To walk the streets of Manhattan these days, neck craning at the luxury skyscrapers or dodging the tourists on the High Line, it is hard to imagine a city so conspicuous with wealth was once, not long ago, teetering on the edge of bankruptcy, with garbage being burned in the streets, subway cars blanketed in graffiti, and the police warning visitors not to be out after dark. In Kim Phillips-Fein’s outstanding history of New York’s 1970s fiscal crisis, Fear City, you can almost feel the polyester chafing at your thighs and the stale aroma of stubbed out cigarettes in overflowing ashtrays as the city elders scramble to avoid catastrophe.
In Phillips-Fein’s deft hands, a story about municipal bond sales, city budgets, and financial bail outs is a page-turning political thriller with few heroes but ample room for soul searching about how government responds to the needs of its people. The set-up is fairly simple - the city of New York floated a budget deficit for many years by selling bonds they used to cover up the shortfall. As the 1970s began and the economy slowed, the amount the city needed to borrow became greater, the interest they paid to lenders increased, and at a point, the party came to a screeching halt when banks became concerned the city would be unable to pay them back.
And in this story, we learn that the true power is not in Gracie Mansion, but on Wall Street, where the screws are turned on the overmatched mayor, Abe Beame, to cut public services and jobs, and raise taxes in order to meet the city’s financial obligations. For public policy nerds, there is much to commend, the on-the-fly decisions to create entire new agencies to manage city finances and issue bonds, and the back-and-forth with the Ford Administration as city and state leaders go hat-in-hand seeking a bail out, culminating in the iconic New York Daily News FORD TO CITY - DROP DEAD headline.
Phillips-Fein ably moves between the 30,000 foot view down to the tree tops where the decisions being hashed out were actually felt. Whether it was the rank smell of uncollected trash piling up in the summer sun or the working class neighborhoods that fought back against the shuttering of fire houses and satellite college campuses, the human toll is never far from the surface. Indeed, fully the final third of Fear City focuses on the aftermath of all the cuts and layoffs and the inexorable shift of New York from a city that venerated its middle class to one that made a Hobson’s choice of jumping into bed with its financial overlords.
Fear City is non-fiction suspense at its best, but it is impossible to read this deeply researched account of New York’s flirtation with bankruptcy and not compare it to how financial crisis was handled when the shoe was on the other foot. For me, looming in the background of Wall Street’s heavy-handed treatment of city government in the 1970s is the disparate treatment of Wall Street by the federal government in the wake of the stock market crash of 2008. There, over the course of essentially one weekend, the federal government approved up to $700 billion in loans to major banks to shore up the economy. By contrast, New York City was left to twist in the wind for almost two years and was squeezed over and over - to cut police, firefighters and teachers, to charge tuition at the historically no-cost City College of New York, to raise subway tolls, and close public hospitals in order to get the cash they desperately needed. Elected officials were made to humble themselves and shamed for wanting to help the less fortunate and the less fortunate and middle class ultimately took it on the chin as opportunities for things like a college degree became more costly (or out of reach) and services they depended on were suddenly in short supply.
You need not be a PhD in sociology or macroeconomics to understand the message sent when financial crisis hits. If you are deemed “too big to fail,” the bail out will be swift and complete. If you are a mere citizen struggling to make ends meet, punishment must be inflicted to teach you a lesson.
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