Tuesday, December 23rd, 2008


One way or another, there’s really no way for the economy to grow strongly and consistently unless middle-class consumers spend more, and they can’t spend more unless they make more.
This is a widely held view, and I’m as much in favor of a strong middle class as anyone. Nonetheless, I’d say that in terms of strict economics it’s wrong. There’s no obvious reason why consumer demand can’t be sustained by the spending of the upper class — $200 dinners and luxury hotels create jobs, the same way that fast food dinners and Motel 6s do. In fact, the prosperity of New York City in the last decade — largely supported off of super-salaried Wall Street types — is a demonstration that you can have an economy sustained by the big spending of the few rather than the modest spending of large numbers of people.

* Paul Krugman, 17 dec. 2008

Comments

Well Paul, don’t you think McDonald’s generate more jobs than expensive restaurants. To serve middle class you need to create more jobs than to serve rich.
— Imad Qureshi

Assuming that you’re right, and you can have an economy driven by a small number of super-rich, what does that do to the business cycle?
If the bulk of your economic spending comes from the working class, and the economy hits a rough patch, most people will continue to spend the vast majority of their income. It’s not like they have any choice. This is, I suspect, why food stamps are such an effective economic stimulus–people have to eat.
But if most of your spending is driven by $200 dinners, an economic downturn could lead to a dramatic cutback in spending.
So even if an economy of $200 dinners for a tiny upper class (and Ramen noodles for everyone else) can create full employment in the short term, it might not lead to long-term economic stability.
— Eric

Of course, in a democracy, no one would vote for such a situation. If the quality of life for most people goes down, a new government will come into power. That will happen if the economy goes down, or inequality gets amped up, which is what had been happening in the U.S.
— Chad Okere

No doubt you are correct, but the underlying assumption is that those few are going to spend at the same level as the many would and it was my understanding that that just doesn’t happen in the real world.
— Will McKenna

Can you support the statement that the prosperity of NYC was driven off super-salaried WS types? It seems (on the face of it) unlikely to me that they represented more than a few percentage points of overall spend in NYC, or that this was a significant percentage of the overall increase in spend there.
— Anurag

The obvious reason, since Mr Krugman seems to have forgotten it, is revolution: the dispossessed, deprived lower classes revolt.
Examples in the previous century include the Russian Revolution and the Chinese Revolution. In both cases there were wealthy upper-class elites doing just fine out of the selective application of industrialization, with no broad middle-class or working-class participation in economic advancement. On a broader note, it is tiresome to hear economists assert that economics is solely a matter of mathematical models, each of which is limited by simplifying assumptions to a narrow range of applicability.
Any investigator has to be aware of the limitations of his assumptions; economists famously fail to address this.
— Michael Meo

Can you provide a little more explanation on this? It seems like in most industries, it takes about the same number of workers to serve one customer or produce one product, regardless of how much that customer is paying or the product costs. For example, it doesn’t take five times as many workers to produce a Lexus than a Toyota, and therefore the economy is better served by producing 1,000,000 Toyotas than by producing 200,000 Lexuses. Is this wrong?
— Daniel

Indeed, you are correct as usual. There are countless third world cities supported entirely by the spending of a thin class of hyper-wealthy elites. None are places where you would ever want to live, unless you were certain that you would be among that thin class of hyper-richies.
— John Gear

It’s not enough to suggest that it’s numerically possible that a phenomenally rich small core of spenders can equal a much larger number of smaller spenders.
There’s also the question of what is *likely*, and consumption goes down as a percentage of income / dividends etc. as you’re dealing with richer & richer people.
It’s numerically possible that the super-rich can *volunteer* to pay more taxes than they have to, or make equivalent donations to charity.
But they don’t. And they won’t.
— El Cid

As I am on the left of the political spectrum (and moving further left every year, but I degress…), I believe there are is much social justification for a large and strong middle class. However, Dr. Krugman is correct. Look at Chile in the aftermath of the September 1973 coup. It took many years for the economy to grow, but when all was said and done, almost half of the population had fallen below the poverty level, yet the richest had increased their wealth by more than 80%.
— Chuck

Well, we can debate the finer points of economic theory as our global economy continues its journey downward. However I would simply like for us to consider that this is also about creating an economic system that is rooted in justice, not simply models and theories. The corrupt and bankrupt system we’ve got right now is rooted firmly in inequality and injustice. We can do better than this….
— Rita

It’s what keeps our country peaceful within our own borders. When we’ve had two classes, we’ve had violence and civil war. What? You thought the civil war was about ending slavery?
— LJM

I just got back from NYC and noted an increase in cheap eating places like Pret a Manger. Duncan Donuts seems to be muscling in on Starbucks. NYC is expensive to be sure!
Whether existing jobs are working for the middle class or the upper class the question is how many jobs exist, what do they pay and what is the cost of living.
I have always heard that people on the lower end will be content with their row boat when others have a yacht as long as they can get the rowboat. Marxist economists though say when the disparity gets too high and people can’t get their row boats there will be social instability. China seems to think so.
— David B. Fisher

In this respect economics is like engineering. Any good engineer can design a machine with gears that turn and lights that flash, but the point is to know what the machine is supposed to do.
So, the question to ask is, what is the purpose of an economy? If the purpose of the economy is to allow a tiny minority to live like Pashas while the majority working class live at subsistence level, such a system is undoubtably workable. If, on the other hand, a society determines it ought to “promote the general welfare,” then the system should be designed to that end. Both systems are valid economically in the same way that both clocks and typewriters are both functional engineering.
— Dan Helphrey

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He won’t go away. He is well past his prime, boxing’s version of a future baseball Hall of Famer still toiling in the minors.
Evander Holyfield: dedicated or delusional? Courageous or crazy? At 46, he does not care what boxing fans think. For those urging him to get a life or to find normalcy, whether out of care and concern for him or simply the desire to shove the doyen off boxing’s stage, he says: “I have respect for that. But that’s just your opinion. I have an opinion, too.”

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His opinion holds that he has one good bout left, maybe more, in his still sculptured body. He will try to summon it Saturday in Zurich in a match with Nikolai Valuev, a 7-foot Russian.
At stake is the World Boxing Association heavyweight belt. Holyfield would buckle it around a waist that has barely expanded since he won his first professional title, in 1990. This would be Holyfield’s fifth heavyweight title, extending his record and distinguishing him as the eldest to reclaim a championship. He would surpass George Foreman, who did it against Michael Moorer at age 45 in 1994.
Holyfield insists such a distinction is not driving him to squeeze the last sweat drops out of his vocation. Nor is it money, even though he is sitting on an incredibly shrinking nest egg. Nor is it about pride or re-establishing his name, no small feat for someone so far removed from fame, other than for his “Dancing With the Stars” gig, that Google Earth would be hard-pressed to find him.
This fight, he attests, is about imparting a continuous lesson in perseverance to his 11 children, particularly the eldest.
Evander Jr. was 8 in 1992 when his father pondered retirement, after he lost a unanimous decision to Riddick Bowe for the undisputed heavyweight title. “My son couldn’t stop crying about it,” said Holyfield, who decided to soldier on because bowing out would have sent the wrong parental signal. “Scared the daylights out of me.”
Seven years later, Holyfield, battling illness as well as Lennox Lewis, considered leaving the ring in the middle of a bout until he spotted Junior in the arena and changed his mind, he said, cringing at the notion of the namesake someday hearing, “You’re going to be just like your daddy and quit under pressure.”
Two daughters recently beseeched him to abandon the sport. He listened, then told them: “I control my life. I make my decisions. I wouldn’t be wasting my time doing something I don’t think I can do.”
Holyfield has parried hooks and thrown uppercuts since he was 8, when a coach at an Alabama boys’ club implanted the dream that he could someday rule the heavyweight division. A career beset by physical hardships and pockmarked by bizarre incidents has left him unfazed. His longevity is a product of rolling with the punches, not only the sort delivered by a gloved fist.
One bout was interrupted when Mike Tyson’s teeth removed a chunk of his ear. Another was halted when a paraglider dropped into the ring. He had fights put off when an opponent had hepatitis and another was imprisoned for rape.
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His physician informed him he had a hole in his heart in 1994, prompting the faith healer Benny Hinn to lay hands on him at a revival. (Mayo Clinic doctors later concluded the defect never existed.) The New York State Athletic Commission suspended his license after a loss stemming from a shoulder ailment. Foreshadowing the challenges and oddities was his disqualification for a supposed late punch in the 1984 Olympics, which cost him a shot at a gold medal.
Holyfield, whose ability to be calm in the swirl of chaos may be his greatest strength, has never lost his mojo.
There was the time Lewis accused him of hypocrisy for pledging to Christianity while fathering several children out of wedlock. How did he vent? By predicting a third-round knockout of Lewis (the bout ended in a draw). Holyfield said that the uncharacteristic boasting was uncalled for.

Retirement has not tugged hard on Holyfield, the rare fighter who relishes training. Inspirational gospel music blares through the gym, Holyfield singing along as he endures the mind- and body-numbing ritual of prepping for his fights.
At his camp in Houston, he skips rope and attacks the punching bag to the beat of his favorite tunes collected over two decades, each song remindful of a milestone bout.
He admits to the aches and pains inescapable with creeping age, and he may cancel a session or cut one short.
“I’m not doing what I used to do, trying to burn it every day,” he said. “My body don’t recover as fast.”
In his glory days Holyfield said that he sought divine help only on the day of a bout. Now, he summons his Lord to deliver him through training sessions. “I’m paying a superprice,” he said, “because I want it at this age.”


Besides, motivation “is hard when the money hasn’t been big for quite a while,” said Tim Hallmark, his fitness adviser and nutritionist for all but one fight in the past 23 years.
Holyfield will collect $600,000 to $750,000 against Valuev, spare change for someone with career earnings of more than $200 million, including $35 million for one memorable night with Tyson. The payday for Saturday, though modest by boxing standards, calls into question whether money needs have trapped Holyfield inside the ropes.
Two months ago he faced possible jail time when support payments lagged for his 11-year-old son. Holyfield, now remarried, reached an agreement amid estimates that he spends $500,000 a year in child support.


Last summer foreclosure papers were drawn up and an auction scheduled for his mansion, with its 17 bathrooms and 3 kitchens, on 235 acres of rolling hills south of Atlanta. Ken Sanders, serving as Holyfield’s financial adviser, acknowledged that Holyfield nearly lost his home and toyed with the idea of filing for personal bankruptcy.
“It’s a little tough for him right now,” said Sanders, who served as Holyfield’s first fight manager and is filling the role again. “He’s got some situations we’re trying to straighten out. It’s going to take a little time.”
Sanders declined to offer details, citing possible litigation. Holyfield blamed former associates, whom he accused of gaining power of attorney and borrowing against the value of the property. “It set me back,” Holyfield said, “but everything is good now.”


He added: “If I had a hundred million dollars, two hundred million, I would still fight because I have a goal.”
His goal, to retrieve all three recognized heavyweight crowns by the close of 2009, seems as pie in the sky as a peach praline in heaven.


Since 2001, Holyfield (42-9-2, 27 knockouts) is 6-4-1, mostly against little-known fighters. In his last bout, last year, he was hammered by Sultan Ibragimov. Many who embrace the sport fear Holyfield is not just tarnishing his legacy but stripping off every last bit of paint.
“People say: ‘You ain’t thinking. It’s your ego,’ ” Holyfield said.


Holyfield, who is vastly more popular in China and other countries than he is here, took a jab at the United States: “It’s a sin to get old. People stop respecting you. I know how it’s supposed to end for me as a boxer. And that’s to be on top.”
Hallmark, the fitness trainer, says he is confident Holyfield’s career will not end in an ambulance.
“If I felt Evander wasn’t physically capable of fighting, I would be the first to say that,” Hallmark said. “I haven’t seen anything that concerns me.”


Hallmark tailors Holyfield’s regimen with his client’s advancing age and his opponent in mind. For Valuev (49-1, 34 knockouts), who presents unique obstacles with his height, Holyfield’s strength training has been subjugated by conditioning. Avoiding injury is the top priority. “We have to be wise working him,” Hallmark said.
Hallmark has reeled in Holyfield’s wayward dietary habits, weaning his pupil off bean, milk and corn products, in deference to his Type A blood.


The specter of steroid use hangs over any athlete in Holyfield’s demographic, more so because his name appeared on a customer list of a company that was investigated for the illegal sale of performance-boosting drugs. Holyfield was quoted last year saying that he consumed a drug in 2004 to address “my hormonal problem,” but that neither it nor any other substance he has ingested is banned by boxing.


Hallmark recalled Holyfield’s disclosure that he had rebuffed encouragement from “people” to sample steroids. A few years ago Hallmark arranged for what he described as thorough blood tests, paid for by the fighter, that he said confirmed his long-held belief that Holyfield is clean.


“From what I’ve seen, Evander has never taken anything illegally to enhance his performance,” he said, adding: “I worked with one steroid user, a football player. The day I found out, I threw him out of the gym” and severed relationships.
“He just don’t age,” Sanders said of Holyfield. “He amazes me.”
Home briefly for the Thanksgiving holiday, Holyfield leapt from a chair and demonstrated how he would attack his imposing foe: moving, jabbing, working inside to negate Valuev’s long reach.
“I know people look at this as a freak show,” he said: the old man and the sea monster.
To those critics, he spouts personalized maxims about swimming against the tide of public opinion and likens himself to President-elect Barack Obama and the Wright brothers.
“This country is built on proving you can do it,” he said. To heck with prevailing sentiment: “I came up on the wrong side of the tracks, so nobody ever believed in me anyway.”
Asked if he could retire, forever, after one more night in the ring, Holyfield sat in unusual silence, kicked the question around, and said maybe. “Losing is quitting,” he said.
He won’t go away. Not without a fight, or three.

* By MIKE TIERNEY ; NYT,17 December 2008

The murder of José Sucuzhañay, an Ecuadorean immigrant who died over the weekend at a hospital in Queens, has thrown a harsh light onto a savage, hate-inspired crime that should sicken us all. This horror is also a reminder that bigotry can be deadly, not just to the groups intentionally targeted, but to anyone unfortunate enough to cross its path.

i761178José and his brother Romel appear to have been misidentified as gay as they walked home, arms around each other, on a predawn morning in the Bushwick section of Brooklyn. Romel managed to escape the three men who emerged from a passing car wielding a baseball bat and shouting anti-gay and anti-Latino epithets.
José was struck on the head with a bottle, then kicked and beaten into unconsciousness. He was subsequently declared brain dead and expired last Friday night, one day before his mother, who was traveling from Ecuador, could reach him.
The victim, who had come to this country a decade ago, had been living the immigrant dream. Starting out as a waiter, he eventually bought several buildings and became co-owner of a real estate agency in Bushwick. He cared for his community and was well-liked in return.


This was the second recent killing of an Ecuadorean in the New York area. In November, Marcelo Lucero was stabbed and beaten in the Long Island village of Patchogue by a group of teenagers who, the police say, had been roaming the streets looking to beat up “a Mexican.”

Several teenagers have been arrested and charged in the Long Island case. But New York City police, who are still searching for Mr. Sucuzhañay’s killers, need to do all they can to bring those people to justice. A lynching in the heart of New York City is more than enough to remind us that bigotry cannot be tolerated.

 

* EDITORIAL , NYT,17 December 2008

Almost no segment of New York City’s real estate industry was spared in the Madoff scandal, which may be history’s largest Ponzi scheme: commercial brokers large and small, little-known developers and prominent families like the Wilpons and Rechlers all lost money to Bernard L. Madoff, industry executives say.

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The outsize impact on the industry may have resulted largely because Mr. Madoff (pronounced MAY-doff) managed his funds much the way that real estate leaders have operated successfully for decades: He provided little information and demanded a lot of trust.

“You have a lot of wealthy people who made a lot of money on handshakes,” said Mark S. Weiss, a commercial real estate broker at Newmark Knight Frank, where several brokers had invested heavily with Mr. Madoff. There was “something about this person, pedigree and reputation that inspired trust,” he said.
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Across the city, industry executives said deals had been scuttled or jeopardized because of the scandal. Residential brokers are taking calls from Madoff investors who have had to put their apartments on the market. Many developers had pledged their investments with Mr. Madoff as collateral for projects, and are now worried that their banks will call in their loans.

“The level of devastation, both financial and on a human level, is astounding,” said Robert J. Ivanhoe, a lawyer who is representing 10 developers and investors who lost $5 million to $50 million each with Mr. Madoff.

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Indeed, at an industry fund-raiser at the Grand Hyatt hotel in Manhattan last weekend, much of the chatter over sushi and crudités was about money feared lost with Mr. Madoff, according to people who attended. And a Manhattan psychotherapist who counsels real estate leaders and bankers said most of the patients he has seen this week have close friends and relatives who lost money with Mr. Madoff.

The victims include executives at the global commercial brokerage CB Richard Ellis, most prominently Stephen Siegel, a major Bronx landlord who is chairman of worldwide operations at the brokerage and whose wife, Wendy, helped organize Saturday’s fund-raising dinner.

Brian S. Waterman, a principal at Newmark, also invested with Mr. Madoff. So did the Rechler family, which has been a major owner of office buildings in the region. Scott Rechler, the head of RexCorp, one of the family’s largest firms, called the family’s exposure “limited.”

Jerry Reisman, a lawyer based in Garden City, N.Y., said he was representing six commercial real estate investors and developers in the area who lost a total of $150 million to Mr. Madoff. They met Mr. Madoff through contacts at country clubs in the tristate area, he said.
“They knew him from golfing in the Hamptons. They knew him from the locker rooms,” Mr. Reisman said. “He was considered a wizard.”

Mr. Reisman said his clients were especially concerned because they counted on Madoff investments to complete some of their real estate projects, pledging their investments as collateral for projects. Those developers fear that when their banks realize that their investments with Mr. Madoff have disappeared, they will demand new collateral from other sources, Mr. Reisman said.

Finding those alternative lenders will be difficult given the financial crisis — and given that many other real estate investors have been hurt by the Madoff case.
“Many of these developers, their resources are all with Madoff,” Mr. Reisman said.

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There are widespread concerns that some developers will have trouble completing projects currently under construction. Edward Blumenfeld, who runs Blumenfeld Development Group, had invested heavily with Mr. Madoff and considered him a friend. Gary Lewi, a spokesman for Mr. Blumenfeld, said he still planned to complete a shopping complex in East Harlem that is to include a Target and a Costco, as well as several other projects where construction is “in the ground.”

Beyond that, though, Mr. Blumenfeld is uncertain of what his development plans hold. His friendship with Mr. Madoff is even more uncertain, Mr. Lewi said.
“Any long-term plans are being reviewed as we conduct a far larger analysis of this scandal and the impact it could have on us and the development community as a whole,” Mr. Lewi said. “Mr. Blumenfeld was friend to a man who apparently didn’t exist.”

The Wilpon family, the major owners of the Mets, has acknowledged investing millions with Mr. Madoff. The family controls a real estate firm, Sterling Equities, whose Web site says it owns 3,000 residential units and 600,000 square feet of office space. It is unclear whether the firm’s real estate holdings are affected by the Madoff investments.
“We are shocked by recent events and, like all investors, will continue to monitor the situation,” said Richard Auletta, a spokesman for Sterling.

Other real estate developers are finding that their charitable giving has been wiped out by Mr. Madoff. Leonard Litwin, one of the city’s largest apartment landlords and head of Glenwood Management, had nearly all of his charitable foundation’s investments managed by Mr. Madoff.
Gary Jacob, executive vice president of Glenwood, said Mr. Litwin had never met Mr. Madoff but had invested with him on the advice of a friend. The Litwin Foundation had donated money to research for cancer and Alzheimer’s disease and charities, many of them supported by the real estate industry.

“It would have no impact to us as a real estate company,” Mr. Jacob said. “But it affects the charitable giving.”
Some members of the real estate industry are receiving the news with a mix of schadenfreude and sadness for their peers. Jeffrey R. Gural, chairman of Newmark Knight Frank, the brokerage firm, said Mr. Madoff had turned his family down as investors about eight years ago because they would not invest at least $20 million. For years, he said, colleagues introduced to Mr. Madoff through relatives or country club friends had sung his praises.
“People used to brag how they were getting these great returns when everybody else was struggling,” he said. “They thought Bernie Madoff was a genius, and anybody who didn’t give them their money was a fool.”
The impact is already spreading to the residential real estate business. Brad Friedman, a lawyer representing about 100 investors primarily in New York and Florida, said several clients have already said they plan to put their apartments on the market. They depended on their Madoff investments to pay their mortgages and co-op fees.
“With that source of money frozen, they’ve got no cash,” Mr. Friedman said. “They can’t pay the electric bill. They can’t pay the mortgage.”
Other buyers have already backed out of deals because they had invested with Mr. Madoff and can no longer finance their purchases. Michele Kleier, a prominent Upper East Side broker, had buyers pull out of purchases on two $2 million apartments because they had lost money to Mr. Madoff. The first buyer put in an offer at 3 p.m. last Thursday, the day of Mr. Madoff’s arrest, only to withdraw it by 5:30 p.m.
The second set of buyers had visited an apartment three times, requested the financial information about the co-op and had the broker notify Ms. Kleier that they would be making an offer on Monday morning. On Monday, she learned that the buyers had backed out because their money was tied up with Madoff funds.
“It’s now two deals in the last four days,” Ms. Kleier said. “It’s amazing.”
Kenneth Mueller, a Manhattan psychotherapist who counsels many real estate and financial executives, said those who lost money to Mr. Madoff called his indictment “the nail in the coffin for the commercial real estate industry,” which had already been hurt by the recession.
Dr. Mueller said many patients were re-evaluating whether they can trust their business partners after Mr. Madoff’s betrayal.
“Madoff was considered a member of the family,” he said.

 

 

* By CHRISTINE HAUGHNEY, 18 December 2008