Chicago to New York: Drop Dead

Just as blog comments are often more interesting than blog posts, I have long thought that some of the best stories in newspapers and magazines are published in the letters-to-the-editor section.

The Dec. 3, 2007, edition of BusinessWeek contains one of the most fascinating letters I’ve ever seen. (Click here and then scroll down to “Big MAC and the Chicago Machinations.”) It’s written by Bruce Kirschenbaum, a onetime assistant to New York City Mayor Abe Beame; at the time of the incident in question, Kirschenbaum was running New York City’s Washington office. I cannot vouch, of course, for the letter’s accuracy, but even if half of what Kirschenbaum says is true (and I see no reason to suspect that it’s not all true), he provides great insight into how political and financial battles are actually fought.

The short version: Chicago Mayor Richard J. Daley and the big Chicago banks were happy to let New York City and the big New York banks go down the tubes during New York’s 1970s fiscal crisis. Why? Good old competition. Here’s the long version:

I was fascinated by Felix Rohatyn‘s story about global leaders urging President Gerald Ford not to let New York go bankrupt in the 1970s (“City to Big Mac: So long,” BTW, Nov. 19). I have another story, one I’ve kept to myself for over 25 years. I was in the middle of this effort, as assistant to Mayor Abe Beame and director of New York’s Washington office. As such, I helped lead the effort to obtain loan guarantees. One night I was in the office of the late Senator William Proxmire (D-Wis.) [then chair of the Senate Banking Committee] along with New York State lobbyists. Proxmire was on the phone with Chicago Mayor Richard J. Daley (the current mayor’s father) and motioned for us not to let on we were there.

After Proxmire hung up, he told us Chicago banks were pushing to let New York go bankrupt in order to hurt the city’s “money center” banks. In those days, banking was not national, and New York and Chicago were in feverish competition. Proxmire told us Daley would publicly support loan guarantees but not help much behind the scenes.

The senator asked us not to tell anyone about this, not even Beame or Governor Hugh Carey, since it would only hurt getting federal assistance. Ford’s stance against New York was bewildering to me, since a former New York governor, Nelson Rockefeller, was Vice-President. Ford’s stance played a role in his losing to Jimmy Carter, whom I joined in the White House as a Deputy Assistant.

Bruce Kirschenbaum

In case you think this is a matter of purely historical importance, do consider the growing debate about whether New York City is truly as resilient as it appears in the face of a looming economic slowdown. And as you can see here, Felix Rohatyn is still well worth listening to.

Scott Supak

It fascinates me how bailout happy conservatives trash liberals for socialist ideas.

Corporate welfare projects, like the war in Iraq, might have to be trimmed a little to pay for this one.

neil wilson

This is something that I never understood. Maybe someone here can help me.

I was working for the FDIC back in the early 80's in Fort Wayne, Indiana.

International Harvestor was going bankrupt and had a big decision to make. It could close a big, old, plant in Fort Wayne or close a newer, smaller plant somewhere in Ohio. They decided to close the plant in Fort Wayne. (I am not second guessing their decision.)

What I don't understand is this:
Soon after the decision to close the plant, they came out with a financial restructuring that all the banks needed to approve. It would require the banks to take a substantial loss.

Why did the Fort Wayne banks approve the deal? They didn't really lend the money to Harvestor headquarters, they lent the money to the local company that had employed thousands of people in Fort Wayne. They easily could have refused the deal and been paid in full. Instead they took a big loss. Fort Wayne also took a huge loss. Standing up to the big guys would have been a popular decision.

Now, I assume the reason is that the Fort Wayne banks would have turned into outcasts if they had turned down the restructuring. However, a similar situation would never show up again since Fort Wayne only had one employer as big as Harvestor and they could never lose as many jobs in a single stroke again.

Can anyone help explain why the Fort Wayne banks did something that hurt their profits and made them unpopular at home? None of the banks exist any longer having long since been bought out by those big banks from Chicago and New York and Charlotte.




Cmon, this is Western major politics. Nobody's really a liberal. Over here the Conservatives held on tenaciously to power until the opposition: the Labour party, became right-wing enough to get elected themselves. :P

Rob Koch

I can still remember the headline from the NY Daily News: 'Ford to New York: Drop Dead'. So simple and something that can really gnaw in your memories.