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The never-ending budget crises of American cities are claiming another victim: public transit. Managers are cutting services and workers. There are longer waits for rides—when they still exist. From the stygian gloom of New York subways to the retro interiors of the Bay Area’s BART trains, public transit appears to be declining as rapidly as the middle class.
The problem has become so dire that even station names are on the table. Transit authorities in Boston, Chicago, and Austin have hired IMG Worldwide to sell their naming rights. (IMG gets a 12 percent cut for its services; apparently the public sector is too depleted to negotiate its own deals.) New York City already shook hands with Barclays Bank, allowing it to christen a massive transit hub in Brooklyn “Atlantic Ave.-Barclays Center.”
Like the Washingtonians who dare not speak the name “Reagan National Airport,” some New Yorkers are resisting the change. But most people are resigned to the latest corporate encroachment on public space. In a New York Times article on the name change, Metropolitan Transit Authority (MTA) Board Member John H. Banks III defended the Barclays deal by joking that “It’s not like Taco Bell saying it wants Grand Army Plaza”—a notion that he admitted he wouldn’t actually oppose. And why should he? Why keep remembering the Union dead when fast food could pay for some turnstiles? As one straphanger put it, “They can call it anything they want, as long as my train’s on time.”
“Making the trains run on time”—Mussolini’s claim to fame—perfectly conceals the true costs of surrendering public goods to the corporate state. Present-day plutocrats, from Berlusconi to Bloomberg, have focus-grouped more alluring slogans: “public-private partnerships,” “strategic plans,” and “entrepreneurial philanthropy.” Whatever these PR platitudes are trying to convey, these deals need to be recognized for what they are: exploitation of the public sphere by corporate interests.
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Many naming-rights deals are not merely advertising. Rather, they are transparent efforts by dubious enterprises to buy goodwill by permanently associating themselves with famous landmarks. As legal scholar Ann Bartow argues, naming rights pave “the way for enhanced consideration, if not acceptance, of the views or values that these names represent.” Enron Field obscured the trading company’s murky accounting behind the friendly face of the Houston Astros (until it went bankrupt). Citibank’s $400 million deal to rename Shea Stadium “Citi Field” has rumbled forward, even after the Financial Crisis Inquiry Commission documented the many irregularities that nearly sank the firm. Many New Yorkers will now associate Citi with America’s pastime, rather than the abusive greed that nearly sunk the global economy.
Barclays also purchased the rights to name the New York Nets’ future home, for more than $300 million. The right to name the subway station next to it cost a mere $4 million, to be paid $200,000 per year for twenty years. There is poetic justice to naming professional sports stadiums after Systemically Important Financial Institutions, to use the Dodd-Frank locution. Both mega banks and mega sports franchises have benefited from sweetheart tax deals, exemptions from antitrust regulations, and other government backing [PDF]. Both feature immensely overpaid stars. As Louis Uchitelle has reported for the Times:
[Some] very wealthy men in the new Gilded Age talk of themselves as having a flair for business not unlike Derek Jeter’s ‘unique talent’ for baseball, as [private equity baron] Leo J. Hindery Jr. put it. ‘I think there are people, including myself at certain times in my career,’ Mr. Hindery said, ‘who because of their uniqueness warrant whatever the market will bear.’
Of course, neither big sports nor big banking are free markets by any stretch of the imagination. The financial industry ruthlessly exploits information gaps between insiders and the “muppets” taken in by them.
One of these gaps is now draining public transit systems around the nation. The problem started when transit agencies (or the governments that fund them) decided to hedge against rising interest rates. Just as homeowners can borrow at an adjustable rate, transit projects can be funded with variable rate bonds. Worried that the rates they had to pay to bondholders would rise suddenly, many agencies “swapped” that risk with Wall Street firms. The banks would pay the agencies an amount that varied based on the interest rate; the agencies would pay a fixed rate to the banks. The swap effectively switched the bonds from a variable to a fixed rate at exactly the wrong time: interest rates plummeted after the crash of 2008 and remain at historic lows, thanks to the Federal Reserve’s intervention. Now the banks’ variable obligations are negligible, while the fixed rates promised by the public agencies are a rentier’s dream.
Had a homeowner locked in a 6-percent rate in 2005, she would be trying to refinance now, as rates approach historical lows. Public agencies in these swap deals are not so lucky. As the report Riding the Gravy Train [PDF] documents, Wall Street firms now enjoy approximately $529 million each year from these “toxic swap deals.” They are in no mood to renegotiate.
Granted, the public authorities got some peace of mind from these deals. They had a limited downside, while the banks took on the risk of rates shooting up to, say, 10 or 15 percent. But if that happened, we all know that the Fed would have stepped in to bail out the banks as soon as the burden threatened their viability. Regulators likely would have foisted a renegotiated rate onto the transit agencies if an “orderly liquidation” began.
Banks also had an inside track in estimating future rates. They have long enjoyed intimate back-channels to Fed personnel and the Treasury officials who influence them, including points of contact only now beginning to emerge as muckraking journalists scrutinize the revolving door between finance and government. When the Bush and Obama administrations undertook the Troubled Asset Relief Program (TARP) and the Fed made its massive, then-secret liquidity infusions into banks, they should have demanded better swap terms for cities and public transit authorities in return. Instead they left municipalities to plead for money from local taxpayers and from the very banks responsible for the fiscal mess they are in.
The banks, in turn, have rewarded the faith and largesse showered on them with yet more scandalous conduct. Litigators and regulators are currently scrutinizing banks that allegedly rigged the crucial London interbank offered rate (Libor). Barclays was the first bank implicated in the ongoing scandal; it has been fined hundreds of millions of dollars by U.S regulatory agencies and its top two executives have resigned. As Robert Peston of the BBC says, “It’s quite hard to think of behaviour by a bank as shocking as this.” The Libor scandal is becoming big banking’s “tobacco moment”—when informed commentators can no longer ignore or explain away the depredation of an industry. Cities will try to recoup whatever losses might have resulted from the interest-rate manipulation. But the litigation could last for more than a decade; it is difficult to prove exactly how much any given agency was hurt, and to pin down the exact range of entities responsible. Meanwhile, stranded passengers are left to contend with the consequences of Wall Street chicanery.
Now that the Libor scandal has sparked a frenzy of litigation, the Obama administration may pressure public authorities to accept a blanket settlement, just as it did in the case of foreclosure fraud. Cities and transit agencies should hold out for a deal that leaves them no worse off than they would have been if they had never entered the swap deals.
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Despite the shocking Libor scandal, the MTA has so far said nothing about trying to renegotiate or end its association with the tarnished Barclays brand. Each year the MTA is losing approximately $114 million [PDF] to AIG, Citigroup, JPMorgan Chase, and other financial firms, thanks to swap deals. Now Barclays is chipping in less than 4 percent of that sum for the naming rights for a massive station. This is a pathetically small price to exact from a bank that has richly benefited from New York City’s business.
But the real harm here isn’t simply monetary—it’s also symbolic. Sales of naming rights represent the seizure and control of the public sphere by private interests. First, corporations fund broad anti-tax campaigns, which starve public goods and services. Then financiers—the corporate vanguard—take advantage of the resulting fiscal desperation by offering superficially attractive swap deals. The swaps turn out to have disastrous consequences for municipalities. At that point, public authorities are reeling, willing to sell even the names of stations to the highest bidder. Corporations are poised to become the “white knight” of public transit, conveniently obscuring their role in creating the political and economic crises that their charity and advertising money barely dents. Whatever scholars say about the history of this neoliberal conquest, the popular image will persist: Barclays or AT&T is saving our city.
What Barclays now stands for—rapacious financialization and outright fraud—directly offends the values that public transit represents. Perhaps its yearly $200,000 payments can fund two or three union jobs. But if we were really serious about both raising employment and reducing inequality, we would tax our cash-hoarding corporate behemoths, not beg them for ad money.
As it is, we have difficulties even getting them to pay the historically low rates that they owe. The IRS is now battling U.S. banks over a series of dubious transactions that none other than Barclays structured for them. Hundreds of millions of dollars are at issue in deals that Barclays itself billed as [PDF] “double dip[s],” “free money” for the banks involved because of the “ability of both parties to obtain credits for” taxes. Barclays is but one of many London financial firms that have invested thousands of hours of brilliant accountants’ and lawyers’ time to find ever more recherché tax avoidance schemes. It is time to impose simple exactions on them to support basic infrastructure in the countries in which they do business.
For example, Barclays had $50 billion in revenue in 2011. One percent of that is $500 million—a paltry sum for the company to pay to continue doing business in the United States, given that it’s already paid $450 million in fines to secure a non-prosecution agreement and end regulatory investigations of its Libor misconduct. Just one percent of that one percent levy would more than pay for the naming rights now sacrificed by the MTA—and leave $495 million to support our crumbling infrastructure.
As for the other transit agencies considering naming rights deals, they should resist. As it is, we’re only a few steps away from David Foster Wallace’s dystopic vision of the sale of each calendar year to corporate interests. (In the novel Infinite Jest, much of the action occurs in the Year of the Depends Adult Undergarment). A city’s streets and stations should reflect the history of its people, not the rootless corporations that have already made over so much space in their own image. Let the banks and cable companies advertise all they want within public spaces. The names of the spaces themselves should be off-limits.
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