January 2012

New Jersey’s Not-So-Palatial Xanadu

by Marc Scribner on July 22, 2010 · 3 comments

in Bailout Watch, Economy, Politics as Usual, Stimulus to Nowhere

The retail and entertainment development formerly known as Xanadu Meadowlands—recently renamed The Meadowlands—has been plagued with problems since the planning stage. The East Rutherford megamall is located on the site of the Meadowlands Sports Complex, about seven miles west of Midtown Manhattan in Bergen County, and would be the largest retail and entertainment complex in the United States. In addition to the shopping mall, Xanadu was to include an indoor ski jump, a basketball arena, a ballpark, a luxury hotel, and office towers. When the project was announced, it was hailed as the most innovative and expansive economic development public-private partnership ever to be undertaken in the United States.

The 4.8 million square foot project was expected to cost $1.3 billion when developers Mills Corporation—which had originally proposed the mall in 1998—and Mack-Cali Realty Corporation won the winning bid in February 2003. In March 2003, losing developers Hartz Mountain and Westfield America Trust both sued the New Jersey Sports and Exposition Authority (NJSEA), the state agency that owns the Meadowlands property, in an attempt to halt the deal. These lawsuits were ultimately unsuccessful, but the initial optimism over the project was already waning.

The NJSEA and Mills/Mack-Cali originally estimated an opening two years after groundbreaking, which occurred after the development consortium secured a 175-year lease from NJSEA in 2004. In 2005, the New York Giants, a Meadowlands Sports Complex tenant, filed suit in New Jersey Superior Court in an attempt to halt construction of Xanadu. The Giants claimed the project violated their lease agreement by obstructing views from the stadium, among other reasons. This lawsuit was also unsuccessful, but Mills was already in deep financial trouble. In the spring of 2006, Mills laid-off 15 percent of its staff, shareholders had filed suit, and the company was being investigated by several state attorneys general and the Securities and Exchange Commission. The company soon announced it was looking for buyers.

Mills was eventually sold to Indianapolis’ Simon Property Group, which abandoned the project after major lender Lehman Brothers collapsed and other lenders pulled out of what they viewed was a doomed development. Xanadu was then taken over by a new consortium led by Colony Capital, a California real estate investment firm. The project continued to suffer from financing difficulties, which led to ongoing work stoppages. By this time, the budget had ballooned to $2.3 billion. Dan Fasulo, managing director of real estate analysis firm Real Capital Analytics, described the Xanadu project as “too big to fail,” citing massive sunk costs and public liabilities.

In February 2010, it was announced that billionaire Bob Ross’ Related Companies, a major Manhattan developer, was taking over the project. This followed the release of a report authored by the transition team of Governor Chris Christie (R), which attacked Xanadu for its “failed business model” and which called on the state of New Jersey to tell the developers to “open or surrender the property” back to NJSEA. The report concluded:

There is no leasing plan making material on-site progress. The physical activities of construction are at a standstill, if not abandonment. The construction loan is out of balance. There are no monies readily available to finish construction of public areas or tenant improvements. Most, if not all, of announced major tenants have an ‘escape clause’ solely dependent on leasing—or lack thereof.

Officials were confident that Ross would be able to secure $500 million to $700 million in new financing and that an opening date could be expected as soon as mid-2011. However, in early July 2010, the role of Related Companies was still unclear, and the state was mulling the option of providing $180 million in emergency financing in a last-ditch attempt to save the project. Officials are considering tax increment financing (TIF), a method of public financing in which construction debt is financed by expected future tax revenue increases (the increment) that occur as a result of the property included in the TIF district becoming presumably more productive in the future. This, however, carries significant risk—public services may be over-provided, development investment may never materialize, and the likely possibility of harmful real estate market distortions, such as real property malinvestment, should concern local policy makers. A lot.

Regardless of whether or not Xanadu–sorry, The Meadowlands–is ever completed, New Jersey taxpayers will still be on the hook for the stupid mistakes of their unaccountable and shameless public officials. In the future, when “public-private partnership” and “economic development” are uttered in the same breath by some official or developer, New Jerseyites should run the other way. Fast.

Will the Party of No Foil the Half-Baked Greenhouse Machiavellis?

by Marlo Lewis on July 21, 2010 · 1 comment

in Global Warming

Many have already written the obituary for the Kerry-Lieberman bill and other cap-and-trade legislation in the current Congress. In today’s Politico, however, columnist Darren Samuelsohn quotes Sen. John Kerry’s rejection of that assessment: ”No, it’s not dead because we’re going to have a lame duck session and we have weeks ahead of us.”

Re-read the first part of Kerry’s explanation. Kerry is saying that even if the Democratic leadership does not hold a vote on cap-and-trade before the November elections, fearing the wrath of the electorate, the greenhouse gang might still enact cap-and-trade after the elections, when voters could no longer hold them accountable.

How exactly would cap-and-traders pull it off? Samuelsohn summarizes the strategy as explained by an unnamed spokesman for a “major advocacy group”:

But one source from a major advocacy group said Wednesday that another option is for the Senate to pass a pared back energy measure now and then go to conference during a lame-duck session with the House-passed climate bill that includes greenhouse gas limits across multiple sectors of the economy. At that point, the source said, anything is possible.

Clever, but perhaps not clever enough. As Machievelli infamously advised princes long ago, one should not say to someone whom one wants to kill, “Give me your gun, I want to kill you with it,” but merely “Give me your gun,” for once you have the gun in hand, you can satisfy your desire.

Kerry, the unnamed advocacy group spokesman, and others have let the cat out of the bag. They are saying in effect, “Give us an energy bill, any energy bill, we want to snooker you with it to get cap-and-trade. We’ll conference any energy bill passed by the Senate with Waxman-Markey in a lame duck session, and neither you nor the American people will be able to stop us. Hah!”

Except that loose-lipped schemers are half-baked Machiavellians. The Party of No can and should have the last laugh. All Senate Rs have to do is resist the temptation to “do something.” They now have a compelling and easily explained reason to postpone further consideration of energy legislation until the next Congress. It is simply that the greenhouse gang, by its own admission, does not intend to play fair or respect the wishes of the electorate.

Rs who strongly feel the impulse to “do something” need merely wait until January 2011, when they are widely expected to hold more seats in both the House and Senate, and when Waxman-Markey will no longer be in play.

President Obama Signs Dodd-Frank Financial “Reform” Bill: 2315 Pages of Special-Interest Payoffs

by Hans Bader on July 21, 2010 · 1 comment

in Bailout Watch, Deregulate to Stimulate, Economy, Employment, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

President Obama today signed into law the Dodd-Frank financial “reform” bill, the “most sweeping overhaul of U.S. financial market regulations since the Great Depression.”

Ironically, the job-killing 2,315-page law contains little real reform, and instead contains a vast array of payoffs and favors for special interest groups like trial lawyers.

Civil rights commissioners and economists say it contains provisions that are racially discriminatory.

The bill does nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials admit they were at the “core“ of “what went wrong.”  Fannie and Freddie helped spawn the mortgage crisis by buying up risky sub-prime mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk.  Now they are getting a $400 billion bailout.

I previously analyzed the bill here. Financial-regulation expert John Berlau examined the bill here.

Phony “Toyota deaths database.” My article in Forbes magazine

by Michael Fumento on July 21, 2010 · 1 comment

in Regulation

In the Toyota witch hunt, nothing has been more damning than those deaths we’re told Toyota sudden acceleration “allegedly caused” or, depending on whom you read, did cause.

As I note in my just-published Forbes magazine article, “93 and Counting,” the National Highway Traffic Safety Administration insists on the term “allegedly.” But U.S. News & World Report blog-post headline proclaimed: “NHTSA: 89 Deaths Caused by Unintended Acceleration in Toyota Vehicles.” The Los Angeles Times stated in a headline that sudden acceleration “led to” the deaths. A New York Post headline earlier declared that faulty Toyotas “have killed” 52 people. A CBS News Web headline (over an Associated Press story) similarly said the acceleration car fault “has killed” 89.

Toyota doesn’t look so bad after all!

In any case, the NHTSA “complaint database,” available on its website to anyone (yes, including the mainstream media), is hooey. So I found when I actually looked at the complaints. (Now there’s a novel idea!) Anybody can enter anything. An entry filed by someone named “Damnable Liar” from Holy Toledo! Ohio claimed his car accelerated to the moon because of a child seat problem. That was mine. But the ones citing 99 deaths in one vehicle? Not mine.

Three of the alleged fatal accidents never took place, which DID take sleuthing on my part. So did finding that, after the frenzy began, seven entries comprising ten deaths originally blamed on other aspects of the cars were refiled as unintended acceleration.

But at a glance you can see many simply deduce that since investigators found no cause other than driver error, then the accelerator must be responsible. Or they make the illogical deduction that since the brakes weren’t applied, it was sudden acceleration. And so on.

And then there was the lady whose son, while sloshed and after smoking dope, killed his best friend in a Toyota Scion. After entering a NHTSA complaint blaming her boy’s accident on sudden acceleration she entered seven more Scion complaints comprising 12 deaths that she’d merely pulled out of news reports and labeled as sudden acceleration. She’s covering for her son.

Yes, these are the “alleged” or “Toyota-caused” deaths we keep hearing about!

Judiciary Committee Approves Elena Kagan’s Supreme Court Nomination, 13-to-6

by Hans Bader on July 20, 2010

in Legal, Nanny State, Personal Liberty

The Senate Judiciary Committee has just approved Elena Kagan’s Supreme Court nomination by a vote of 13-to-6.

You can find my personal assessment of Kagan’s record (which may not be shared by others at CEI) here.

Earlier, I wrote about two recent appellate court nominees, the radical law professor Goodwin Liu, and a judge who made excuses for the Roadside Strangler.

Federal Register Hits 40,000 Pages

by Ryan Young on July 19, 2010

in Politics as Usual, Regulation

I’m a bit late getting to this, but an SEC “Order Approving Proposed Rule Change Relating to the Restated Certificate of Incorporation of Financial Industry Regulatory Authority, Inc.” pushed the 2010 Federal Register to the 40,000 page mark on Tuesday.

The Federal Register’s page growth has been accelerating as the year has progressed. It is currently on pace for 76,536 pages. That’s about 2,000 pages more than the Bush administration’s average. In January, the projected page count was only 63,187 pages.

Earlier in the year, an average day’s volume contained 278 pages. Now it’s up to 306 pages per day. As new rules hit the books as required by the health care bill, the financial regulation bill, and other legislation, the pace could pick up further. And if Democrats lose control of Congress, we can expect a very busy lame duck session.

The Code of Federal Regulations already weighs in at 157,000 pages. It will probably be pushing 160,000 before too long.

854,000 People Have Top-Secret Security Clearances; Huge, Politically-Correct Security Apparatus Expands

by Hans Bader on July 19, 2010 · 2 comments

in Culture, International, Legal, Nanny State, Personal Liberty, Politics as Usual, Precaution & Risk, Sanctimony, Zeitgeist

The Washington Post reports that 854,000 people have top-secret security clearances. America’s security apparatus is huge and incredibly costly.

Despite all these resources, our government turned a blind eye to the radical anti-American ravings and links of Nidal Hasan, who later murdered 13 people at Fort Hood while shouting “Allahu Akbar.” The Obama Administration did its best to conceal his religious and ideological motivation in the aftermath of the shootings. It commissioned a mendacious report on the cause of the shootings by two staunch advocates of racial preferences and restrictions on politically-incorrect speech. Their whitewash report blamed Hasan’s shootings on inadequate workplace stress programs and the “cumulative psychological effects of persistent conflict,” while deliberately ignoring the role of a “culture of political correctness” in causing the shootings. Although the killer’s actions were based on a radical Islamist ideology, the report did not even contain the words “Islam” or “Muslim,” and referred to the undisputed killer as “the alleged perpetrator.” Politically-correct military officials bent over backwards so far to accommodate Hasan’s ravings and on-the-job religious proselytizing before the shootings that they put up with behavior that would not even have been tolerated in the armies of sensible Muslim counties like Albania and Turkey.

“The top-secret world the government created in response to the terrorist attacks of Sept. 11, 2001, has become so large, so unwieldy and so secretive that no one knows how much money it costs, how many people it employs, how many programs exist within it or exactly how many agencies do the same work,” reports the Post. The public portion of the security budget alone tops $75 billion.

LibertyWeek 102: Collective Insanity

by Richard Morrison on July 19, 2010

in CEI Projects, Features, Podcast, Zeitgeist

Richard Morrison and Marc Scribner welcome guest co-host Alex Nowrasteh to Episode 102 of the LibertyWeek podcast. We take on the healthcare tax, obscenity and the First Amendment, the prognosis for the Gulf of Mexico, and the collective insanity coming out of Venezuela.

Blowout Prevention Act – Will Rs Get Buyer’s Remorse? (Modified July 18, 2010)

by Marlo Lewis on July 16, 2010

in Ethanol, Global Warming

Last week, the House Energy and Commerce Committee unanimously approved H.R. 5626, Chairman Henry Waxman’s Blowout Prevention Act. Here’s the version of the bill as marked up and approved by the Committee. Here’s the earlier discussion draft on which the Energy and Environment Subcommittee held a hearing on June 30.

Like the discussion draft, the marked-up version of the bill is a Trojan Horse for restricting and, ultimately, shutting down deepwater oil production.

The most mischievous language is in the first substantive provision, Sec. (2).

Sec. (2)(a)(3) requires each applicant for a drilling permit to have an oil spill response plan ensuring “the applicant has the capacity to promptly control and stop a blowout in the event the blowout preventer and other well control measures fail” (p. 2). If the ongoing disaster in the Gulf has taught us anything, it is that once the blowout preventer and other well control measures fail, there may be no way “to promptly control and stop a blowout.” H.R. 5626 would establish a test no oil company can pass, a standard none can meet.

Nobody had the capacity to “promptly control and stop” the Macondo well blowout after the preventer and other well control measures failed — not BP, not the oil industry working as a team, not the federal and state governments working with the oil industry.

The sponsors had to know they were demanding the impossible when they drafted the bill. Consider these excerpts from a colloquy between Oversight and Investigation Subcommittee Chairman Bart Stupak (D-Mich.) and ExxonMobil CEO Rex Tillerson at the June 15 Energy and Environment Subcommittee hearing:

Stupak: “So when these things happen, these worst-case scenarios, we can’t handle them, correct?”
Tillerson: “We are not well equipped to handle them. There will be impacts as we are seeing. . . .That’s why the emphasis is always on preventing these things from occurring, because when they happen, we’re not very well equipped to deal with them.”
Stupak: “. . . so no matter which one of the oil companies here before us had the blowout, the resources are not enough to prevent what we’re seeing day after day in the gulf, not only the loss of 11 people, but we’re on, what, day 56 or 57 of oil washing up on shores. There is no other plan. There is no way to stop what’s happening until we finally cap this well, correct?”
Tillerson: “That is correct. . . . There is no response capability that will guarantee you will never have an impact. It does not exist and it will probably never exist.”

The discussion draft’s permitting requirements apply to all “high risk” wells, defined expansively as any offshore well plus any onshore well having the potential to cause serious environmental harm in the event of a blowout. The marked-up version targets “covered wells” rather than “high risk” wells, but this is largely a distinction without a difference. Covered wells include all wells located on the Outer Continental Shelf (OCS), plus any other well that, “based on criteria established by rule … could, in the event of a blowout, lead to extensive and widespread harm to public health, safety, and the environment” (pp. 41-42).

The OCS is defined (by reference to Sec. 1301 of the Submerged Lands Act) as waters lying seaward of three geographic miles from the coastline (p. 43). So H.R. 5626 would cover any deepwater well plus any shallow-water and onshore well where a blowout could lead to widespread environmental harm. Very few large wells would be exempt.

Presumably, operators could “promptly control and stop” a blowout at any onshore well and most shallow-water wells. Nonetheless, H.R. 5626 could effectively ban new wells in deep water, and deep water is the future of offshore oil and gas production. As the Department of Interior notes in its May 27 report, Increased Safety Measures for Energy Development on the Outer Continental Shelf, U.S. deepwater offshore oil production surpassed shallow water oil production in 2001, and in 2009, 80% of offshore oil production and 45% of offshore gas production “occurred in water depths in excess of 1,000 feet.” 

The bill does not clearly state how its requirements would apply to existing wells. Would an operator’s permit be revoked if he cannot demonstrate the capacity to “promptly control and stop” a blowout after the preventer and other well-control measures fail? If so, then the bill would not only block new deepwater drilling, it would also create a vehicle for shutting down existing wells. 

Sec. (2)(c) requires the operator to obtain a revised permit if he makes a “material modification” in well design, the blowout preventer, his plan to promptly stop a blowout, or his capability to begin or compete drilling of a relief well for a covered well. Apparently, then, an existing well would be subject to the new permitting requirements if it undertakes a “material modification.” In that case, however, the bill could discourage operators from making material improvements in well safety. Some might avoid or delay making safety improvements in order to avoid or delay becoming subject to an impossible standard. If I am reading these provisions correctly, H.R. 5626 could actually make offshore drilling less safe!  

Federal officials may not be able to finesse Sec. (2)(a)(3), even if they want to, because H.R. 5626 would empower “citizens” to enforce its provisions and associated regulations via litigation:

Any person having a valid legal interest which is or may be adversely affected may commence a civil action in Federal district court of appropriate jurisdiction on such person’s own behalf to compel compliance with this Act, or any regulation or order issued under this Act, or any regulation or order issued under this Act, against any person, including the United States, and any other government instrumentality or agency (to the extent permitted by the eleventh amendment to the Constitution) for any alleged violation of any provision of this Act or any regulation or order issued under this Act. [p. 28]

The discussion draft did not include the qualifier “valid legal interest.” But how difficult is it for an environmental group to demonstrate a “valid legal interest” in enforcing environmental laws and regulations? Enact the Blowout Prevention Act, and environmental groups will be able to sue any agency that fails to hold an oil company to an unattainable standard.

A few concluding thoughts. The security risks of dependence on petroleum imports are often hugely exaggerated, as the Cato Institute’s Jerry Taylor and Peter van Doren explain. Nonetheless, the sponsors of H.R. 5626 view petroleum imports with alarm. If the bill kills the future of U.S. offshore production, our dependence on Saudi Arabia and OPEC will increase. Is that what the sponsors want?

Perhaps their core premise is that oil is so evil that any restriction on oil production is good, because it will hasten the arrival of a “beyond petroleum” future. Such thinking is dangerous folly.

Although oil spills are bad, oil is good. Without oil, there would be no modern commerce and no mechanized agriculture. Life for most of humanity, including most Americans, would be poor, nasty, and short. Indeed, many of us would not even be alive.

Killing the future of offshore production would increase consumers’ pain at the pump, destroy tens of thousands of high-paying jobs, and undermine the economy of the Gulf Coast region. A “beyond petroleum” future would likely be just as distant — or even more so, because a poorer America would have fewer resources to invest in technological innovation.

Petrophobes overestimate their ability to predict and control the future. Consider these examples. 

  • In 1990, the California Air Resources Board (CARB) adopted a zero emission vehicle (ZEV) mandate requiring 10% of all new cars sold in California be electric vehicles by 2003. Ten percent of the California new-car market is about 150,000 vehicles. CARB had to backpeddle several times as it became apparent that consumers were not buying these costly, limited-range vehicles. In 2008, CARB reduced the mandate to 2,500 all-electric vehicles – a rollback of about 98%.
  • Congress in 2007 enacted a Renewable Fuel Standard (RFS) requiring refiners to sell 250 million gallons of cellulosic ethanol in 2011. Earlier this week, EPA announced it would reduce the 2011 target to 5 – 17 million gallons per year –  a 94-98% rollback.

It is not surprising that veteran petrophobes like Reps. Waxman and Markey (D-Mass.) drafted H.R. 5626. It is surprising that every Republican member voted for it too. Do any of them have buyer’s remorse? If not now, when?

Senate Passes Financial “Reform” That Leaves Corrupt Bailout Recipients Unreformed, While Harming the Public

by Hans Bader on July 16, 2010 · 1 comment

in Bailout Watch, Economy, Environment, International, Legal, Politics as Usual, Precaution & Risk, Regulation, Sanctimony, Zeitgeist

Yesterday, the Senate passed a so-called financial reform bill by a vote of 60-to-38, making it all but certain to become law.  The bill will do nothing to prevent another financial crisis or end bailouts, but it will cause all sorts of new problems.

The bill does nothing to reform the biggest bailout recipients, the government-sponsored mortgage giants Fannie Mae and Freddie Mac, even though administration officials admit they were at the “core“ of “what went wrong.”  But it will impact farmers and others who had nothing to do with the financial crisis, by imposing restrictions on derivatives they use to hedge against risk, restrictions that could cost U.S. companies as much as $1 trillion in lost capital and liquidity.

Fannie Mae and Freddie Mac have been incredibly costly to taxpayers.  The Obama administration earlier lifted a $400 billion limit on bailing them out.  At the direction of the Obama administration, Freddie Mac ran up more than $30 billion in losses to bail out mortgage borrowers, some of whom have high incomes. Federal regulators sought to make Freddie Mac hide the resulting losses from the SEC and the public, reported The Washington Post.

Fannie and Freddie helped spawn the mortgage crisis by buying up risky mortgages and repackaging them as prime mortgages, thus creating an artificial market for junk: “From the time Fannie and Freddie began buying risky loans as early as 1993, they routinely misrepresented the mortgages they were acquiring, reporting them as prime when they had characteristics that made them clearly subprime.”  The situation was recently found to be even worse than feared by the federal Financial Crisis Inquiry Commission.

Meanwhile, they paid their CEOs millions, and engaged in massive accounting fraud–$6.3 billion at Fannie Mae alone–to increase the size of their managers’ bonuses. As Government-Sponsored Enterprises, they were exempt from the capital requirements that apply to private banks, so they did not have enough reserves to cover their losses when their mortgages started defaulting.

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