Al Capone on Tax Evasion Rather than Murder

When Joe Bruno was convicted I wrote that if Joe Bruno is guilty they all are, and thus because Joe Bruno is guilty, they all are. And that is the same attitude I have toward Sheldon Silver. I had assumed that Silver was the Speaker of the Assembly because, like those on Wall Street, he shrewdly made sure his particular acts of dishonesty were either technically legal or at least difficult to prove illegal beyond a reasonable doubt. Whereas he had the goods on the less shrewd thieves in the den thereof, which is why they continue to back him and do not dare to challenge him.

And if Silver is eventually not convicted, or if like Bruno and Silver’s predecessor Mel Miller his conviction is eventually overturned, that will not mean he has been “exonerated.” Because the real crimes are the ones he hasn’t even been charged with. Crimes they are all guilty of.

Let’s follow that analogy between Silver and Wall Street for a minute before moving on.

Back in the “Gilded Age” aka the “Robber Baron” era (1870 to 1910 or so), a gang would take control of the Board of Directors of a company and just vote to give each other newly minted shares of stock. (This was called “watering the stock.”) The pre-existing investors, who had actually put up money they had worked for and paid for their shares, would find that instead of collectively owning 100 percent of the business and its future profits they only owned half, or a quarter, or less. No real investment took place, and no wealth or income was created, by this financial engineering. Wealth and income were simply redistributed upward. It was simple, direct white-collar theft. This was made illegal.

Today large corporations don’t pay much in dividends. The dividend yield for the S&P 500 is less than half the historic average, at about 2.0%. Aside from the temporary ups and downs of the stock market, paper gains unless you cash out at the right time, that’s all investors get, and the dividend yield has been that low or lower for most of the time since 1995. Rather than pay dividends, the executive/financial class uses business profits to buy back stock. In fact if the profits are insufficient they have the company borrow money to buy back stock.

Those buy backs are then used to offset the stock and stock options that members of the executive /financial class award each other, payable some time in the near future. In exchange for their “work.” The pre-existing investors don’t get diluted as much, but they don’t get their fair share of the profits either. The top executives take more and more of that for themselves, often running companies into the ground. We’ll be seeing bankruptcies of companies that borrowed lots of money to buy back stock in the next few years.

With that little disconnect between shares bought and shares issued, what you have isn’t “watering the stock” as defined legally. Instead it is executives being paid to “create shareholder value,” even with no real value created. The requirements to receive the stock awards or make money on the options are set low so they are certain to be met. If the stock nonetheless doesn’t meet those requirements, the requirements are sometimes are retroactively changed so they are met anyway. The company often lends the executives the money required to exercise the stock options, but if the stocks go down the loans are often forgiven at the expense of shareholders. The effect on all this on the distribution of wealth and income is exactly the same as watering to stock, with a little legal prestidigitation it’s all “legal.” Or it must be because there aren’t thousands of C-suite executives in jail. And thus the distribution of wealth and income is back to what it was in the Robber Baron era. Basically they legalized crime by making it more complicated, and separating the steps.

And in government? Back in the Tammany Hall era those seeking to redistribute public money to themselves would hand someone like Boss Tweed (or their bag man) a paper bag full of cash in a back alley. The politicians controlled by the bosses would then arrange for public money to be shifted to the payee. It was simple and direct. This is, of course, illegal.

Ah, but none of those making deals in Albany handed Sheldon Silver a paper bag in a back alley. Money flowed to two law firms, and then to Sheldon Silver in exchange for his “work.” And Silver arranged for those using the law firms to get benefits at public expense in Albany. At a different time, not the same day or the day after. Which makes it “legal,” right? Compared with all the less sophisticated state legislators who ended up in jail for using something as stupid as the paper bag method. Yet the effect is the same, and New York State government has been back in the Boss Tweed era for some time.

I’ll be honest with you. I wouldn’t really care if people like Bruno and Silver were skimming a few mere millions on the side, if the people of New York weren’t forced to pay $billions extra to not have their needs fully met, and weren’t faced with the prospect of worse in the future as a result of the way Silver and company have sold it. For this I blame Silver, Bruno, Skelos, Pataki, who just announced he is considering running for President again (cough), all the other state legislators who voted for all the deals, and all the interests that backed those legislators and benefitted from those deals. These deals were bad to the bone.

Let’s consider just two.

For 25 years, to satisfy Generation Greed’s desire for more in exchange for less and feed all the parasites sucking the life out of the MTA, our state government has had that agency borrow $billions. For “capital expenditures” which were mere ongoing normal replacement. And for operating expenditures that were declared “reimbursable” by the capital fund about the time Bruno, Pataki and Silver took over, and have remained so ever since. Flat out fraud.

Future New Yorkers will now have to pay twice. For the ongoing expenses over the next 20 years, and for the ongoing expenses from the past 20 years (in debt service). Or perhaps the MTA will end up so broke, when the would-be bondholder catch on, that the ongoing expenses will not be funded for the next 20 years, and the system will deteriorate to the point of a collapse that would then take decades to recover from. The (last?) MTA Capital plan expired three weeks ago, with no replacement, and no one talking about it. And almost all the players who brought us to this point are still there.

And how about education? How about a state school aid formula that was rigged against New York City’s poor children for decades? And when the courts finally forced the state to abandon this policy, how about the state legislature’s decision to ensure all the extra resources tax-strapped New Yorkers were paying for education went to richer retirements after less work for teachers cashing and moving out? You know what should be the subject of a Moreland Commission? All those pension deals that “cost nothing” or “saved money” should be the subject of a Moreland Commission, starting with this one.

Richer retirements for those who already had the richest retirements, based on deals done in secret and fraudulently described, to be paid for by less well off people. People who will be lucky to get part of the Social Security they have been promised, once Generation Greed finishes sucking as much as it can out of our country. Get the facts on the deal linked above, and you’ll really see how, and for whom, the machine is really working.

To truly understand what Silver, Bruno, Pataki, the public employee unions, and moneyed interests that donate to New York politicians are, I suggest reading Triangle, the Fire that Changed America by David Von Drehele and focusing not on the fire but on the political situation in New York State 100 years ago.

At the time the Democratic political machine, basically Tammany Hall, firmly represented the interests of producers of public services – the hacks who worked for the government and the contractors – against the rest of the people. That’s how they got their votes – by providing less in services for higher taxes, and doing as little as possible for ordinary workers and those who paid the bills. The machine got its money by being paid off by the moneyed interests, whether those providing inferior working conditions in factories or those providing inferior housing in tenements. The public employees paid ball to avoid having to provide public services, while the rich and business interests played ball to evade regulation.

Around 100 years ago, however, there was a significant vibrant, progressive and pro-city, if generally pro-business, wing of the Republican Party. And there were mass movements not aligned with either party, and ready to vote for whichever one offered a decent deal – whether Teddy Roosevelt’s “Square Deal” or Franklin Roosevelt’s “New Deal.” Movements based in part on nascent private sector unions seeking a fair deal for all workers, rather than public sector unions seeking a better and better deal at the expense of less powerful workers. And there were rich and influential people on both sides.

As a result Tammany Hall faced losing elections. Not only for the offices most people pay attention to, such as President, Mayor and perhaps Governor. It had lost some of those before. But also for Congress and the State Legislature, the under-the-radar but far more powerful institutions where the self-interested had been able to exercise their authority unopposed.

To avoid a much-deserved oblivion, Tammy Hall caved. To co-opt the forces rising against them New York’s Democratic bosses put Al Smith in charge of the New York State Assembly and Robert Wagner in charge of the State Senate. What followed was a long period in which New York was one of the best run states in country, as Democrats and Republicans competed to see which party could provide better public services and a fair price, and fairness and efficiency in general. The corrupt machine was driven out of New York City Hall later, by Republican Mayor LaGuardia.

All that, however, was a long time ago. Today there is no mass movement, no elections, and no real alternative provided by either the Republican or Democratic parties. The only time we get rid of one of the sleazeballs is when some grandstanding prosecutor manages to catch them in a small value personal sin. Something that not surprisingly happens all the time.

The Silver, Bruno, Pataki, etc. legacy is exactly like that Tammany Hall, before the progressive era. A sweeter deal for public sector producer interests at the expense of everyone else. Incredibly, even though New Yorkers pay more in taxes, as a share of their income, than anyone else, the people who call themselves “progressive” are those who agree with the teacher’s union that the real problem is they should be paying even more for public services than they are. And expecting less in return.

More payoffs by moneyed interests. Why do the hedgies pay such a lower tax rate than regular workers, and why did the federal government borrow $billions to prop up the (unsustainable) asset values of the rich while doing nothing about the ever falling real wages of the rest? Please.

There is “pro-business corruption,” and “anti-business corruption.” In pro-business corruption business and financial interests arrange that consumer and labor fraud, tax evasion, the seizure of common resources without payment (as with dumping pollution into the common air and water), and other abuses are either made legal via technicality or not punished. Under “anti-business corruption” entrepreneurs are forced to pay people off just to avoid being put out of business despite doing nothing wrong. In New York State we have more of the latter than the former, but the state legislature is prepared to play it both ways.

Silver is accused of taking money is exchange for making more NYC development exempt from NYC property taxes for years and years.

I explained some time ago why New York’s 421a and 421b programs, given the current state of the city economy, don’t produce affordable housing, unaffordable housing, jobs, or anything else.

The tax exemption allows the apartment builder to charge more to the apartment buyer or investor, who are forced by the latest housing bubble to stretch as far as they can and go up to what the market can bear. So New York City loses tax revenues but the benefit goes not to the condo owner or renter, but to the developer? Not even.

Higher rents and investment sales prices allow the owners of building sites to charge more to developers, who pocket the public’s money and waltz off the Florida with the retired public employees. The price of development sites is now so high that smart developers have decided to stop building. Others want an upzoning, so their tax-free development can host even more residents for whom the city will not be able to provide services given it soaring pension costs. Something Silver also helped to arrange.

Basically, the tax break disappears into the ground. Like all those retroactive pension deals, it only benefits those cashing in and moving out at the expense of those left behind.

Is any of this a surprise? Does the indictment really mean something is truly different about what has gone on for the past 20 years in the state? Something we didn’t know before?

So now the New York Times, like the News and Post, says Sheldon Silver should resign.

“This dramatic turn of events could be the start of a wholesale cleanup of Albany’s appalling political culture, something voters have wished for and deserved for many years. But it’s only a start.”


What has the New York Times done in recent years to encourage people to run against and unseat those who currently sit in the State Assembly, the State Senate, and Congress? The press is supposed to provide people with the information they need to participate in government, right? So what has the Times (or the rest) done to provide information about what it takes to get on the ballot and run for these offices – without the backing of the very interests that profit from the system as it is?

What has the press done to publicize how New York’s fiscal situation and priorities compare with other places? To let the public know about any challengers offering alternatives, and what those alternatives are?

Silver is accused of not putting some of his outside income on his state financial disclosure form. How many state legislators don’t even bother to fill out the form? Isn’t it common knowledge that the requirement for financial disclosure is only there to use against challengers who might present an actual threat, may not know about that requirement, and might thus fail to fill out the form out of ignorance? That the rules are not enforced against those on the inside? Like many of the other rules. Run against an incumbent and unless you are really shrewd and get lots of help, you and your family will end up in trouble. For those on the inside, on the other hand, many of these rules might as well not exist, particularly since those on the inside appoint the judges.

To call for Silver to resign now is to admit culpability in not doing more to get rid of Silver (and his Republican counterparts) by getting rid of the state legislators under them two years ago, four years ago, ten years ago. By calling for an uprising against them on the front page.  What, aside from a few details and technicalities, is known now that hasn’t been known for years? What went on with Silver that hasn’t gone on in Albany in general, in Congress, and in the corporate boardrooms?  What will change if this one guy goes away, but all the other hacks or still there?

I’ll say it again. If Silver is guilty they all are. Or, rather, because Silver is guilty they all are. A common situation with regard to the leaders of our diminishing public and private organizations in the era of Generation Greed.