Tag Archives: Bloomberg

Reiss in Bloomberg on CS Lawsuit

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Bloomberg quoted me in Credit Suisse Waits for $11 Billion Answer in N.Y. Fraud Suit.  It reads in part,

As Credit Suisse Group AG (CSGN) sees it, time has run out on New York Attorney General Eric Schneiderman’s pursuit of Wall Street banks for mortgage fraud that helped trigger the financial crisis.

Schneiderman sued Credit Suisse in 2012 as part of a wide-ranging probe into mortgage bonds. He claimed Switzerland’s second-largest bank misrepresented the risks associated with $93.8 billion in mortgage-backed securities issued in 2006 and 2007.

Credit Suisse asked a Manhattan judge in December to dismiss Schneiderman’s case, as well as his demand for as much as $11.2 billion in damages. The bank argued that New York, by waiting so long to file the lawsuit, missed a three-year legal deadline for suing. The state countered that it had six years to file its complaint.

If the bank wins, Schneiderman will face a new roadblock as he considers similar multibillion-dollar claims against a dozen other Wall Street firms. The judge in New York State Supreme Court could rule at any time.

“It would obviously tilt everything in the favor of Credit Suisse and similarly situated financial institutions,” said David Reiss, a professor at Brooklyn Law School, hindering New York’s remaining efforts to hold banks accountable for mistakes that spurred a recession.

*     *     *

Since the latest bonds cited in Schneiderman’s suit originated in 2006 and 2007, if the judge chooses the bank’s argument, the lawsuit may be dismissed. If the judge takes Schneiderman’s more expansive view, most or all of the suspect bonds may still be covered by the litigation.

“The entire case is time-barred,” Richard Clary, a lawyer for the bank, told Friedman at the December hearing. Lawyers for the state argued that such limits weren’t intended to apply to the attorney general.

“We’ve successfully resolved cases filed within six years,” Deputy Attorney General Virginia Chavez Romano said, citing last year’s JPMorgan accord. “It has been our decades-long practice.”

So far, New York’s courts have broadly interpreted the statute in finding a six-year period, Brooklyn Law School’s Reiss said. That may be changing as legal scholars and financial industry lawyers question its propriety.

“Having these incredibly long and ambiguous statutes of limitations is not particularly fair,” he said.

*     *     *

Friedman’s ruling in the Credit Suisse case may be crucial to Schneiderman’s probe of close to a dozen other banks, and whether he can sue them successfully.

New York agreed with the firms in October 2012 that any legal deadline for bringing fraud claims against them would be suspended while he continues his investigation, a person familiar with the matter said.

Such tolling agreements stopped the clock on any statute of limitations and ensured Schneiderman can bring fraud claims against banks for conduct going as far back as 2006, said the person.

Brooklyn Law School’s Reiss said the banks may have agreed to the delay to avoid forcing Schneiderman to file a “kitchen sink complaint with every possible allegation in it” just to beat the clock. Doing so also builds good will with regulators and may also facilitate a favorable settlement.

The agreements don’t necessarily mean that suits will be filed, the person said. If Schneiderman sues any of the banks, they may then assert the statute of limitations is three years, and not six, just as Credit Suisse has done.

*     *     *

This may be a more potent argument if Friedman rules for the Swiss bank in the pending case.

A three-year statute-of-limitations would mean they can’t be held responsible for transactions before 2009, while a six-year deadline would allow Schneiderman to reach back to 2006.

There’s “great uncertainty” about whether Schneiderman can move forward with the Credit Suisse case in light of the statute of limitations arguments, said James Cox, a corporate law professor at Duke University in Durham, North Carolina.

Reiss said that any ruling would probably be challenged all the way to the Court of Appeals in Albany, the state’s highest court.

Reforming NYC’s Property Tax Regime

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Andrew Hayashi has posted Property Taxes and Their Limits: Evidence from New York City to SSRN. There probably could not be a more obscure and dull topic than this to the general reader (and coming from me, as the author of this blog, that is saying something!). But for those of us who think about such things, this is an incredibly important topic that is at its heart fundamentally about fairness and treating like people alike.

Hayashi argues that

The property tax is the largest source of tax revenue for local governments. It is also an almost irresistible policy instrument for municipalities, which typically do not have control over any other tax with which to influence the urban landscape and the local distribution of income and wealth. The widespread use of the property tax for planning and redistribution means that virtually no jurisdiction straightforwardly calculates the tax liability for a property as a fixed percentage of its market value. Instead, property tax rates tend to vary with the use to which a property is put or the identity of its owner. As a consequence, many of the potential benefits of the property tax, such as ease of administration, transparency, the clear reflection of the costs and benefits of local services, and the intuitive fairness of imposing taxes in proportion to property wealth, are lost. (2, footnotes omitted)

He concludes

The property tax is a hated tax, but attempts to curtail its most offensive feature, the rapid increase in taxes that can accompany paper gains in property value, have had unintended distributional consequences that are hard to justify on policy grounds. In New York City, the caps are regressive and tend to benefit new homebuyers and sellers rather than current homeowners on fixed incomes. The caps should be replaced with a property tax circuit breaker [that limits increases for lower-income homeowners] or deferral system [that delays full payment until the property is conveyed]. (27)

This issue is even bigger than these selections suggest as there are big disparities in the tax burden among different types of property. For example similarly priced single family homes have a lower tax burden than coops or condos in multifamily properties. NYU’s Furman Center (with which Hayashi is affiliated) has studied these issues and, even better, has highlighted them as part of the De Blasio transition.

Property tax fairness is not a Republican or a Democratic issue — it is a good government issue. Hopefully, the De Blasio  Department of Finance will take up this obscure but important issue. Fairness demands it.

Reducing The Cost of Affordable Housing Development: Lessons for NYC?

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Enterprise and the Urban Land Institute have issued a report, Bending the Cost Curve on Affordable Rental Development: Understanding the Drivers of Cost, that identifies affordable housing development’s “most commonly cited cost drivers, provides a brief overview of their impact and applicability, and includes high-level recommendations to promote a more efficient delivery system.” (4). As the report notes,

Affordable housing delivery is shaped by a number of procedures, regulations, and policies instituted at all levels of the system—each with associated costs. Development costs may be dictated by site constraints, design elements, local land use and zoning restrictions, building codes, delays in the development process, efforts to reduce long-term operating costs, and the affordable housing finance system. Most affordable developments rely on multiple funding streams, both equity and debt, each of which carries its own set of requirements and compliance costs. While there may be some alignment of affordable housing land use regulations, financing tools, or programs, far too often developers must seek a complex series of approvals or obtain waivers to bring a project to fruition. This process alone can introduce costs through delays to the development timeline as well as introduce additional uncertainty and risk, which, in addition to regulatory barriers, can also increase costs. (3)

While the report offers no shocking insights into affordable housing’s cost drivers, it does provide a good overview. It also brings to mind research that NYU’s Furman Center did some years ago about the drivers of the high cost of housing construction in New York City.

Given that Mayor-Elect de Blasio has put affordable housing at the center of his campaign, his team should focus on reducing these costs as part of his overall affordable housing strategy. Mayors Bloomberg and Giuliani were not able to make any significant progress on this issue, even though doing so would be quite consistent with their approach to governance. Perhaps that makes it even more of a compelling goal for the de Blasio Administration.

Reiss (and Others) on Post-Bloomberg Brooklyn

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The NY Daily News ran a story on a panel I moderated last night at Brooklyn Law School, The Fab Four! Brooklyn Heights Councilmen Since 1975 Share Stage and Talk About Past, Future, Bloomberg.  The speakers gave their thoughts on a variety of topics, including what’s next for New York City:

David Reiss: What are your predictions for a post-Bloomberg Brooklyn?

Levin: The likely mayor is going to be very far to the left. (Bill de Blasio) has been more engaged with people that are not elite and he has a greater vision of equity. It’s a big challenge because it’s a big city, like steering a gigantic ocean liner. I don’t think there will be lots of changes on day one but there will be policy changes that can be shifted that will cause a big change, like universal pre-kindergarten and mandatory inclusionary zoning. His goal is to decrease the economic disparity in the city and it’s a big challenge.

Yassky: A lot of the changes you’ve seen are here to say. There’s a much bigger swatch of Brooklyn that will be professional office workers, people who are working in Manhattan and not in traditional blue collar jobs. That spread throughout Brooklyn is here to stay. So many neighborhoods have excellent public spaces which is ameliorating inequality in the near term. It’s taking better public goods, like parks, to do it, and you don’t need rose colored glasses to see that. These changes don’t reverse very quickly and easily.

Fisher: He’ll be a mayor from Brooklyn, so it’s got to be a good thing for all of us. The nostalgia here is over; Brooklyn is the world again. When I grew up, people were nostalgic for the good old days. No one is nostalgic for those days now. Brooklyn has really reached a turning point. The bar has been raised in post-Bloomberg Brooklyn. So many people in Brooklyn now expect government to function and be responsive. As long as people feel invested in the borough, they’ll make it possible for Steve and whoever comes after to keep the progress going.