The power broker : Robert Moses and the fall of New York

by Caro, Robert A

  They can give politicians access to the inside financial information on whi fortunes are made by electing them to their boards of directors, and they c give them fortunes more directly by giving them blocks of their own sto at favorable prices or, more directly still, by giving them unsecured loa which allow them to make investments without the inconvenience or ri of using their own money, and by giving them those loans at interest rat so favorable that the investments can hardly help resulting in a profit. Thi can give politicians loans of a size that make them rich beyond their drearr

  The acceptance of these—and other—favors puts politicians in tl banks' debt. Banks are very good at collecting debts. They collect them wi interest. And they collect politicians' debts with interest: the public intere Decade after decade, what banks wanted from Albany or City Ha banks got.

  Some political analysts speak of the influence of New York's banks influence exerted almost entirely on the Republican Party, but it is not on Republicans who are interested in money. The power of the great banks New York crosses party as well as county lines. Within the over-all politic structure of New York—city and state—it is all-pervasive and immens And Moses enlisted it behind his aims.

  Banks have one aim: making money. Moses made sure their aim and h coincided. He made sure that banks would make money—quick money, eas money, safe money—from his public works.

  Revenue bonds—the key to his authorities' existence and power—wei the key to the alliance.

  Banks needed authority bonds. Forbidden by federal law from puttin the money deposited with them by the public into any but the very safe investments, the very best of what bankers call "good, high-grade paper"-barred specifically from purchasing corporate stock and by inference, ir ference reinforced by continuous evaluation of their investment portfolio by government regulatory overseers, from purchasing any bonds and note except those of the most "solid" corporations, of governments and of publi authorities—four years of investment-stifling war had left them "loade with cash," impatient to put it to work earning more cash, and with drastically insufficient supply of "good, high-grade paper" into which V put it. Jack Madigan, who had spent weeks trying to peddle Henry Hudsoi Bridge bonds around Wall Street in 1936, was astonished when previousl aloof bank presidents began inviting him to lunch in their private dinin; rooms in 1946—until one, Stewart Becker, president of the Bank 0 Manhattan, casually remarked over dessert, "You know, Jack, we've go more money than good uses for it." Then he understood. Returning fron Becker's table, he told Moses that the banker was asking to be allowec to buy as much as possible of the next Triborough bond issue—and the bar tender's son added that he would never have to go hat in hand to banker again; Jrom now on, bankers would come to him. "It's just supply and de mand," he would explain simply. The demand for Triborough's bonds wa: far greater than the supply.

  Of all possible investments legal for banks, moreover, public authority

  bnds were the most desirable. In selecting investments, bankers had three ans: to keep their money safe, to make as much money as possible with it -and to keep the money they made. Keeping money meant, in postwar /nerica, tax exemption.

  Corporate bonds were dependent upon corporate profits, so much more rky than bridge tolls. Their yield was higher—in 1968, 8 percent to aout 5 percent—but banks had to pay half of their profits (52 percent, Iter 48 percent) to the government in taxes, so their yield from a corporate bnd would, in terms of money kept, be only 4 percent. So tax-exempt athority bonds had both greater safety and a higher return than corporate bnds.

  United States government bonds were as safe as authority bonds, their

  eld as high, but that yield was subject to state and local taxes; their net yield

  as lower. State and municipal bonds, exempt from taxes, had net

  ?lds about the same as authority bonds. But, in Wall Street's view, they

  ^re not as safe since states and municipalities always seemed to be in

  nancial difficulties, and were continually being forced to go to the voters for

  ermission to raise taxes. And who could predict what voters would do?

  authorities, on the other hand, grew continually more prosperous, from

  avenues guaranteed by covenants that were sacred contracts, safe from

  ublic whim or will. During the first postwar quarter century, New York

  ity's bonds fluctuated fairly substantially in the ratings they were given for

  tfety. Triborough's held steady, year after year—at AAA, the highest

  iting given. Ask New York bankers why they are so eager to buy public

  athority bonds and they begin, as does Dwayne Saunders, vice president of

  le investment division of the Chemical Bank, by speaking sanctimoniously

  f "our feeling of responsibility to the community" by financing projects that

  ill benefit it. But the longer one talks to bankers, the less the talk is of

  ^sponsibility and the more it dwells on more mundane considerations. A

  nborough bond "is a very, very high-quality instrument, you know,"

  aunders says. "And they are paying, say, 5.40, which is [almost] 11 percent.

  here are corporates out there, but no government stuff. You're always

  latching yield against safety in this business. Any portfolio manager will try

  /ithin his limits to maximize his yields—he becomes very, very interested

  a yield . . . And [authority bonds] are the highest-yielding of any investment-

  rade security after tax." Higher-yielding than any other safe investment,

  dgher-yielding in fact than most risky investments, higher-yielding even

  han those riskiest of investments, personal loans—a public authority bond

  s simply the best investment a bank can make. By far.

  Of all public authority bonds, moreover, none were more desirable to )anks than Triborough's: by design.

  Moses wanted banks to be so anxious to purchase Triborough bonds hat they would use all of their immense power to force elected officials to *ive his public works proposals the approval that would result in their ssuance. So although the safety of the banks' money was already amply issured by Triborough's current earnings (so great that each year the uthority collected far more money than it spent), by the irrevocable

  covenants guaranteeing that tolls could never be removed without the

  bondholders' consent, and by Triborough's monopoly, also irrevocable, that

  guaranteed them that if any future intracity water crossing were built, they

  aid share in its tolls, too. Moses provided them with additional assurances.

  He maintained huge cash reserves—"Fantastic," says Jackson Phillips,

  of municipal research for Dun and Bradstreet; "the last time I

  d ten years' interest on reserve"—and when he floated the

  errazano bonds he agreed to lay aside— in addition to the existing re-

  — 15 percent (S45.ooo.ooo) of the cash he received for the new

  bore ueh it until the bridge was open and operating five

  of the Yerrazano bonds could be all but certain that

  heir interest every year even if the bridge never collected

  Small wonder that Phillips says. •"Triborough's are just about

  ; are." Wall Streeters may believe that "any investment

  .." but Robert Moses was certainly running the safest game in town.

  V-. additional margin of safety, moreover, was provided by Moses'

  Moses never hesitated to give Wall Street the impression that he

  would go aD out to protect their interests." Phillips says. '"We all knew,"

  : Moses would right for his bondholders." During the

  - existence, the State Power Authority had

  est the Street in even small p d bond offerings.

  In 1954, Moses was named its chairman, and he offeree e an issue of

  mo
re than a billior s, the lai vnd offering in history.

  "There was some caul on," Phil t>ut there was the feeling. 'Look,

  > :; : ; ssue days Holders of Port

  onds we :bed—although without cause—when, in i960,

  Ne^ Ye: .. v New Jcrsi egislatures :earned up to force it to use its

  surplus : lake : the dden Hudson and Manhattan

  vs e. -; e; se - sod) Monies; Triborough's

  surpluses m ?een huge : 000,000 per year and

  Ptoses made sure eommitted" to future

  ■ e;e :- ?:eeee.e ::g pre ee:s "Wal Streel lotted him for this."

  s tond Wa S . knew, Moses had the power to make these

  stick. The Municipal Foru:: V tk is a group of

  : ""-'"-' eor.s: .'. : --•;e.i ' : e; ■-; ;v::ei a:".a'.>:> who eenerally

  :;; - ~- N v " ; "-" : ' -' • — .:';•: . se W :e::ee: Re?;:: Moses

  appeared befoie the Forum, its members, those hard-eyed men of finance,

  >:ec: .is ere :'e: eir. e-e.: e-

  Yeses e^eee rakers r.ere :har. sa:e:

  ^h return on their money was ahead)* assured—in abundance—by *e PomnV tax-emapt stains. Bat Moses ± a still higher

  :-. TV interest rates on his bonds v :an thev needec

  --""-'-' ' - > ^ ; "--'" : ■: ■■ e-e. :;-.; ;; - .: >:r.g'.e >::.: issue. finance the YerrazaiK>-Narrovs Bridge, bondholders voald receive the almost incredible amount of $40,000,000" more than they : -lei . -i.e se:: ee: v:

  And favored bankers didn't have to wait for years to make money on Moses' bonds. He made it possible for them to make money in a single day.

  Banks make quick profits on bonds through underwriting, a procedure in which they agree to purchase bonds from the issuing agency in the hope of reselling at a profit those they can't afford to keep themselves.

  In the case of Triborough's bonds, of course, "hope" was an inaccurate term. No matter what the "state of the market," every postwar Triborough bond issue was sold out—with many buyers still clamoring for them—within twenty-four hours after the underwriting banks offered them for sale. In the case of Triborough's bonds, therefore, the underwriters' "risk"—the possibility that they may not be able to sell the bonds which is the rationale for the profits underwriters are allowed to make—was negligible. And Moses made sure that the underwriters' profits would be huge. He allowed the Verrazano underwriting syndicate, for example, to purchase $300,000,000 worth of bonds from Triborough for $295,760,851. Since these bonds were sold—on the same day they were issued—for $300,570,851, the syndicate reaped a one-day profit of almost five million dollars.

  Then there were the smaller morsels.

  There were, for example, the "service fees" that Triborough paid banks for authenticating and delivering the bonds; for acting as "paying agents" for the semiannual interest payments; or for acting as "trustee" for the bonds, a job which involved "studying the resolution," collecting an annual "administrative fee" for routine duties connected with it, collecting and cremating the coupons amassed by the paying agents and collecting the bonds when the issue was redeemed. These fees—four cents per coupon for paying agents, for example—seemed small, although Moses' fees were higher than others paid for similar work. But, paid out twice a year, year after year for the forty-year life of the bonds, they mounted up.

  Selection as a repository of Triborough deposits was similarly profitable. Moses' agreement to set aside $45,000,000 as a five-year "interest reserve" was in effect an agreement to leave on deposit in banks $45,000,000 on which the banks would not have to pay any interest—but on which they could, by lending it out, collect interest.

  Moses' generosity to banks had to be paid for out of the pockets of motorists, of course. If bondholders received tens of millions of dollars extra in interest, drivers would have to pay tens of millions of dollars extra in tolls. The state's Public Authorities Law supposedly keeps the cost to the public of public works as low as possible by prescribing the use of open, competitive bidding on bond sales and all other details of authority operation. But Moses wasn't concerned with the cost to the public. His concern was to enlist in his cause the banks who could use their power to push behind-the-scenes political leaders, as well as state legislators, city councilmen, borough presidents—and Mayors and Governors—into approving a public work that they might otherwise not have approved. Open bidding would have defeated this purpose. Banks would not push hard for a public work if they knew that

  after it was approved they would have to bid against other banks for its bonds—and might not get them at all. Banks would only push hard if they knew before the work was approved that they would profit from it.

  So Moses let them know. He inserted in the Public Authorities Law a section—561—that permitted the Triborough Authority to sell its bonds at either open sales or through "private placement," and, of course, he invariably selected "private placement"—with the banks that had been working with Madigan on the issue since its earliest stages.

  And since the aim of the use of private placement was to place power behind his proposals, he selected as the favored banks those that had the most power to place there.

  "Chase"—mighty Chase—had the most. The Chase Manhattan Bank, and the Rockefeller family that controlled it. Chase—the principal twentieth-century repository and instrument of the wealth and power of the nineteenth-century Standard Oil robber baron—traditionally, as Theodore H. White notes, "raised the big New York money for Republicans." William O'Dwyer, who tried to buck its power once, found out just how much it had, and later commented bitterly: "There's a dictator in New York City, and I'll tell you who it is. It's the Chase Manhattan Bank." Not that Chase's power was confined to state or city. During the postwar quarter century, the Chase Manhattan Bank was very probably the single most powerful financial institution on the face of the earth. And the Chase Manhattan Bank was selected by Moses as the trustee of Triborough's bonds and hence was the single largest recipient of the lucrative service fees connected with them.

  The Chemical Bank began wheeling and dealing behind the political scenes increasingly during the postwar era, executing an end run around the Federal Corrupt Practices Act by having various officers and directors establish, and contribute heavily to, a "Fund for Good Government" that in its turn made heavy political contributions, notably to the Nassau GOP machine and the Bronx Democratic organization headed by House Public Works chairman Charles A. Buckley. The Chemical Bank was the second-largest recipient of Triborough service fees. A Chemical officer, asked if the bank had ever purchased Triborough bonds, replied: "We bought a ton of them." The remaining service fees—and the lucrative underwriting profits and the right to purchase Triborough bonds direct from the source—were divided up among the Morgan Guaranty Trust, the Marine Midland Bank, the Manufacturers Hanover Trust and the United States Trust, a quartet of banks each of which possessed considerable political clout.

  The assets of such banks dwarfed the $200,000,000 of which Tom Shanahan at Federation Bank and Trust was so proud; Chase's assets in 1974 were thirty billion dollars. And so did their power. And now this power—the power of the greatest pool of liquid capital in the civilized world —was at the service of Robert Moses. He had a friend at Chase Manhattan, and the friend was its president; "No one will ever be able to thank you adequately for the contributions you have made to the city," David Rockefeller wrote him. He had a friend at virtually every major financial institution

  in New York. Says one observer of the New York political scene: "Whenever Moses made a proposal—and I mean over a period of years and years and years—you could invariably be sure that behind the scenes, the banks would be pushing for that proposal. Pushing hard."

  It wasn't just bankers' grays that Robert Moses had marching behind him; it was blue collars and hard hats, too.

  Despising working men and their organizations and desiring to drive men, to hire and fire them as he pleased, to hold their economic fate at his
mercy, he had naturally despised labor unions; let her invoke whatever laws she chose, he had told Frances Perkins during the Thirties, no union bricklayer would ever work at Jones Beach.

  But by the postwar Forties, labor unions had acquired immense power in New York. Their million-plus members formed the base of the Democratic Party's popular support, and their campaign contributions—contributions not only of money from their seemingly bottomless war chests but of services such as sound trucks and campaign-brochure printing and of manpower to perform the vital doorbell-ringing and Election Day transportation functions once performed by ward heelers—were indispensable. If the banks hid their power, the unions flaunted theirs; thanks to a special legislative privilege granted to no other organization, there was slapped down on the desk of every senator and assemblyman each morning, right next to the official calendar of pending bills, another, "marked," calendar, for his "guidance," a calendar on which was stamped, beside every bill in which organized labor had an interest: "this bill approved (or disapproved) by the new york state A.F.L.-c.i.o." And they had it to flaunt. No Democratic candidate ran for office without intoning some version of Robert F. Wagner, Jr.'s, oft-repeated incantation: "This is a good, fine union town, and as long as I'm Mayor I intend to keep it that way."

  In Moses' fields of operation, the key union figures, Harry Van Arsdale and Peter J. Brennan (later President Nixon's Secretary of Labor), had substantial power to influence government; Moses' contempt for working men and the unions that represented them had not changed, but emotions such as contempt had long since been subordinated to his desire for power; invited to lunch at Randall's Island, "Van" and "Pete," as their host was soon calling them, found themselves the object of all Moses' easy, flattering, gracious charm. Of his earlier hatred for all they represented, they could detect not a trace. "Bob . . . used to have a lot of fights with my predecessor," Pete Brennan says. "But he got to know us and we got to know him." And Van Arsdale and Brennan liked what they got to know. Their background was in the predominantly Irish-Catholic, conservative building trades—Van Arsdale, who ran the city's Central Labor Council, representative of 550 different unions, like a construction foreman ramrodding a gang of laborers, had been a member of the Electricians Union at seventeen; Brennan had worked his way up to president of the 255,000-member Building and Con-