Ground Zero Essay Two – Complexities - Hub Miller – 2002
We are rich and you are poor because we are more intelligent than you and we work harder than you.
No, we are poor because you are rich.
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With the events of 9/11, the Middle East conflict went global. The Moslem World sees the entire skyline of Manhattan as being the highest profile manifestation of wealth on earth, and as being wholly owned by its blood enemy, and the Pentagon as the symbol of its global controlling power. They all think about it. Some talk about it and some don’t depending on how their interest appears. Some will fight about it. This is one of those cases where the weaker power actually has the upper hand. (Witness the American War of Independence). In this case, the Weaker Force can strike devastating blows from hitherto unimagined directions, and then fade into the ether, reforming to strike again and again until the Superior Force divests itself of its vast wealth flailing away at shadows. Just as things seem to be getting back to normal shall we witness the sudden catastrophic destruction of the entire economic and cultural foundation of the Western World… as so poetically foretold by the disappearance of the World Trade Center in New York City?..............
Economic Considerations: The possibility of financing redevelopment of ground zero by conventional means is called into question by complexities surrounding insurance settlements, by the relationships between various interested parties; and by uncertainties caused by the events of 9/11. It seems unlikely that suitable redevelopment can be accomplished with the proceeds of insurance settlements likely to come out of the current legal battle. But even if the money is there, who will insure the completed development? Beyond that, the current general decline in confidence brought on by consolidation of corporate power is coming at a particularly unfortunate time in U. S. history.
What if insurance is not available?.... credit dries up?.....the investor spooks?.... the consumer freaks out? Does anyone really have a grasp on how money and influence flow through the system?
While there is no political system that cannot be subverted, democracy (rule by the many) has been the instrument of creating the greatest good for the greatest number of people in the United States. Oligarchy, (rule by the few) is now advancing rapidly and if not checked will subvert the entire system to the detriment of nearly everyone, and it is clearly changing our relationship to the rest of the world. We are now entering a new time of flux between periods of relative equilibrium which has even more drastic implications than before.
Political Considerations: The fewer power-centers there are, the easier it is for an oligarchy or despot to gain control of the entire social organism. Right - left politics has no fixed meaning but floats freely in a changing stew. Let’s say the former Soviet Union was an example of the extreme political left of its day. The centralized control of the Communist Party became a single power-center. Once a single individual got control of it, he became the equivalent of emperor (Leonid Brezhnev). Suddenly the left became the right. The ruler lost out in the in the flow of history and what is rightwing in most western nations is the new the left in Russia. In Communist China, we must eventually witness the gradual conversion of the old political left into the new political right.
The sky is always grey over Socialist Utopia, but the political right always looses…. always… otherwise we’d be ruled by the Austro-Hungarian Empire or some idiocy. Nevertheless an increasing fraction of the population is excluded from participation as the system approaches extremes in the political cycle. This is measured by debasement of the going currency, the clipping of the coin, the poor getting poorer while the rich get richer at a faster rate. The American political right in rising to ever greater levels of control consolidates power in a tightening circle leading toward a single power-center. But human nature suggests that greed is not the monopoly of any particular segment of the population. Labor, senior citizens, pharmaceuticals, old industry and new technology, agriculture, financial services or any other power-center one can think of would cheerfully use any economic or political influence they can muster, to their advantage. The greatest leverage goes to those with the most money.
What should be done now? Create greater transparency in how money flows in the upper echelons of corporate America. Reduce rather than increase the number of regulatory agencies, but increase their real ability to regulate. Set a limit on investment leverage. Create public finance for political campaigns. Require those holding policy making positions to divest themselves of their investment portfolios…. for life. At the center of what should be done is to craft mechanisms for creating an identity of interest between those of opposite political and economic viewpoints.
Those with a vested interest in the oligarchy will signal their opposition to these measures by fighting them. Others will find them unsatisfactory on philosophical grounds, but they’ll like them better when they see what’s coming down the highway. The decision-makers in the west, in or out of government, have underestimated the magnitude of the anti-corporate, anti-free market, anti-capitalist, and anti-globalist sentiment lurking in the minds of silent masses of people here and around the world. There is growing resentment of the concentration of wealth in an ever-tinier fraction of the population, particularly when they think they’re paying for it.
Who will decide what replaces the World Trade Center? The new state–city-corporation (LMDC) to oversee the redevelopment of Lower Manhattan announced by New York Gov. George Pataki and former Mayor Rudolph Giuliani is a wonderful idea. Only one problem… the World Trade Center site also involves the Governor of New Jersey. In 1998 the Port Authority, apparently tiring of the complexities of the commercial office market, decided to seek master-lease proposals from the private sector and developer Larry Silverstein was successful in acquiring a master lease on the Trade Center buildings while the Trade # 7 site is still controlled by Silverstein Properties. He wants to rebuild the World Trade Center but even an insurance settlement of 3 or 4 billion dollars would not be money enough for redevelopment of office structures at the scale required. Most importantly, could Mr. Silverstein be able to proceed in light of increasing uncertainty, greater cost, greater risk, and a declining market? … oh! .. the master lease requires him to replace the office space.
Even if the Port Authority and Mr. Silverstein don’t achieve success under the master lease, the Port Authority of New York and New Jersey still has title to the land. If they operate within their mandate and authority, and if they don’t sell it, wouldn’t they make the decisions regarding what will be built there? If they wanted to, couldn’t the Authority ignore all the LMDC design studies? Wouldn’t they control the design of the redevelopment, build it, and have title to the eventual development? Would they accept a joint venture partner? What about the master lease, could they void it? But of course all this would be subject to the veto of the two governors…… It all seems pretty complicated.
The tallest trees are growing around the twin springs of Penn and Grand Central Stations. Further growth of Lower Manhattan might be able to use such a spring. The port authority could bring tracks across and combine an AMTRAK terminal with one of their own. The land is open… now is the time. Another sixteen-acre property can’t so easily be assembled in Lower Manhattan making it unlikely there will be another opportunity to do it. It’ hard to imagine a terminal for PA T H alone that would justify the grandiosity now contemplated.
Insurance companies have something to say, they are also major furnishers of permanent financing and will have to reassess the risk/return of their real estate investments. Amortized mortgages could cost more even with some terrorist protection in place. Credit availability may contract. Vastly larger developer credit may be required… new financing arrangements may have to be forged, new private/public partnerships created. The sun may be setting on the private speculative real estate developer.
What to Build: Something should be built promoting global prosperity, The Universal Prosperity Center. A component of anything built at the site must be seen as facilitating the flow of ever more money into ever more hands. The welfare of populations around the world will have to be taken into account because everything is too interconnected to ignore it (witness 9/11). In the long run these populations will become more valuable to us as trading partners than they are now as sources of cheap materials and labor.
What is built at the Trade Center site can influence policy by offering moderately sized exhibition space for the on-going display of goods and products that offer the best prospect of fair and equitable trade. It’s the on-going and continuously changing aspect that is paramount. This space would be leased at cost to the Federal Government for a specific period of time. The government would then offer it free of charge during that period of time to industries they have chosen from around the world to use in the promotion of their wares in our markets. While American labor could hardly be expected to jump for joy at this prospect, it would ultimately work to their advantage as wages equalize worldwide and an expanding market for our products develops. Terrorists who destroyed this development would incur the wrath of emerging economies around the world. Consider it a kind of insurance policy.
The Authority thinks its site is worth a billion and a half dollars. If someone can convince them it is worth, say, a quarter of a billion dollars or less, then we can talk about reestablishing the ‘hood’, dividing the property into its original nineteenth century blocks. Doing that could represent a backward and maybe fatal step. The site should remain a unit. The construction of ‘sensible’ tinfoil and cellophane office envelopes on a succession of small blocks under the present circumstances might actually worsen the situation if they fail to attract interest in a de-urbanizing environment. Close to Wonder-of-the-World status is required if it is to stimulate revitalization of Lower Manhattan and all that implies, as we will see, for the entire country.
Departure of the Exchange In light of recent events, pronouncements of categorical ‘truth’ issuing from officers and directors of major corporations cause everybody to run for cover…………. not the best atmosphere for say, expansion of the New York Stock Exchange. The tragedy is that it’s difficult to differentiate the villains and the heroes. Now apparently it’s not so much a matter of expansion for the exchange as getting out of town. The securities industry is one of those indispensable foundation stones of the cities’ economy the departure of which will signify that a crown-fire is about to breakout in New York City.
Could a bigger and better New York Stock Exchange and The Universal Prosperity Center be combined? The exchange could be an important component of what gets built, it’d be a powerful instrument for attracting financing and even tenants. Beyond that, the World Financial Center is just across West Street.
New Development Organisms Let’s create a hypothetical organism called the Lower Manhattan Development Authority (LMDA) to operate in a specific geographical area, say, everything below Canal Street. LMDA is required to form a joint venture partnership with a private sector partner to undertake individual projects within its area. A prospective joint venture partnership will agree to purchase a property, with or without improvements, each party having an undivided half interest. The private partner benefits from a great (and growing) increase in financial backing. The LMDA benefits from the specialized expertise of its private sector partner. Each joint venture partner from the private sector enters into a master-lease agreement with the partnership for occupancy of its businesses in the buildings, and/or for sub-lease of space in them.
Let’s pretend that the NYSE is offered a joint venture partnership with LMDP, each party having an undivided half interest in the redevelopment of the site. The Port Authority is approached to separate out the portion of the land that approximates what is now allocated for office buildings. If the Port Authority contributes the land and would split the private portion of the equity with the NYSE, they’d have a 25% partnership in the completed development. The development partnership would have the construction expertise of the Port Authority and the NYSE as an occupant along with all the tenants it could attract. As a 25% owner of the completed development the NYSE would have 25% of the equity in the development, plus 25% of the cash flow.
On the other hand, Silverstein Properties might be in a position to become an equity partner with LMDP on the office building part of Ground Zero site, if the Port Authority could make that land available to them.
The Prosperity Center fund is established to receive partnership income from LMDP that it’s receiving from its developments. This is an un-managed fund that tracks the equity and debt markets of the country as a unit. It holds all the securities listed on all the major exchanges in proportion to their capitalized values. When the PC Fund becomes self sustaining, its income and value will benefit the establishment future LMDA partnerships. Since its geographical area lies wholly within the city of New York, the city has sole control over its creation and mandate. This puts control in the hands of the mayor and city council. Within the mandate established by the city and its planning department LMDA has sole authority to plan, design, let contracts, construct, operate and maintain joint venture projects, and to act in any way within law it sees fit to further its objectives. Each joint venture project it enters into is a piece of the evolving puzzle for Lower Manhattan. Evenly divided equity between the joint venture partners puts the last word in the hands of the cities’ democratically elected officials.
Any individual, business or institution may expand, develop or redevelop within the LMDA area without LMDA involvement, but in our changing economic environment, they may find it difficult or impossible to secure financing and insurance, and find it difficult to compete. In any case they will have to conform to the requirements of LMDA for any such development. The partners of each joint venture partnership have an undivided half interest in its land and improvements only, but not in the operations of private partners.
If a partnership violates the terms of the partnership agreement, or for any reason becomes unprofitable, LMDA will have authority to attempt to rectify the problem, or with the city, to liquidate the partnerships’ real property. But in no case will LMDA have the power to gain sole ownership of the partnerships’ real property. When LMDA becomes self-sustaining it will cease receiving benefits from the PC Trust and will begin making payments in lieu of taxes to the PC Trust based on the value of its current equity in partnership developments. The PC Trust is then available for the backing of the next development authority
What’s in it for the city? When all the development authorities that are useful for the city are established, the PC Trust will have grown to substantial size and will continue to grow as the various development authorities pay into it. At this point all the benefits derived from its securities investments are paid directly into the cities’ general fund. The benefit to the NYSE is more than obvious.
Broader Implications: We are in danger of an adiabatic firestorm breaking out in our economic and cultural foundations. The increasing population density of the United States is taxing the underlying institutions established by the founding fathers. At the same time individual enterprise, competition and innovation must be preserved and encouraged. An entity like the development authority I have outlined has the distinct long-term advantage of preventing either the private or the public sector from gaining dominance while giving each party a powerful interest in the success of the other.
Why would anyone run for public office in an environment like this? The people we want to attract to public service are those willing to commit the balance of their lives in one capacity or another to the welfare of the population as a whole. As for their personal welfare, we want to attract people who are excited at the prospect of investing their personal assets in the entire economy of the United States as a unit. An unmanaged fund, along the lines of the Prosperity Center Trust ( PC Trust), let’s cal it the Universal Prosperity Trust (UP Trust), is created to invest in securities issued by all the businesses listed on all exchanges in the United States in proportion to the various capitalized values. Dividend and interest income from UP Trust investments is distributed to the shareholders as their interests appear. Anyone entering public service in a policymaking capacity would have a great incentive to act for the benefit of all citizens if they had their assets invested in UP Trust shares. The public and all government units are free to invest, a reality that broadens their incentive to work for the general welfare of the nation. PC Trusts would continue to operate for the benefit of the individual cities where they are set up. The net effect of this would be a huge (and safe) increase in the velocity of capital flowing through the system, with obvious benefit to the exchanges.
While creation of the organisms outlined here could be accomplished by other means, some kind of collaboration between the Port Authority, the LMDP and the NYSE could accelerate the process. Such a partnership could serve as a catalyst for the construction of a critical-mass development that would ignite interest in the further development of lower Manhattan and perhaps help build a bridge to the future.
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