Showing posts with label New York State. Show all posts
Showing posts with label New York State. Show all posts

Wednesday, November 29, 2017

Suffolk County DA Used $3.3 Million In Asset Forfeitures To Fund Massive Public Employee "Bonuses"

Just over a month ago we wrote about the curious case of Frank Ranelli of Alabama and the growing problem of asset forfeitures all across the United States.  Ranelli, who owned a local computer repair shop in Ensley, Alabama, showed up to work one day in 2010 only to later be raided by local police who proceeded to confiscate thousands of dollars worth of assets.  Nothing ever came of the case and despite no official charges and no jury trial, Ranelli, after 7 years of effort, has been completely unsuccessful in recovering the assets that officers took from his business.








The morning of June 29, 2010, began much like any other day for Frank Ranelli, the owner of FAR Computers in Ensley, Alabama. Ranelli, who had owned his computer repair business just outside of Birmingham for more than two decades, was doing some paperwork in his windowless office when he heard loud banging on the front door.  Within a matter of moments Ranelli was placed under arrest and all of the computer equipment in his store, much of which belonged to customers, had been confiscated by Alabama police never to be returned.


 


Within moments, a Homewood police sergeant had declared a room full of customers" computers, merchandise and other items "stolen goods," Ranelli recalled. He ordered his officers to "arrest them all," according to Ranelli, who was cuffed and taken to the Homewood jail along with two of his shop employees.


 


The police proceeded to confiscate more than 130 computers - most of which were customers" units waiting to be repaired, though some were for sale - as well as the company"s business servers and workstations and even receipts and checkbooks.


 


"Here I was, a man, owned this business, been coming to work every day like a good old guy for 23 years, and I show up at work that morning - I was in here doing my books from the day before - and the police just f***ed my life," he said.



Now, new revelations from the Suffolk County District Attorney"s office illustrate precisely why asset forfeitures, and all the inherent conflicts of interest therein, are suddenly becoming a hot topic of debate all across the country.  According to records obtained by Newsday from Suffolk County Comptroller John Kennedy, former DA Thomas Spota doled out a staggering $3.25 million - $550,000 more than originally reported - in "bonuses" to public prosecutors, from a pool of seized assets, without a single legislative approval.








Newly disclosed records show Suffolk district attorney employees have received $3.25 million in bonuses since 2012 — $550,000 more than reported previously — as county lawmakers prepare for a hearing Tuesday on a bill to tighten legislative control over how proceeds from seized criminal assets are spent.


 


Bonus recipients included deputy chief homicide prosecutor Robert Biancavilla, who received a total of $108,886 between 2012 and 2017, and division chief Edward Heilig and top public corruption prosecutor Christopher McPartland, who each received $73,000, according to records obtained from county Comptroller John Kennedy’s office through the Freedom of Information Law.


 


The bonuses, which were funded from assets seized in criminal cases by the district attorney’s office, did not receive legislative approval. The original figure of $2.7 million came from documents provided by County Executive Steve Bellone’s office, which only included bonuses for top management employees.


 


“Asset forfeiture money that comes into this county counts into the millions of dollars,” Calarco said. “That’s a lot of money to be spent at the sole discretion of an individual with no oversight.”



Spota


Meanwhile, according to PIX11, these new revelations of potentially misrepresented bonus payments come after the former DA was forced to resign his post just a few weeks ago upon being accused of obstructing an FBI investigation that led to the conviction of former county Police Chief James Burke.








Suffolk County District Attorney Thomas Spota, who was indicted on charges that he helped cover up the beating of a handcuffed prisoner by a police chief, says he will step down from his post.


 


“I will be leaving my post as district attorney at the earliest opportunity after the resolution of normal administrative matters relating to my retirement,” Spota said in a statement released by his office Thursday. “The governor will be notified of my decision today. The Chief Assistant District Attorney, Emily Constant, will thereafter assume my duties and responsibilities.”


 


He said he has notified Democratic Gov. Andrew Cuomo of his decision.


 


Spota, a Democrat, and the chief of his anti-corruption bureau, Christopher McPartland, are accused of obstructing an FBI investigation that led to the conviction of former county Police Chief James Burke.


 


Both pleaded not guilty at their arraignment Wednesday in federal court on Long Island.



But sure, elected officials are inherently trustworthy enough to work with local police to confiscate millions of dollars in cash and then unilaterally disburse those funds in a judicious manner...why would anyone think such a system would ever go awry?









Saturday, October 28, 2017

Nobody"s Buying Hamptons Mega-Mansions Because "Small Is The New Big"

Any realtor worth their salt will tell you, when it comes to the home-buying habits of wealthy hedgies and bankers, gaudy McMansions and sprawling estates are so last season.


Or, as they say in Greenwich: “Small is the new big."



Owners of large homes in tony Hamptons neighborhoods hoping to cash in on a frothy housing market before the inevitable rise in mortgage rates will be disappointed to learn that the trend of buyers favoring lower-priced homes continued in the third quarter, according to the latest Douglas Elliman Real-Estate Report. This left the high end of the market in a double-bind as supplies of new homes hit the market while sales tapered off...


Purchasers agreed to pay more than the asking price in 10 percent of deals for properties under $3.3 million -- this quarter’s definition of “non-luxury” homes, making up the bottom 90 percent of the market, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. It was the biggest share of transactions with bidding wars since the firms began tracking the data in the second quarter of 2016.


 


In their zeal for lower-end deals, buyers snapped up condos as well. Those units -- with a median sale price of $567,500 -- were available for just 97 days on average before going under contract, the fastest clip in six years of record-keeping. On the high-end, buyers showed less interest in acquiring luxury homes than sellers did in listing them. Inventory in that top 10 percent of the market jumped 22 percent, the biggest pile-up in two years.


 


“The market is looking towards those smaller, more manageable homes,” said Carl Benincasa, a regional vice president at Douglas Elliman who oversees sales in the Hamptons. “That’s certainly been a trend we’ve been observing.”



Bloomberg, which obtained an advance copy of the report, noted that the Hamptons housing market often parallels performance in the financial industry, seeing as many buyers of luxury homes out east are wealthy finance types.



With markets at record highs, the Hamptons housing market is doing reasonably well - but buyers’ unwillingness to snap up the most expensive homes in a way mirrors the trepidation surrounding stretched stock valuations and record low volatility.


With stocks at record highs, people are in a buying mood in the Hamptons. The beachside towns on Eastern Long Island, whose fortunes are closely linked to the performance of the financial industry, had 517 total sales in the three months through September -- or 12 percent more than the 10-year quarterly average, Miller Samuel and Douglas Elliman said. Even with all that buying, inventory declined only in the non-luxury category, with listings dropping 10 percent from a year earlier to 1,143.


 


Deals for less than $500,000 fell 12 percent to 57 -- because there weren’t many such properties available, Town & Country Real Estate said in its report on Hamptons. But sales of homes priced between $500,000 and $999,000 jumped 22 percent to 131, and those between $1 million and $1.99 million climbed 12 percent to 76, the brokerage said.



One realtor noted that inventory is thinnest in the under-$1 million category, which has forced some buyers to the next rung of the market.


“When you look at the inventory under a million, that’s the largest shortage, so buyers stepped up to the next level of the market,” said Ernest Cervi, a senior vice president at Corcoran Group, which released its own report Thursday.



One couple recounted their struggle finding a new home in the Hamptons for under $1 million after selling their old home for $1.4 million.


For Brian DeSesa, it was much easier to sell his under-$2 million home than it was to buy one in that price tier. Sensing the market demand for lower-cost properties, he and his wife listed their three-bedroom Sag Harbor Village house in June at $1.45 million. It went into contract in July, to a buyer offering $1.35 million but willing to pay all cash and close within 14 days, said Jessica von Hagn, the Brown Harris Stevens broker who marketed the property.


 


Then came the hard part: finding a new house in the area for less than $1 million. The couple bid on at least three such properties, offering the asking price each time and getting outbid within hours, said DeSesa, 36, a land-use attorney with the Adam Miller Group in


 


Bridgehampton. On the next try, they offered the $795,000 asking price on a ranch-style home -- and then, in a second round of bidding, offered $860,000, which won them the deal.


 


“It’s pure competition,” von Hagn said. “At the $1 million mark, you’re competing with year-rounders trying to live out there, you’re competing with builders who are going to tear it down, and you’re competing with flippers.”



To be sure, there were still some ultra-luxury deals in the quarter, including two for more than $20 million, the same as a year earlier, Bloomberg reported. Purchases between $5 million and $9.99 million plummeted 56 percent to just 11. Sales were up 30 percent in Bridgehampton, with six deals over $10 million, but plunged 29 percent in the Sag Harbor area, where none of the 17 transactions were for more than $5 million.


Of course, as we noted last quarter, “smaller” in the Hamptons is purely relative, because apparently there’s nothing more modest among today’s Hamptons set than trading a 13,000 square-foot home for an 8,000 square-foot home.
 









Saturday, October 21, 2017

Shkreli Lawyer Distances Himself From "Most Hated Man In America" As Trial Begins

While former Turing Pharmaceuticals CEO Martin Shkreli languishes inside a federal jail in Brooklyn, the trial of his former attorney - and alleged co-conspirator - Evan Greebel is just beginning, with the defense and prosecution giving opening statements Friday.


The timing is unfortunate. Shrekli’s trial - which ended in him being convicted of three out of eight counts of fraud - briefly revived the public rancor over his many misdeeds. Given Shkreli’s toxic public image, it comes as no surprise that Greebel’s lawyers are already seeking to distance their client - who was arrested on the same day as Shkreli and whose picture was splashed across cable news networks alongside Shkreli’s - from the disgraced pharma executive, who was jailed last month after a judge revoked his bail following a series of controversial and vaguely threatening Facebook posts, Bloomberg reported.


As many will remember, Shkreli’s comfortable life as a successful young pharmaceutical CEO began to unravel in September 2015 when the New York Times reported that Turing had hiked the price of a life-saving toxoplasmosis drug by 5,000%, thrusting Shkreli into an uncomfortable public spotlight and drawing a public rebuke from Hillary Clinton, then presumed to be the next president of the United States.



Following his indictment, Shkreli seemingly set out to destroy any lingering public sympathy by antagonizing the federal government and harassing female journalists - actions that ultimately led to his jailing. Prosecutors have accused Greebel of helping Shkreli steal $11 million from Retrophin, a pharmaceutical company Shkreli founded and ran before being forced out in 2014. Greebel was terminated as Retrophin’s counsel soon after.


Shkreli allegedly used the money, along with Retrophin stock, to repay investors in two failed hedge funds by signing them on to sham consulting agreements with salaries and stock grants. Greebel is also accused of helping Shkreli manipulate the price of Retrophin stock.


Fortunately for Greebel’s defense team, their client has a somewhat more resepectable public image than his associate. He has a family and was once a partner at Katten Muchin Rosenman LLP and Kaye Scholer LLP. They’re essentially trying to sell a narrative of him being a quiet family man who got in over his head.


In opening statements on Friday, Greebel’s lawyer told jurors that the 44-year-old father of three and Shkreli, a former biotech executive notorious for aggressive drug-pricing tactics, were as "different as two people can be." Greebel was by no means Shkreli’s "right-hand man," defense lawyer Reed Brodsky told jurors at the trial in Brooklyn, New York.


 


Greebel “lived a quiet life,” Brodsky said, while Shkreli was "cultivating this public personality and persona, blogging and tweeting.”


 


It’s no mystery why Greebel, a former corporate lawyer, would want to separate himself from Shkreli, who is in jail after his conviction for lying to hedge fund investors (although jurors weren’t told about that). Greebel wants to show that Shkreli lied to him as well, and that Greebel had no reason to believe he was being asked to do anything wrong.


 


"Mr. Shkreli is kind of a contradiction," Brodsky said, arguing that Shkreli managed to con people with his "image" of success, brilliant ideas and "photographic memory."



Meanwhile, prosecutors allege he knowingly helped Shkreli loot his company and manipulate its share price for profit.


In the government’s opening statement, Assistant U.S. Attorney David Kessler said Greebel started working for Shkreli’s companies around 2011 and used his legal talents to aid Shkreli’s fraud. Kessler said Greebel wanted to please Shkreli to make millions of dollars in fees for his firm.


 


"Agreeing to help the CEO of a company steal from the company is a crime," Kessler said. "Agreeing to help illegally control the stock market is a crime."



As Bloomberg noted, Greebel’s demeanor in court couldn’t have differed more from Shkreli’s. He sat quietly by his defense team, smiling briefly but otherwise remaining expressionless.


Meanwhile, Shkreli’s was on the receiving end of more bad news this week when a Brooklyn judge refused to return his $5 million bond, saying the money might be needed to offset any monetary penalties that may be levied against Shkreli, the New York Post reported.


Shkreli’s lawyer Ben Brafman asked her to release the money so his client — No. 14 on New York state’s list of top delinquent taxpayers — can start paying taxes.
 









Thursday, October 12, 2017

FBI Reportedly Investigating Harvey Weinstein

The FBI has opened an investigation into Harvey Weinstein for alleged sex crimes, the DailyMail reported on Wednesday evening, a move that reportedly came at the behest of the DOJ which instructed the bureau to investigate the mounting allegations leveled at the movie mogul. The move comes amid rumors that Weinstein plans to head to Europe for sex rehab – leading to fears that Weinstein could attempt to pull a "Roman Polanski" where he lands in some non-extradition country in Europe to dodge U.S. prosecution.





The FBI can both look at whether he has committed any federal crimes in the U.S. and prepare extradition proceedings if he remains in Europe.



The Mail writes that while it is unknown whether the DOJ order came directly from Attorney General Jeff Sessions, the probe will likely be seen in a political light given Weinstein"s friendship with Trump foe Hillary Clinton. Additionally, it is not yet known if Sessions gave the direct order or if Trump requested the investigation, however the president has previously said he wasn"t surprised by the sexual harassment and assault claims made against Weinstein.





Trump said shortly after news of the shock report on Thursday: "I"ve known him for years. I"m not surprised."



Among the allegations against Weinstein, which the FBI is expected to examine, is that he forced Lucia Evans, a student who wanted to be an actress, to perform oral sex on him in New York in 2004. And since New York State has no statute of limitations on rape and criminal sexual acts - its legal term for forced oral or anal intercourse - Weinstein may be out of luck if Evans, or any other number of women who have stepped up in recent days, decides to press charges.


Ironically, even escaping to Europe may not help the scandalous former movie exec: So far five accusers have given accounts of attacks in France, while allegations of attacks in London have also surfaced – any of which could lead to charges there. Additionally, the FBI has field offices in both countries and could assist prosecutors there with their cases.



Weinstein was a big donor for Hillary Clinton, who kept silent for five days after the accusations emerged, before finally denouncing her longtime friend in a statement on Tuesday;





"I was shocked and appalled by the revelations about Harvey Weinstein. The behavior described by women coming forward cannot be tolerated. Their courage and the support of others is critical in helping to stop this kind of behavior."



She has, however, remained silent on the crucial issue of the vast amount of cash Weinstein donated directly to her and her family.  The move by the DOJ comes as it emerged the movie mogul has taken on top criminal defense lawyers Blair Berk and David Chesnoff. Berk has represented A-listers like, Mel Gibson, Johnny Depp, Britney Spears, Kiefer Sutherland, and Lindsay Lohan, while Chesnoff’s clients have included Vince Neil, Bruno Mars, Paris Hilton, Leonardo DiCaprio and the family of Michael Jackson.   The pair will join his expanding legal team following an article in the New Yorker, which alleged three women were sexually assaulted by him.


Up to 30 women have now come forward to make allegations of sexual misconduct

Tuesday, August 15, 2017

How to Get Saudi Women Rights, and Make Your Neighbor Paint his House

Via The Daily Bell


If you get government wrong, you get everything wrong.


New York City has a lot of wealth. There is infrastructure, skyscrapers, smart people, transportation, and so on.


But what would happen if North Korea took over the city tomorrow? Would all that wealth simply remain in place? Would everyone just go on with their lives?


Of course not. People would flee in droves, the city would crumble.


Tom Bell says that 44% of the wealth in the world is the rule of law. Clearly, there are plenty of gripes to be had with the governments of New York City, New York State, and the United States. But even governments which mix statutory and common law can provide a decent arena where businesses and individuals can flourish.


Of course, we should always want to improve our circumstances. Since 44% of the wealth of the world comes down to how good the government is, this is the most important area to improve.


We could continue voting, volunteering on political campaigns, and calling our representatives. But speaking from personal experience, this doesn’t seem to make much difference.


But we have another choice right under our noses. It is already in practice in homeowners associations. Some people choose to voluntarily submit to a neighborhood wide private governing structure.


Maybe you can’t bear the thought of living next to a neighbor with chipping paint on his house. You, therefore, agree that you will keep your home’s paint fresh, knowing that your neighbor signed the same agreement. The consequences for failing to hold up your side of the bargain are clearly stated in the contract you sign.


This same privatized rule of law is expanding beyond neighborhoods.


Improving Terrible Governments


Tom Bell is a law professor who spoke at the Startup Societies and D10e conference this past weekend in San Francisco.


Tom has a book coming out called Your Next Government? From the Nation State to Stateless Nations. Here’s what he has said in the past about what your next government might look like:



Your next government might thus resemble a city-sized corporation, with you and other residents buying shares, electing the board of directors, and so forth. Think of it as residential co-op, upgraded for the big leagues…


In double democracy, owners manage the community on a one share/vote basis while residents enjoy the power to veto select laws or officers on a one person/vote basis. Owners construct; residents correct. Double democracy provides a structural safeguard against offensive governments without opening the door to mob rule. Both shareholders’ property rights and residents’ individual rights get represented in double democracy.



By privatizing the rule of law, you can get a much better product. Remember that the rule of law accounts for 44% of the wealth of the world, according to Bell.


Even places as repressive as Saudi Arabia, therefore, have some incentive to let go, in order to create more wealth in their jurisdictions. The country set up a special economic zone called KAEC City (King Abdullah Economic City). The city is administered by a publicly traded private company called Emaar Economic City.


And if you are a woman in Saudi Arabia, this is where you want to be. The oppressive police forces of the Saudi government are not present.


The city was designed with tourists and young Saudi’s in mind. The majority of the hundreds of thousands of Saudi’s studying abroad are women. Neither they nor tourists have an appetite for the oppressive laws against women which stain the rest of the country.


So there is a continuum here on what can be accomplished by neighborhood associations and private cities. Some people want to make sure their neighbor cuts his grass, and some people want to not be whipped for driving cars and showing their face.


When governing is done by consent, this is all possible, and everything in between.


Why Would Governments Allow it?


You would think governments would feel vulnerable at the thought of private governing structures competing with their power. And surely many do. But there are also incentives to letting go of control.


Cash strapped governments are happy to let private companies pay for the infrastructure which would otherwise have to come out of the public coffer. So a government can preside over a beautiful new city or neighborhood, reap the economic benefits, and not have to pay a dime.


And then there is the proper strategy for anyone attempting to start a special economic zone or private city. To get a law passed–or repealed–across an entire country, you need to appeal to countless politicians, bureaucrats, and special interest groups.


It sounds less scary to politicians and voters when you can say, “Look, we don’t want to change things everywhere. We just want this one little piece of land to have different rules.”


From my perspective, this is the camel’s nose under the tent strategy. Before governments know what hit them, the whole world will be privatized. People will see the success of private governance, special economic zones, and government by consent. Then they will clamor to create their own mini society, or move to their favorite one.


That 44% of the Earth’s wealth, the rule of law, cannot be stolen. But it can be created. And under those conditions, a new world is forming.

Monday, August 7, 2017

NYC Mayor de Blasio Readies "Millionaires Tax" To Fix Subway

The New York City"s transportation system is in trouble. Delays have skyrocketed on the century-old subway system, and several recent accidents have raised safety concerns. Joseph J. Lhota, chairman of The Metropolitan Transportation Authority, has called upon the mayor to provide more money to fix the system, recently outlining a roughly $800 million emergency rescue plan with a sweeping set of fixes that he vowed would turn around steadily deteriorating service.





“We’re here because the New York City subway system no doubt is in distress, and we’re here looking for solutions,” Mr. Lhota said during a news conference at the authority’s headquarters in Lower Manhattan.



Well, it appears Mr Lhota is about to have his wish come true courtesy of "the rich" once again.



Mayor Bill de Blasio plans to push for a tax on wealthy New Yorkers to pay for improvements needed to address the crisis, according to a report from The NY Times.





Mr. de Blasio will announce a so-called millionaires tax on Monday for wealthy New York City residents to pay for subway and bus upgrades.



The proposal also includes funding to offer half-price MetroCards for low-income riders — part of a national movement that is gaining momentum in New York.



“Rather than sending the bill to working families and subway and bus riders already feeling the pressure of rising fares and bad service, we are asking the wealthiest in our city to chip in a little extra to help move our transit system into the 21st century,” Mr. de Blasio said in a statement.



Of course - de Blasio faces an uphill battle for his populist plan to soak the rich just a "little" bit more...





The tax changes would require approval from state lawmakers in Albany - a difficult task, with Republicans in control of the Senate, though the urgency of the subway’s decline has raised the stakes and captured the attention of both parties.



The mayor’s proposal builds on an effort by State Senator Michael Gianaris, Democrat of Queens, to tax the wealthy to support the subway, and a campaign by transit advocates to establish reduced fares for poor residents after a successful program in Seattle.





“I would argue that the M.T.A. is in a full-blown crisis and that would justify our return to Albany to enact this measure in an emergency session,” Mr. Gianaris said.



The new tax would raise about $700 million to $800 million a year, with more than $500 million going toward capital costs for subways and buses and about $250 million for the half-price MetroCard program, city officials said. It would increase the city’s highest income tax rate by about 0.5 percent, to 4.4 percent from about 3.9 percent, for married couples with incomes above $1 million and individuals who make more than $500,000.


City officials estimate that the tax would be paid by about 32,000 New York City tax filers, or less than 1 percent of those who file their taxes in the city. New Yorkers already contribute to the authority through various taxes and fees, and the city has committed $2.5 billion for the agency’s current capital improvement plan.



Anyone else see "the broken subway fallacy" at work here? Still doesn"t matter, the "rich" can afford it right? It"s only "fair",,,

Sunday, July 23, 2017

Fight: NYC and New York State Should Get Divorced

Via The Daily Bell


Conflicts are inevitable when a city wide government is also beholden to a larger state. In the United States, it is even worse. Local, state, and federal governments claim control of the same land–not to mention individual land owners.


Sometimes the smaller governments want to be left alone and fight for control over their own affairs. But other times they think the larger government should pay for things which only benefit the small locality. They seem to argue, well if we are subjects of their government we might as well get some benefit out of it.


The other day I wrote about how city governments are primed to compete for residents.


China ruins the opportunity for cities under its control to compete for foreign residents. The country implements draconian internet laws across the board, which individual cities or districts cannot nix. The larger government ruins the opportunity for smaller governments to improve.


But what about when the opposite happens?


Cities Control the State


New York State runs the MTA (Mass Transit Authority) which includes the subways in New York City. New York City leases the subways from the MTA and must fund improvements and repairs.


With two sentences of information, anyone can see that there would be no problems if the City and State were not involved in this “partnership.” But since they are, NYC thinks the State should pay for repairs to its crumbling subway infrastructure. The State, you guessed it, thinks the city should pay for it.


Lately, subways have been leaving passengers stranded, getting stuck, breaking down, and arriving late. This is due to a combination of old equipment that breaks, and the highest number of people ever trying to use the subway system.


Each side bolsters their argument by pointing to different pieces of legislation implemented before either Mayor Di Blasio or Governor Cuomo were born.


New York City is home to over 40% of the residents of New York State. On the one hand, 8.5 million city dwellers want 11.25 million other New Yorkers to help pay to fix a public transportation system that they may never use.


On the other hand, those residents of NYC contribute to the state budget as well. The state spending to benefit 40% of the population certainly not the most ridiculous proposition.


You could spend countless hours debating who should pay for what. Then you could listen to an equal number of complaints about which people were exploited in the end, and who walked away fat and happy.


The conflict would never have existed if New York City were independent of New York State. There would be no issue if two different governments did not claim the same jurisdiction, tax the same citizens, and have overlapping and unclear responsibilities for government functions.


Why Are They Grouped Together?


If you include Long Island as part of New York City, then it contains 60% of New York’s population. This means the greater New York City area controls the state government in every election.


If you live outside of New York City of Long Island, you basically have no say in any state wide election. Your local representatives will likewise always be the minority in the state house.


I can’t imagine how terrible it must be to live on a 20-acre farm in upstate New York. Citizens of NYC are voting from the perspective of living with 27,000 people within a square mile. Cities will naturally have more restrictive laws simply based on the high number of people attempting to live in concert.


And if you live in Hamilton County New York, you might have three neighbors within a mile from your home. You live 230 miles from New York City.


Drive over four hours, if you are lucky enough to not hit traffic, and arrive in NYC. 60% of the people who decide the laws you live by dwell here and on Long Island.


Who exactly does this relationship work out for? It doesn’t make any sense for the people of New York City, nor for the people of the rest of New York. You could debate who comes out on top based on where the money flows, or who has a true say in governing. But at the end of the debate, you will have a lot of angry, bitter citizens.


If government is to improve, the future will be marked by decentralization of government. Unifying ever larger territories will only cause disagreements and strife.

Friday, July 21, 2017

Government "Flabbergasted" After Elon Musk's Most Bizarre Claim Yet

Elon Musk set the interwebs ablaze this morning when he tweeted out that he somehow got every major city on the eastern seaboard to "verbally approve" a "NY-Phil-Balt-DC Hyperloop" to be built by his Boring Company.





"Just received verbal govt approval for The Boring Company to build an underground NY-Phil-Balt-DC Hyperloop. NY-DC in 29 mins."



"City center to city center in each case, with up to a dozen or more entry/exit elevators in each city."



"Still a lot of work needed to receive formal approval, but am optimistic that will occur rapidly."



"If you want this to happen fast, please let your local & federal elected representatives know. Makes a big difference if they hear from you."






Of course, if you"re like us, the first question that came to mind after reading those tweets is whether Musk is really just that naive, if he thinks we"re all really just that dumb or if he"s just gone completely batshit crazy...mix of all three?


Now, we don"t have a Masters in Government from Harvard, but we"re almost certain there is no such thing as a "verbal agreement" when it comes to massive public projects that span multiple states and cost billions, if not trillions, of taxpayer dollars.  And while Musk may be permitted to unilaterally make decisions to burn through hundreds of millions of dollars worth of shareholder money at Tesla, municipalities are specifically designed to prevent granting such powers to individuals when it comes to blowing through taxpayer funds.


Not surprisingly, it didn"t take long before various "government" officials took to twitter to point out that they hadn"t the faintest clue what Musk was even talking about...


New York City"s mayoral press secretary apparently wasn"t in the loop...




Meanwhile, the Metropolitan Transportation Authority (MTA) in New York didn"t even know who Elon Musk was...which is not a good sign for that "verbal agreement" getting converted to a "contractual" agreement at any point in the near future.



But, it wasn"t just New York City that was flabbergasted by Musk"s announcement as government officials from NYC to Washington D.C., and everywhere between, were forced to spend their entire day laughing off calls from anxious reporters about his imaginary project.  Per The Guardian:





“Who gave him permission to do that?” asked a spokesman with the Maryland department of transportation.



“Elon Musk has had no contact with Philadelphia officials on this matter,” said Mike Dunn, the city spokesman. “We do not know what he means when he says he received ‘verbal government approval’. There are numerous hurdles for this unproven ‘hyperloop’ technology before it can become reality.”



A spokesperson for the state of Pennsylvania confirmed that neither the governor nor the state’s department of transportation had been contacted by Musk or his company.



Ben Sarle, a spokesman for the New York City mayor’s office, said in an email: “Nobody in City Hall, or any of our city agencies, has heard from Mr Musk or any representatives of his company.”



“The New York state department of transportation did not give verbal approval for a hyperloop,” said spokeswoman Jennifer Post.



Anthony McCarthy, the spokesman for the Baltimore mayor, Catherine Pugh, said: “Mr Musk’s announcement on Twitter was the first that the city heard of the Hyperloop project. ” However, Pugh said in a statement that she was “excited” to hear about the idea, which could “create new opportunities for Baltimore and transform the way we link to neighboring cities” – if it becomes a reality.



Similarly, LaToya Foster, the spokeswoman for Washington DC mayor Muriel Bowser, said: “This is the first we heard of it . We can’t wait to hear more.”



Does anyone else feel like they"ve seen this proposal somewhere before?


Friday, June 30, 2017

It's Not Just Illinois: Connecticut Faces Friday Day Of Reckoning

With Illinois facing a Friday night deadline by which it has to come up with its first fiscal budget in three years or face a downgrade to junk resulting in what a policymaker called a "death spiral", another mini drama is taking place in Connecticut, which is also facing big budget problems as wealthy residents, hedge funds and major corporations flee the state"s high taxes and its fiscal future gets murkier by the day.


Just today, we reported that Aetna, the insurance giant founded in Hartford where it has been for the past 164 years, announced it would move its headquarters to New York City despite intensive lobbying efforts by Connecticut officials. The move, which followed a departure by GE of its Fairfield HQ of 40 years, is a blow to the company’s hometown, which is facing severe financial problems. Hartford"s problems are a representation of the troubles facing the entire state: while Illinois" story is familiar, Connecticut has the distinction of the third-worst ratings in the country, only behind Illinois and New Jersey after S&P, Moody"s and Fitch all downgraded the state last month in what officials described as a "call to action" for state leaders.


“We’ve been downgraded by everybody in the last six months, and in the last year two or three times,” Senate Republican President Len Fasano said cited by Fox news. “If we don’t pass a budget, I think we will see a further downward spiral.”


And, just like Illinois (and 14 other states), Connecticut faces a Friday day of reckoning: the state has yet to pass a fiscal 2018 budget by the June 30 deadline.


“We must immediately take the necessary steps to mitigate the current year deficit and then balance the ... budget with recurring measures to reduce spending and structural solutions to our long-term problems,” a spokesperson for the Connecticut Office of Policy and Management said in response to Moody’s downgrade.


It"s not just the rating, however.


Connecticut’s deficit has reached $5 billion, and according to an analysis by Pew, the state only has $240 million in its "rainy day fund"; just five states have a smaller cushion. Much of the financial troubles are tied to the state’s pension system, which two-term Democratic Gov. Daniel Malloy’s office is seeking to address with a new plan to save the state $24 billion in “coming years.” One solution offered by Malloy is to require new state employees to be covered under a new hybrid pension system. The agreement, which Malloy’s office made with the state union, is tentative and awaiting legislative approval.


“Connecticut can and will adopt a responsible, balanced budget for the coming biennium—the question is how best to handle our finances until that happens,” Malloy said. He offered a short-term “mini-budget” to allow “more time to negotiate a full budget, without making our current problems any worse and without further jeopardizing the state’s bond rating.”


But, like in Illinois, Republican Fasano told Fox News the governor’s budget is not seeing support on “either side of the aisle.” “His proposal decimates municipalities, social services and has no support, so we did our own budget,” Fasano said. “He has really shown the propensity of turning this state in a very negative direction.”


What makes things even more complicated is the even split in the State Senate:





Fasano serves as the State Senate’s Republican president in conjunction with the Democratic president. This is a special situation, as for the first time in decades, the State Senate is split evenly in the historically blue state.



“We are tied, 18-18, and that’s making it more difficult because the Democrats can no longer plow across the finish line a progressive agenda, fiscally speaking—so they can’t figure out what to do,” Fasano said. “Senate Republicans are the only ones with a line-by-line, detailed and balanced budget.”



Fasano claimed the budget put forth by Senate Republicans changes taxes and includes structural provisions that would help keep businesses in the state, although if Aetna is any indication, it"s not nearly enough.


“We are doing things to try to attract people to stay here as best we can, given the fact that we have a $5 billion deficit,” Fasano said. “If we do not pass a budget by June 30, we have sent a message, I think to everyone, that we have no idea what we’re doing, and that is not going to give [comfort] to people to buy or stay here.”


Those who have already left the state, mostly affluent hedge fund managers who have migrated to Florida, already got the message.


And while Aetna"s depature was a hit to the state, the state capital Hartford has been struggling with a financial quagmire of its own, even as we reported in early May, meeting last month to discuss the option of filing bankruptcy. “We know that now more than ever, we are in competition across all industries –not just with Massachusetts or New York state, but more specifically with Boston and New York City,” Malloy said last month.


Another problem is the fundamental deterioration in the state"s economy.





Connecticut’s unemployment rate rose to 4.9 percent in April, up from 4.5 percent in January. “Keeping those employees in Connecticut is far more important than where Aetna plants its corporate flag,” Malloy said. Malloy is looking to boost jobs with the approval this week to begin construction on the state’s third casino.



The Democratic governor remains optimistic, however, and his office told Fox News that companies like Xerox, Sikorsky, and Vineyard Vines, among others, have committed to the state over the last two years. But Fasano said he spoke with GE executives before they left and they cited state financial issues.


“They said Connecticut continues to tax at rates that make it unaffordable for businesses, people to stay here and didn’t see what Connecticut looked like seven or eight years from now,” he said. “... That’s the same analysis I’ve heard from a number of businesses as to why they’re leaving. The progressive agenda this governor put forth is now coming home to roost.”


* * *


So will CT pass a state budget? There was some 11th hour hope on Thursday, when AP reported that Connecticut House Democrats said they"ve come up with a two-year budget proposal that could be ready for a vote on July 18. The last minute $40 billion two-year plan would increase the state"s 6.35% sales tax to 6.99% to help maintain funding to cities and towns. It would also provide municipalities with additional ways to generate local revenue and restore the local property tax credit against the personal income tax.


The proposal was being offered up Thursday as lawmakers grappled over whether to pass Democratic Gov. Dannel P. Malloy"s three-month, stop-gap budget before the fiscal year ends on Friday. Malloy says it will be less draconian than having him run state government using his limited executive authority.


And, of course, there"s disagreement, about whether to vote on the mini budget. If the disagreement is not overcome by Friday, Connecticut could soon be in the same financial straits as Illinois.


Incidentally, the muni bond market - with its usual glacial delay - finally noticed that not all is well, and today yields on AAA-rated 10-year muni bonds rose 7 basis points to close at 1.95% , the biggest one day absolute increase since Dec. 15. There was a similar move for 5-year muni bonds which rose 5bps on the day to end at 1.34% now up 10 bps week-to-date, also the largest day-over-day move since December 15.


Wednesday, June 28, 2017

New Device Allows Cops To Download All Of Your Smartphone Activity In Seconds

Via TheAntiMedia.org,






“Any person who operates a motor vehicle in the state shall be deemed to have given consent to field testing of his or her mobile telephone and/or personal electronic device for the purpose of determining the use thereof while operating a motor vehicle, provided that such testing is conducted by or at the direction of a police officer.”



That’s language from the text of a bill currently working its way through the New York state legislature. The legislation would allow cops to search through drivers’ cell phones following traffic incidents — even minor fender-benders — to determine if the person was using their phone while behind the wheel.


Most states have laws banning the use of mobile devices while driving, though such laws are rarely enforced. This is largely because it’s nearly impossible to catch someone in the act. What person would admit to an officer that they broke the law, the argument goes, particularly when it’s after the fact? After all, cops don’t show up until after the accident occurs.


Now, technology exists that would give police the power to plug drivers’ phones into tablet-like devices — being called “textalyzers” in the media — that tell officers exactly what they were doing on their phone and exactly when they were doing it. And if the readout shows a driver was texting while driving, for instance, the legal system will have an additional way to fine them.





“Recording your every click, tap or swipe, it would even know what apps you were using. Police officers could download the data, right on the spot,” Jeff Rossen of NBC News said in a video report on the technology.



Proponents of the legislation point to the rise in traffic fatalities associated with using mobile devices while driving. But rights activists, such as Rashida Richardson of the New York Civil Liberties Union, says it’s a societal issue and no excuse to violate an individual’s privacy:





“This is a concern because our phones have some of our most personal and private information — so we’re certain that if this law is enforced as it is proposed, it will not only violate people’s privacy rights, but also civil liberties.”



New York state isn’t alone. Currently, similar legislation is being considered in Tennessee and New Jersey.

Tuesday, June 20, 2017

In Warning To Wall Street, Jefferies Fixed Income Revenue Tumbles 33%

On one hand, the Q2 earnings reported by the last "pure play" investment bank - one with a 1 month leading quarter end as per the pre-new normal tradition and thus a key indicator of what is to come for the rest of Wall Street - were not bad: Jefferies reported a 29.4% increase in overall quarterly profit (even with a recent 6% increase in the company"s tax rate) thanks to a 39% bounce in investment banking revenue, i.e. M&A and underwriting fees, to $351.9 million in the quarter, primarily reflecting an "improved environment" for debt and equity new issuance according to CEO Dick Handler.


That was the good news.


The neutral news is that revenue from equities (when stripping away one-time benefits from the sale of KCG) was roughly flat, at $175.5MM in the quarter, up fractionally from $167.5MM one year ago. Total equity revenues were $271.5 million but including $96 million in mark-to-market gain on Jefferies" 24% equity ownership of KCG Holdings vs $223.5 million a year ago  (with $56m KCG markup). According to Handler, the core equity sales/trading business "enjoyed a solid quarter and, despite quiet market activity and low volatility, our global cash businesses continued to gain market share."


But the bad news, and a confirmation of recent warnings from JPM and BofA, was that the recent boost in fixed income revenue, Wall Street"s most profitable segment, tumbled by 33% in the second quarter, dropping from $238.5 million to $158.6 million Y/Y, and down from $221.9 million last quarter.



Discussing the sharp drop in fixed income revenue, the Leucadia subsidiary said that "Fixed Income revenues were $159 million for the quarter as lower volumes and lower volatility prevailed throughout much of the quarter."


The problem for the rest of Wall Street is that "lower volumes and lower volatility" were endemic for everyone, impacting the rest of the banks equally, which coupled with the ongoing flattening of the yield curve  - recall banks surged when the curve steepened, but then forgot to drop when it contracted...



... means that bank earnings reports next months will likely be even worse than what many analysts expect.


Finally, Jefferies had an interesting disclosure on why it ended up paying a far higher tax rate this quarter compared to others:





Our tax expense for the quarter was $46 million, or about 40% of pre-tax profits. Following recently enacted legislation from New York State and New York City, our tax expense includes a net charge of $7 million that reflects the revaluation of a portion of our net deferred tax asset, which was partially offset by current year reduced state and local tax rates. The impact of this legislation will reduce the income apportioned to these jurisdictions going forward and thereby reduce our effective tax rate.



While we are not sure precisely what legislation Jefferies refers to, one wonders how many other companies will follow in the bank"s footsteps and "apportion" far less jurisdiction to New York State and City going forward, potentially resulting in a fiscal crisis for the largest US fiscal economy.

Friday, May 26, 2017

Another shoe drops in the FX fraud manipulation conspiracy

FX is quite literally, a rigged game.  Not like the stock market, well not exactly.  FX has been, a game of "how many numbers am I holding behind my back?" and the guess is always wrong!  As we explain in Splitting Pennies Understanding Forex - FX is rigged.  But that doesn"t mean there isn"t opportunity!  One just needs to understand it.


From Law 360:





French bank BNP Paribas was fined $350 million by the New York State Department of
Financial Services
 for lax oversight in its foreign-exchange business that
allowed “nearly unfettered misconduct” by more than a dozen employees involved
in exchange rate manipulation, officials announced Wednesday.

From 2007 through 2013, a trader on the bank’s New York desk, identified in the
consent order as Jason Katz, ran a number of schemes with more than a dozen
BNPP traders and salespeople on key foreign exchange trading desks to
manipulate prices and spreads in several currencies, including the South
African rand, Hungarian forint and Turkish lira, officials said.

He called his group of traders a "cartel" and they communicated in a
chat room called "ZAR Domination," a reference to the rand’s trading
symbol, according to the consent order. The group would push up the price of
the illiquid rand during New York business hours when the South African market
was closed, moving the currency in whichever way they chose, and thus
depressing competition, officials said.

Katz also enlisted colleagues at other banks to widen spreads for orders in
rands, increasing bank profits and limiting competition at the customer’
expense, the order says. Some of the traders engaged in illegal coordination
and shared confidential customer information, officials said. As part of a
cooperation agreement with prosecutors, Katz pled guilty in Manhattan federal court in
January to one count of conspiracy to restrain trade in violation of the
Sherman Act.

“Participants in the foreign exchange market rely on a transparent and fair
market to ensure competitive prices for their trades for all participants,”
Financial Services Superintendent Maria T. Vullo said in a statement. “Here the
bank paid little or no attention to the supervision of its foreign exchange
trading business, allowing BNPP traders and others to violate New York state
law over the course of many years and repeatedly abused the trust of their
customers."

BNP Paribas, which employs nearly 190,000 people and has total assets of more
than €2.1 trillion (approximately $2.36 trillion), said in a statement that the
$350 million fine will be covered by existing provisions. It said it had
implemented a group-wide remediation initiative and cooperated fully in the
investigation.

“The conduct which led to this settlement occurred during the period from 2007
to 2013. Since this time, BNP Paribas has proactively implemented extensive
measures to strengthen its systems of control and compliance,” the bank said in
its statement. “The group has increased resources and staff dedicated to these
functions, conducted extensive staff training and launched a new code of
conduct which applies to all staff.”

Three BNPP employees were fired, seven more resigned and several others were
disciplined for misconduct or supervisory shortcomings in relation to the
probe, the order says.

Katz’s attorney, Michael Tremonte of Sher Tremonte LLP, did not respond Wednesday to a call seeking
comment.



But really, what"s another $350 Million in the grand scheme of things for BNP?  Just another day"s profits in the FX market.


This probe isn"t new; regulators have been looking into FX rigging for years.  And practically, the fine won"t make any customers whole - it will just shore up the coffers for the NY State department of financial services.  With inflation out of control, they need the money.  


For a detailed breakdown of this virtual monopoly "they" have on the global financial system, checkout Splitting Pennies Understanding Forex.

Monday, April 24, 2017

How Did NY Gov. Cuomo Make $783,000 From A Book That Sold Only 3,200 Copies?

Fox News Channel parent News Corporation may be wrapped up in the sexual harassment accusations surrounding host Bill O’Reilly, but, as International Business Times" Lydia O"Neal reports, the company is facing another long-running scandal involving what appear to be exuberant payments to a Democrat - payments that occurred even as News Corp. was lobbying the New York State executive branch, which Gov. Andrew Cuomo oversees.



The New York governor, whose memoir was published by the News Corp.-owned HarperCollins in 2014, saw his gross income more than double last year, to $417,748 for 2016 (from $196,243 the year before), the Buffalo News reported Tuesday. Cuomo attributed $218,100 of that increase to sales of his memoir, “All Things Possible: Setbacks and Successes in Politics and Life.”


In 2015, the governor reportedly earned zero income from book sales and in the nearly three years that it"s been on the market, it has sold just 3,200 copies. But Cuomo, the Buffalo News found, reported that he received a total of $783,000 from HarperCollins in book sales over the past three years,  a number that would translate to royalty payments of nearly $244.69 per copy.


Today, the book was selling on Amazon for $8.45.




A spokesperson for Gov. Cuomo told International Business Times, “This payment was contractual and per the agreement with the publisher.” A spokesperson from HarperCollins said the publisher does not “comment on financial matters relating to our books.” News Corp. did not respond to IBT requests for comment.


News Corp., in the meantime, was registered as a lobbying client as recently as December 2016, according to the New York State government lobbying database. The mass media company, created and headed by Executive Chairman and former CEO Rupert Murdoch, has a long history of lobbying Cuomo’s office for the passage of bills beneficial to its businesses, as previously reported by IBT.


Government documents reviewed by IBTimes show that News Corp. and its subsidiary Twenty-First Century Fox, Inc., through the law firm Greenberg Traurig, put tens of thousands of dollars behind efforts related to state legislation from the executive branch that affected the media industry, while paying Cuomo book royalties.


Read more here...

Wednesday, March 1, 2017

NY Teamsters Pension Becomes First To Run Out Of Money As Expert Warns "Pension Tsunami" Is Coming

The New York Teamsters Road Carriers Local 707 Pension Fund has won the unfortunate award for "First Pension to Officially Run Out of Money."  According to the New York Daily News, and a host of angry former truck drivers who"ve had their pension benefits slashed, the Pension Benefit Guaranty Corp. (PBGC) has officially been forced to step in and take over payments to retirees of the Local 707, albeit at a much lower rate.





Teamsters Local 707’s pension fund is the first to officially bottom out financially — which happened this month.



“I had a union job for 30 years,” Chmil said. “We had collectively bargained contracts that promised us a pension. I paid into it with every paycheck. Everyone told us, ‘Don’t worry, you have a union job, your pension is guaranteed.’ Well, so much for that.”



“It’s a nightmare, it has just devastated all of our lives. I’ve gone from having $48,000 a year to less than half that,” said Chmil, one of five Local 707 retirees who agreed to share their stories with the Daily News last week.



“I don’t want other people to have to go through this. We need everyone to wake up and do something; that’s why we’re talking,” said Ray Narvaez.



Of course, the Teamsters 707 and other Teamster pension boards attempted to submit plans that would have cut benefits in order to prolong payments to retirees but those plans were universally rejected by the Obama administration...better that the pensions just run out of cash completely.  Per Pensions & Investments:





The Obama administration is in denial about the necessity of cutting pension benefits under the Multiemployer Pension Reform Act of 2014 to try to put distressed multiemployer plans on sounder financial footings and make them more sustainable. It must face reality and order the Treasury Department to stop blocking action.



So far the department, required under the act to approve proposed reductions, has rejected proposals by the Teamsters Central States, Southeast & Southwest Areas Pension Plan and the Road Carriers Local 707 Pension Fund.



Ten plans total have applied for cuts, including the New York State Teamsters Conference Pension and Retirement Fund, Syracuse, whose Aug. 31 application is too new to be listed on the Treasury"s website.



The Road Carriers 707 application stated that the plan projects it will become insolvent in February — only about five months away — absent suspension of benefits.



As desperate as the plan"s financial situation appears to be, the Treasury denied the application.



And while the Local 707 pension was the first to dry up, it certainly won"t be the last...





Also on the brink of drying up are the pensions for two Teamster locals — 641 and 560 — in New Jersey, union officials said. Plus 35,000 Teamster members upstate who are part of the money-hemorrhaging New York State Teamsters Pension Fund.



Bigger than all of New York’s Teamster locals combined is the Central States Pension Fund — another looming financial disaster that could leave 407,000 retirees without pensions across the Midwest and South.



Teamster



Meanwhile, under the maximum benefits provided by the PBGC, many former Teamsters, like Ray Narvaez, said their monthly retirement checks have been slashed by two-thirds.





Then Narvaez, like 4,000 other retired Teamster truckers, got a letter from Local 707 in February of last year.



It said monthly pensions had to be slashed by more than a third. It was an emergency move to try to keep the dying fund solvent. That dropped Narvaez from nearly $3,500 to about $2,000.



“They said they were running out of money, that there could be no more in the pension fund, so we had to take the cut,” said Narvaez, whose wife was recently diagnosed with cancer.



The stopgap measure didn’t work — and after years of dangling over the precipice, Local 707’s pension fund fell off the financial cliff this month. With no money left, it turned to Pension Benefit Guaranty Corp., a government insurance company that covers pension.



Pension Benefit Guaranty Corp. picked up Local 707’s retiree payouts — but the maximum benefit it gives a year is roughly $12,000, for workers who racked up at least 30 years. For those with less time on the job, the payouts are smaller.



Narvaez now gets $1,170 a month — before taxes.



Of course, as the Central States Pension General Counsel notes, the real "pension tsunami" will come when the massive "municipal and state plans go down next."





The same crisis now hitting Local 707 has been stewing among numerous Teamster locals around the country for the past decade, he said, and that includes in upstate New York.



The trucking industry — almost uniformly organized by Teamsters — has suffered enormous financial losses in its pension and welfare funds due to a crippling combination of deregulation and stock market crashes, Nyhan said.



“This is a quiet crisis, but it’s very real. There are currently 200 other plans on track for insolvency — that’s going to affect anywhere from 1.5 to 2 million people,” said Nyhan. “The prognosis is bleak minus some new legislative help.”



And it’s not just private-sector industries that are suffering, he added.



“Municipal and state plans are the next to go down — that’s a pension tsunami that’s coming,” he said. “In many states, those defined benefit plans are seriously underfunded — and at the end of the day, math trumps the statutes.”



We"re looking at you Illinois...

Friday, January 20, 2017

Will Real Estate Investors Take Over Airbnb?

Via Priceonomics.com,


In 2012, Jon Wheatley bought a $40,000 apartment in Las Vegas so that he could rent it out on Airbnb . 


“I was surprised by just how cheap real estate was in Las Vegas,” says the British-born Wheatley. “I didn’t want to live in Vegas, and I wasn’t planning on being there very much. So when I looked at Airbnb, it looked almost too good to be true.” 


Wheatley looked at the rates of similar apartments on Airbnb, and he decided that the apartment could pay for itself. He bought the flat and spent 3 weeks and $10,000 on furniture and renovations. After a year of remotely renting out the apartment, he says , he’d made $13,000 in profit. 


When we ask if he recommends doing this, he replies, “One hundred percent. The model definitely works.”


In only 8 years, Airbnb’s premise—to allow someone to host a business traveler in a spare bedroom, or a family to rent their apartment to tourists while they’re out of town—has made it a $25 billion company . Co-founder Brian Chesky often talks about how anyone can turn extra space in their home into an asset that helps them pay their rent.


But the economics of short term rental sites Airbnb and VRBO also appeal to people who do not live in the house or apartment they rent out. This includes go-getters like Wheatley, as well as professional real estate investors.


Outside the real estate scene, however, this development has not been met with a positive reaction. In cities like San Francisco and New York, where housing is a scarce, politicized resource, the prevalence of property owners renting out multiple apartments has inspired protests, critical press, and the attention of regulators and lawmakers.


 





Photo via Airbnb



What’s missing from the already fractious debate over Airbnb, however, is the fact that the big players in the real estate market aren’t involved. At least, they aren’t involved yet .


Companies like AvalonBay and Camden Property Trust own tens or hundreds of thousands of units, and they spend hundreds of millions of dollars buying and constructing residential buildings. These companies normally rent out apartments to people who sign year-long leases. But they could instead rent them out on sites like Airbnb. We partnered with Priceonomics to investigate  whether this real estate investing trend could spread to these big players. 


At this point, we’re seeing that the uncertainty created by municipal debates over how to regulate Airbnb is keeping major investors out of the short-term rental game. For individual investors, however, the door is more or less wide open. 


The Rise of the Professional Airbnb Investor


The financial benefit of an Airbnb property is clear to investors. They can make more money from short term rentals for the same reason you typically spend more on lodging while you’re traveling than you do on rent. 


So how many professional real estate investors list apartments on Airbnb? And how large are their businesses?


The best way to see whether there is a big trend of professional investors using Airbnb would be to see how many hosts rent out multiple properties on the site. (After all, most people don’t have that many homes.) That kind of data, however, is hard to come by. The presence of professionals is a matter of controversy, which has made Airbnb selective about the information it shares.


But we can see how many professional investors used Airbnb in New York City by looking at a report—which is based on 4 years of subpoenaed data—released in late 2014 by the New York Attorney General. 


According to the report , 94% of Airbnb hosts in New York city rented out 2 units or fewer. This supports the Airbnb company line that the majority of users are average joes renting out their homes. The other 6% of hosts, however, listed from 3 to 272 units. They earned a collective $168 million and were responsible for over a third of all bookings and revenue in the city.






Table from the New York State Attorney General’s report “Airbnb in the City”



During this time period, over 100 users had 10 or more properties. So at least in New York City prior to recent legislation , major, million-dollar real estate businesses use Airbnb. It’s possible that these apartments are pieces of larger real estate empires. But this data suggests that mostly small-scale investors use Airbnb—not billion dollar real estate companies. 


To gauge how many real estate professionals use short term rental sites, we also talked with the founders of companies that help people rent out properties on Airbnb. These founders confirmed that most professionals on Airbnb are personal investors, but they also offered evidence that major real estate companies are interested.


Peter Abualzolof of Mashvisor , a real estate analytics startup focused on short term rentals, works mostly with amateur investors. Abualzolof says that he and his co-founders started Mashvisor at a Startup Weekend where they met many tech workers who wanted to buy Airbnb properties. The company helps some full-time investors, but most people are in the mold of Jon Wheatley.


Jim Breese says he works with people renting out spare rooms, personal investors, and some large ventures. He is the co-founder of LearnAirbnb , a young company that helps hosts “start, grow, and optimize [their] Airbnb business like a professional.” The chart below shows the results of a LearnAirbnb survey. As co-founder Jim Breese points out, almost one third of these hosts view Airbnb as a business.


 





Data via LearnAirbnb . The survey asked questions of 836 hosts who’ve worked with LearnAirbnb or one of its partners.



Breese has worked with a client who owns a 30-unit complex. He knows of groups of friends pooling a few hundred thousand dollars to purchase properties to Airbnb, as well as people raising funds from investors to do the same. But he hasn’t worked with really large real estate companies. “I don’t personally know anyone making $2 million a year,” he says.


Sean Conway of Pillow offered us some of the best evidence that big companies are interested in Airbnb properties. Pillow manages short term rentals—its staff will take care of listing your apartment, confirming guests, and everything else. Conway says that Pillow rents out families’ vacation homes and apartments that belong to consultants who travel 5 days a week. But he has also been approached by major investors. 


“We’ve had investors with 500 units come to us and say, ‘We want you to take all of them,’” says Conway, “and we say, ‘No way, we’re a start up!’”


The Obstacles to Airbnb-ing at Scale


From looking at the report on Airbnb’s New York City data and talking with people in real estate, we can conclude that some significant commercial business happens on Airbnb. 


But we’ve yet to find evidence that real estate companies with tens of thousands of units do short term rentals on Airbnb. Those companies declined our requests for comment, and even Pillow, Conway says, despite getting requests to manage hundreds of properties, has not talked with the major players.


They could just be keeping their plans quiet, but there are many reasons why short term rentals could remain the purview of average joes and smaller-scale investors. 


At RealtyShares, our reasoning for not accepting investments for Airbnb properties is simple: they’re too new. Investors want to see a track record when evaluating a deal, and since Airbnb is only 8 years old, there’s less data and the market is immature.


Renting out an Airbnb also has elements of the hospitality industry that are foreign to the real estate business. Sure, you can find out the average price and occupancy rates in a neighborhood. But if you do a poor job promoting your Airbnb listing and satisfying your guests, you’ll never make the revenue you anticipated. 


Another problem for big real estate investors is that they can’t benefit from economies of scale with Airbnb. Usually a company like AvalonBay owns entire buildings, which saves on the costs of upkeep for each unit. The company can hire on-site repair staff, make upgrades to the entire building in one go, and so on. That’s not the case when you have 200 units scattered around town. 


This isn’t necessarily a crippling problem. Several companies that rent out individual houses, which have the same scaling problems, have recently had billion dollar IPOs . Other tools, like Pillow’s management service and Nest thermostats, make managing many Airbnbs easier and more efficient. Investors could also rent out an entire complex on Airbnb, although at that point they’re really in the hotel business. 






Apartment photo by Axel Tregoning



A more paralyzing obstacle is that Airbnb dominates the short term rental market for apartments, which means that investors would be at the mercy of a single company. If Airbnb decided to cap its prices or demand a bigger cut of the profits, every real estate company’s short term rental investments would go to hell. 


But the biggest deterrent, the uncertain and hostile regulatory environment, supersedes all of these. Voters and governments in some of the biggest cities in the short-term rental market are taking action to reduce their impact and ward off professional hosts. For people living in these cities, this backlash is hard to miss. 


In order to prevent investors from renting out apartments full-time on Airbnb, San Francisco limits the number of days a unit can be occupied by short term renters to 90 days. Last November, 45% of voters supported a ballot measure that, if it passed, would have reduced that cap to 75 days. 


In New York, it’s illegal to rent out an apartment in a residential building if the owner is not home. Meanwhile, a number of resort towns have banned short term rentals outright, and critics question whether the decentralized short term rental model can ensure safety without the regulations that exist for hotels.


Scott Shatford has been tracking the profitability of investments in Airbnb properties, which can be dependent on the regulatory environment of a given city. As the CEO of Airdna, an Airbnb data and analytics company, Shatford explains, "One of the interesting trends that we see with the short-term rental investments is a shift towards secondary markets, where there is less regulation and more untapped opportunities."


Not every city wants to ward off Airbnb. Peter Abualzolof of Mashvisor cites Philadelphia and Seattle as cities passing laws to legitimize short term rentals. Still, the situation is uncertain and in flux. “ I’m even confused,” says Abualzolof. “I try to do the research and provide information, but I’m very hesitant, because it’s very vague.” There’s no city where a property owner can know exactly how Airbnb will be regulated—or even if it will be legal—ten years down the line.


If you’re an investor at a company deciding where to invest hundreds of millions of dollars, that’s not what you want to hear. 


Airbnb’s White Whales?


Major real estate companies are unlikely to get involved in short term rentals until the regulatory situation is more clear. But there is another way they could get involved: as landlords partnering with tenants who host Airbnb travelers. 


In December 2015, Bloomberg  reported that Airbnb is in talks with billion dollar, multi-home real estate companies. In the past, landlords have clashed with tenants who they suspect break their lease by listing their apartment on Airbnb. These multi-home real estate companies are—indirectly through property management companies—the nation’s biggest landlords. Airbnb is reportedly offering to share profits with these companies if they bless their tenants’ use of short term rentals. 


The companies are not offering updates or details on the talks. A representative of Camden Property Trust told us that it would be “premature” to comment. 






Photo via VRBO



We did, however, get a glimpse of how this might work by talking to a local landlord and real estate investor. As he chose to remain anonymous, we’ll call him John Smith.


Smith has experimented with the type of arrangement Airbnb is proposing to major real estate investors. He partnered with a tenant, modified the tenant’s lease so he could rent out extra rooms in his apartment, and helped him register with the city. 


When we ask how the experiment went, Smith responds, “There is absolutely something there.” The market rental rate for the apartment is around $6,000 a month, and Smith and the tenant made about that much from just one bedroom by putting bunkbeds in it, hostel-style. 


Still, Smith is not sure whether it’s a good arrangement for landlords. Short term rentals come with extra costs—more wear and tear, higher electric bills, more expensive insurance—and he’s unsure whether the increased profit is worth the occasional headaches involved with the hospitality industry.


The most interesting takeaway from the experiment, though, has nothing to do with profits and everything to do with the ethos Airbnb tries to communicate. To counter critics and regulators who say Airbnb makes housing more expensive, Airbnb reps talk about how it helps hosts make money to pay their rent, and the company’s narrative centers around creating a sense of belonging that is absent when you stay in a hotel. 


Smith’s experience echoes these talking points. He says that one of his tenants who rented out spare rooms on Airbnb used the extra money to quit his job and pursue artistic interests—and that he’s enjoyed hosting travelers, because he’s a big fan of hostels. 


For this reason, Airbnb may eschew professional investors who want to rent out entire apartments in favor of working with real estate companies through landlord-tenant partnerships.


Who Rents the Future?


Airbnb is the posterchild of the sharing economy. By giving people a way to monetize an underutilized asset—a spare bedroom, Americans’ 7 million second homes, apartments that belong to people who are on vacation—the company created a huge, new industry.


But as business reporter Will Alden has written , decentralized services tend to become reliant on a small number of professional users. Anyone can run an auction on eBay, but full-time “power sellers” dominate the site. Similarly, professionals and “ad-hoc temp agencies” claim a large share of the work on TaskRabbit. 


Now, this is happening on Airbnb. The appealing economics of short term rentals has attracted professional investors, and services that manage properties, use data to identify promising properties, and provide concierge services are popping up to support them.


 





Apartment photo by AIMCO/Architecturist



But in Airbnb’s case, the rise of professional investors has contributed to a backlash—from residents and regulators who believe it raises rents, and from tenants and co-op boards who dislike seeing strangers with suitcases in their building every night. 


Depending on how the fight to regulate Airbnb and its peers shakes out, professional investors could be banned, welcomed, or treated differently in every city around the world. Perhaps partnering with landlords will be how the big players in real estate will get involved. 


When we talked to people buying Airbnb properties and the founders of companies meant to support them, they expressed confidence that regulation would ultimately accommodate short term rentals.


“I don’t know what [the regulation] is going to be,” says Jim Breese of LearnAirbnb, “but once people start to see, ‘Hey we can co-exist,’ and once everyone sees how much money is in hospitality, everyone will want what they believe is their fair share.” 


Several compared the situation to how Uber has overcome attempts to ban its ride-hailing services and how the music industry has gotten over its fear of piracy in order to profit from streaming.


Whether they are right will determine if Airbnb becomes a gold rush for investors, remains a moneymaker for millions of homeowners and renters, or does a bit of both.