people needing to cross those rivers twice a day to get to work and back home.  For a long time our population and job count were stagnant, but recently they have been increasing.  This has put capacity strains on the existing transportation network, let alone people have noticed that large areas -- notably much of Queens and northern New Jersey -- have inadequate access to the trains into Manhattan.

And yet, every time some project gets proposed, a price tag gets attached to it that is so enormous that next to nothing can or does get built.  Most famously, priority number one for the region is and should be additional tunnel capacity under the Hudson River from New Jersey.  In the early 2000s New Jersey Governor Christie's predecessors got that state into a plan to build a new tunnel supposedly to cost about $8.7 billion, of which New Jersey's share would be $1.25 billion.  In 2010, after some $600 million had already been spent on the project, Christie announced that a review commission appointed by him had told him that the projected cost was now $11 - 14 billion, with New Jersey on the hook for the entire cost overrun; whereupon he canceled the project.  Yes, this project was going to go under a big river; but it was only about 2 - 3 miles long.

Price tags for other proposed and actual projects are similarly eye-popping.  According to Benjamin Kabak of Second Avenue Sagas, a recently-discussed proposal to extend the PATH train less than four miles from downtown Newark to Newark Airport has been given a price tag of $1.5 billion and a five year construction schedule.  This line would be at grade over an existing right-of-way.  Is this even possible?  In the underground category, we have the currently-under-construction less-than-two-mile three-station first phase of the Second Avenue Subway, currently said to cost about $4.45 billion -- close to $3 billion per mile.  Or, over on the West Side, the  1.5 mile, one station extension of the number 7 subway line, costing about $2 billion -- a bargain at only about $1.3 billion per mile.

OK, the numbers seem big, but are they really out of line?  Yes, way out of line.  We know because they also build subways and rail lines in other cities around the world.  For example, in London, they currently have under construction something called Cross Rail, a huge 73 mile line going east-west from one end of the city to the other, with 26 miles of new underground tunnel.  Projected cost is $15.9 billion pounds, or about $24 billion dollars, which is only about $300 million per mile.  If $15 billion of that is for the 26 miles of tunnel, that would be about $650 million per mile of tunnel, around a fifth of what we are spending for the Second Avenue Subway.  In Paris, they have an even more grandiose plan for something called Grand Paris Express, 200km (125 miles) of new subway/suburban rail with 72 new stations.  Le Monde here does not give a breakdown of underground versus at grade, but there is plenty of tunneling.  Price tag:  27 billion euros (about $34 billion), which comes to about $270 million per mile -- less than a tenth of the per-mile cost of our Second Avenue Subway. 

OK, New York is an expensive city.  But so are London and Paris.  Maybe there are legitimate reasons why we might spend 20% more than those cities, or even 50% more, to build a subway line.  But the actual numbers are more like 5 to 10 times more.  And thus, they build and we don't.  Sorry Eastern Queens -- you're never getting a subway.  I wouldn't even bet that the Second Avenue Subway will be built beyond the first three stations in my lifetime.  And why are our costs so wildly out of line?  Hint:  it's very hard to blame it on the contractors, because the same international consortia of contractors bid on the jobs in all these cities.  So it really can be only one thing:  ridiculously low labor productivity over here, driven by crazy union work rules.

Now, let us turn to the recently-issued Report of the MTA Reinvention Commission, dated November 2014.  Actually, saying that they missed the elephant in the room is one of the nicer things that can be said about this Report.  It's mostly just one meaningless platitude after another.  The phrase "fully-functioning, resilient, world class" must appear 40 times.  Climate change must come up at least 20 times.  There is considerable discussion of potential new funding streams, mostly of the opaque variety to keep people from being able to figure out how much this is costing them.

At Pedestrian Observations, Alon Levy has a very thorough review.  Here are some of the key quotes:

The worst problem for transit in the New York area is that its construction costs are an order of magnitude too high, but this is not addressed in the report. Instead of tackling this question, the report prefers to dwell on how to raise money. As is increasingly common in American cities, it proposes creative funding streams, on the last page of the first part and the first six pages of the second part: congestion pricing, cap-and-trade, parking fees, a development fund, value capture. With the exception of congestion pricing, an externality tax for which it makes sense for revenues to go to mitigation of congestion via alternative transportation, all of these suffer from the same problem: they are opaque and narrowly targeted, which turns them into slush funds for power brokers.

Amen to that!  The problem with the "new funding streams" thing is that we are already at the level where taxes are seriously degrading our economic performance, and if de Blasio and his buddies can actually come up with new funding streams their priorities are not going to be transit projects, let alone wildly overpriced transit projects. 

In a future post I'll make some suggestions about what they might be able to do to add some capacity with minimal additions to the existing infrastructure.