Begin Reading Table of Contents About the Author Photos Copyright Page Thank you for buying this Henry Holt and Company ebook To receive special offers, bonus content, and info on new releases and other great reads, sign up for our newsletters Or visit us online at us.macmillan.com/newslettersignup For email updates on the author, click here The author and publisher have provided this e-book to you for your personal use only You may not make this e-book publicly available in any way Copyright infringement is against the law If you believe the copy of this e-book you are reading infringes on the author’s copyright, please notify the publisher at: us.macmillanusa.com/piracy For my parents, Charlotte Phillips and Oliver Fein, and for Clara, Jonah, and Greg Did mere indifference blister these panes, eat these walls, shrivel and scrub these trees— mere indifference? Adrienne Rich, “The Photograph of the Unmade Bed” (1969) Introduction On October 30, 1975, the New York Daily News printed the most famous headline in its history: “Ford to City: Drop Dead.” The previous day, President Gerald Ford had delivered a speech at the National Press Club in Washington on the looming bankruptcy of New York City Once inconceivable, such a collapse fit with the climate of the time American politics in the autumn of 1975 had taken on the qualities of a grotesque Saigon had fallen just a few months before Ford’s speech The memory of President Nixon’s resignation in the midst of the Watergate scandal was still fresh Oil shocks in 1973 had made it clear that the United States could not control supplies of the black gold on which its economy depended, and rapid inflation throughout 1974 and 1975 transformed each paycheck into a game of chance Across the country, people had been boycotting meat and sugar to protest exorbitant prices Massive corporate bankruptcies, near-bankruptcies, and financial collapses shook familiar business icons: the Penn Central railroad in 1970, the defense giant Lockheed in 1971, and the Long Island– based Franklin National Bank, the twentieth largest in the country, in 1974 The prospect of New York City’s collapse seemed a further terrifying lurch The leading men at the city’s biggest banks—including First National City Bank (the forerunner of Citibank), Morgan Guaranty, and Chase Manhattan—had spoken out in favor of federal aid for New York Executives from around the country had traveled to Washington to testify that if the city went under, the fragile national economy might topple as well Cold Warriors warned that the city’s bankruptcy would bolster the Soviet Union Lawmakers in Washington, Albany, and New York City itself eagerly awaited any hint that Ford might lend his support to a bailout deal How would it look—what would it mean—for New York City, the country’s largest metropolis, the home of Wall Street, the heart of American finance, to wind up in bankruptcy court? But President Ford and his closest advisers—a circle that included his chief of staff, Donald Rumsfeld, and the chairman of his Council of Economic Advisers, Alan Greenspan—strongly opposed federal help for New York They were convinced that the city had brought its problems on itself through heedless, profligate spending Bankruptcy was thus a just punishment for its sins, a necessary lesson in how the city should change to move forward And as far as the national economy was concerned, Ford and his circle believed that the banks, the businessmen, and the city were scaremongering, that the economic impact of the city’s financial collapse would easily be contained —that the market had already factored it in Accordingly, Ford promised to veto the bills that were circulating through Congress to provide emergency aid to New York Instead, he supported reforms to existing bankruptcy regulations that would make it easier for the city to file The meaning was clear: New York could go bankrupt, and the federal government would nothing to help For the president, as for much of the nation, New York City stood for urban liberalism, an example of the central role that government might play in addressing problems of poverty, racism, and economic distribution At the National Press Club, Ford challenged New York’s network of municipal hospitals and its free public university as lavish, unnecessary extravagances The federal government should not give a penny in bailout funds that allowed New Yorkers to continue these indulgences, he said Why should other Americans “support advantages in New York that they have not been able to afford for their own communities?” The harsh lesson was intended not only for New York Ford believed that the United States had to face a new reality: the country—indeed, the world—had entered an era of slowed economic growth, an age of austerity, in which it was no longer possible for the government to pay for many social services to which the American people had grown accustomed The citizens’ basic attitude toward government had to be transformed Americans needed a revived philosophy of individual initiative centered on fiscal responsibility and limited spending In the last few minutes of his talk, Ford scolded the nation: “If we go on spending more than we have, providing more benefits and more services than we can pay for, then a day of reckoning will come to Washington and the whole country just as it has to New York City.” And “when that day of reckoning comes, who will bail out the United States of America?”1 On that note, the president departed for California He was embarking on a fundraising trip for his 1976 presidential campaign on the home turf of his main rival on the right: the former governor of the state, Ronald Reagan Even before Ford’s speech, there were many in New York who felt that they had been abandoned A few months earlier, in the spring of 1975, a woman named Lyn Smith wrote a letter to her senator, the liberal Republican Jacob Javits Smith described the housing conditions in a South Bronx neighborhood near her home The city, it seemed to her, had stopped making any effort to demolish burned-out buildings, despite their dangers “When a house burns down they don’t destroy the frame, they leave it standing—you never know when it’s going to fall A little boy I know or knew named Ralfy lives in the South Bronx he was playing in one of the broken down houses and he fell through the floor he’s dead now but if that building had been torn down he wouldn’t be dead.” Smith’s tone— flat, apathetic, resigned, quietly bearing witness but hardly even launching a protest—is perhaps the most haunting aspect of her missive “I don’t know why I wrote this letter you’ll probably never read.”2 For a woman like Lyn Smith, austerity meant not only budget cuts but a political mood of bleak hopelessness The fiscal crisis involved discarding a set of social hopes, a vision of what the city could be For Ford and those around him, the New York City fiscal crisis was a story of the bankruptcy—economic and moral alike—of liberal politics It proved that using government to combat social ills would end in collapse It provided a spectacular repudiation of the Great Society, the War on Poverty, even the New Deal But for ordinary people, the fiscal crisis meant something different: it marked a change in what it meant to be a New Yorker and a citizen We are still living with the consequences of this transformation today * * * Forty years after the fiscal crisis, the 1970s remain a touchstone of New York City politics, the nightmare era to which no one wants to return The classic cinema of the 1970s and 1980s memorialized these years of disinvestment and blight in films such as Taxi Driver , The Panic in Needle Park, The Taking of Pelham One Two Three , and Fort Apache, The Bronx, which portrayed New York as a sea of filth and despair, an urban cesspool The decade is widely remembered as a time of crime, violence, lawlessness, disorder, graffiti-covered subways, inflation, unemployment, and budgets completely out of control—an era of social breakdown, economic malaise, and political collapse.3 The politics of the country more generally are recalled with a similar sense of failure: this is the decade when the old American dream fell apart, when unemployment and inflation replaced the steady prosperity of the postwar years, and the international supremacy of the United States ceased to be something to take for granted As Christopher Lasch wrote in the opening pages of his 1979 bestseller, The Culture of Narcissism, “Those who recently dreamed of world power now despair of governing the city of New York.”4 The common wisdom about the crisis holds that its primary cause was the flagrant irresponsibility of politicians such as John Lindsay, the idealistic mayor in the late 1960s who saw fighting poverty as a top priority for city government, and, even more, his successor Abraham Beame, who submitted to political pressures that endangered the city’s solvency Lindsay threw money at entrenched social problems without regard for budget realities; Beame was unable to resist the newly powerful public sector unions The result of their foolish overspending was that the city soon found itself with debts that it had no reasonable way of ever paying back.5 At the same time, paradoxically, the crisis is sometimes noted as a great triumph for New York: the moment when the city repudiated an older tradition of irresponsible altruism Everyone—labor, business, the banks, ordinary citizens—is thought to have accepted the need for austerity and chipped in Many of those who led New York through the valley of the shadow of default remember it as a time of solidarity, an era when the common people were willing to what it took to rescue the city from its shame As Felix Rohatyn, the Lazard Frères investment banker who helped to broker the deals that ultimately kept the city out of bankruptcy, later wrote, “The people of the city were willing to make real sacrifices as long as they believed that those sacrifices were relatively fairly distributed, that there was an end in sight and that the result would be a better city, a better environment, and a better life.”6 This book takes a different view Here, the budget comes to life as the place where opposing Residents of the North Brooklyn neighborhood of Williamsburg protesting in front of Engine Company 212, the People’s Firehouse Rally to Save Hostos in front of the Chase Manhattan Bank at 149th Street near Third Avenue in the Bronx, November 19, 1975 This large rally was the first major activity of the Community Coalition to Save Hostos People young and old alike taking goods from an A&P grocery store in the Bronx during the blackout of July 1977 President Jimmy Carter and Secretary of Housing and Urban Development Patricia Harris touring the South Bronx with Mayor Beame in October 1977 Children playing amid the rubble of abandoned buildings in the South Bronx in March 1979 ACKNOWLEDGMENTS As befits a book about fiscal crisis, I have incurred more than my share of debts writing this one I’m sure that there is no way that I can pay them back, but it seems worth at least trying to keep a proper account Researching this book took a long time, and it had throughout a feeling of serendipity I received support and guidance from many archivists and librarians, who pointed me to documents I would otherwise have overlooked I would like to especially thank Leonora Gidlund, Dwight Johnson, Marcia Kirk, and David Ment at the Municipal Archives of the City of New York; Douglas DiCarlo at the LaGuardia and Wagner Archives, LaGuardia Community College; Elizabeth Druga at the Gerald R Ford Presidential Library in Ann Arbor, Michigan; Sandra Roff and Alex Gelfand at the Newman Library of Baruch College, CUNY; Saleem Shah at the Citizens Committee for New York City; David Paskin of District Council 37; William Casari of the Hostos Community College Archives; David Henshall at the Freedom of Information Act division of the Securities and Exchange Commission; Pedro Juan Hernandez at the Centro de Estudios Puertoriqueños/Center for Puerto Rican Studies at Hunter College, CUNY; Thomas Lannon and Karen Gisonny at the New York Public Library Archives; Lois Kauffman of the Citibank Archives; James Folts at the New York State Library; Daniel Maye at the George F Mand Library of the FDNY Fire Academy; and Chela Scott Weber of the Tamiment Library at NYU I also benefited greatly from the generosity of individuals who participated in the events of the fiscal crisis years and who shared with me their private paper collections, their reflections, and their memories of that remarkable and tumultuous time Many also pointed me to other people to speak with, which I always appreciated deeply I list many of them in the notes, but I must especially thank Brian Balogh, whom I spoke to very early in the project; Dall Forsythe, who, in addition to being interviewed twice, provided guidance in working with the executive budgets that went above and beyond the call of duty; Ira Millstein; Tom Gogan; Janie Eisenberg; Ann Ambia; Richard Ravitch; Harrison J Goldin; Steve Clifford; David Paskin; and Ida Susser Richard Sylla shared with me some of his own unpublished writing about the fiscal crisis and pointed me toward the Citibank Archives, while Daniel Rowe generously shared with me his own research in the Jacob Javits Papers at Stony Brook University, and Tamir Butts his work on tuition at CUNY before the fiscal crisis My work on this book was aided greatly by my research assistants, all of whom are themselves talented scholars and writers: Stuart Schrader, Lana Dee Povitz, Zach Caceres, and Rebecca Nathanson Zach in particular helped work on the book keep moving forward at a time when it would otherwise have slowed to a standstill I am especially indebted to Rebecca Nathanson, who worked on this book for two years and whose labor has improved almost every page Danielle Lee Wiggins assisted with the research at the Jimmy Carter Presidential Library, and David Mislin aided with the Walter B Wriston Archive at Tufts University At the Gallatin School for Individualized Study of New York University, Susanne Wofford gave me a tremendous amount of freedom and support, which made it possible for me to write this book and for which I could not be more thankful The patient assistance provided by Cyd Fulton and Gisela Humphreys was also critical My colleagues and students at Gallatin have taught me a great deal about writing and talking about politics and the economy, and their questions inform this work at a deep level While I was researching and writing, I received financial support from the Stephen Charney Vladeck Fellowship, the Humanities Initiative, and the National Endowment of the Humanities Summer Stipend Program For my year at the Humanities Initiative, I am especially grateful to Jane Tylus and Asya Berger Much of the book was written during a wonderful year at the Cullman Center for Scholars and Writers at the New York Public Library The inspiration provided by the beautiful space that is the 42nd Street Library, and the feedback from my colleagues and friends there, helped me to complete the manuscript Jean Strouse, Marie d’Origny, Julia Pagnamenta, and Paul Delaverdac have my everlasting gratitude At Metropolitan Books, I have been extremely lucky to work with Sara Bershtel and Grigory Tovbis I can’t imagine better editors; their insights, sense of narrative drive, sharp questions, engagement with the prose, and close, thoughtful attentiveness to every page of the book have been invaluable I am especially grateful to Grigory for the time and care he has devoted to this book Prudence Crowther did a wonderful copy edit I’m also appreciative of the work of Olivia Croom and Lisa Kleinholz on proofs and the index Scott Moyers helped to place the book at Metropolitan, and I remain grateful for his work on the proposal, while my agent Andrew Wylie provided feedback and aid down the stretch I have been fortunate to engage with many people about New York in the 1970s and the fiscal crisis Along the way, I benefited from the questions of audiences at the Russell Sage Foundation, the Cullman Center for Scholars and Writers, the Heilbroner Center for Capitalism Studies at New School University (where I especially appreciated the feedback of Julia Ott and Janet Roitman), the New York University Society of Fellows, the John Jay College for Criminal Justice, the Culture and Politics Working Group of the Urban Democracy Lab at NYU, the Queens Museum, the Cullman Center Institute for Teachers, the Economization of the Social in the 1970s Symposium at New School University, and the NYU History Department, as well as those of conference attendees at the American Historical Association, the Policy History Conference, the Organization of American Historians, and the Urban History Association Several people contributed more directly by reading drafts I am very grateful to Joshua Freeman, whose work helped to inspire me to work on the fiscal crisis (my interest in the topic began when I read his Working Class New York in 2000) I was honored to have his extensive comments on a draft of the manuscript; they were incredibly helpful Dall Forsythe also read several chapters on the origins of the crisis and provided useful thoughts and comments My wonderful writing group comrades Jessica Blatt, Liza Featherstone, and Caitlin Zaloom read every word of this book more than once, talked about each chapter, and shared the long experience of writing They know well how much they did to shape it; their insights are evident throughout Their writings are an inspiration to me and their humor and kindness no less Finally, my dear friend Beverly Gage took the time from her own work to read a draft and offer her invaluable feedback—as well as her support over the years, just as crucial The last debts are the most personal I am profoundly thankful to Courtney Fenwick, Kristin Jones, Sandra Oree, Shaida Khan, Lornette Lewis, Loyan Beausoleil, and the teachers of Happy Feet Playground, University Plaza Nursery School, and PS 3, whose work made it possible for me to write My father- and mother-in-law, Albert and Geraldine Vargo; my brothers- and sisters-in-law, Mark and Barbara Vargo and Susan and Bill Howe; and my three nephews Alex, Barry, and John, all provide a network of support for which I’m deeply appreciative I am grateful for the affection and warmth I always receive from Elinor Tucker and Carolyn Phillips My friends Margaret Adasko Shore (whose father, H Hardy Adasko, always asks about my progress), Sevinc Ercan, Wibke Grutjen, Hannah Gurman, Hermine Hayes-Klein, Elsie Pan, Becca Lena Richardson, Wiebke Robrecht, Melissa Ann Schwartzberg, the Strauss sisters (Mariya, Kandra, and Taryn), and Nicky Thierfelder have also been very important to me over these years My sister Jesse Phillips-Fein, my friend and brother-in-law Benin Ford, and my baby nephew Nalo provided encouragement, engagement, and love My parents, Charlotte Phillips and Oliver Fein, to whom this book is dedicated, have lived and worked in New York City for more than forty years Their work, their hope, their love, and their steady example are the foundation of my life Without the practical and emotional support of my mother, in particular, this book would never have been written My beautiful children—my daughter Clara and my son Jonah—were born over the years I have been working on this book We have enjoyed together the parks, playgrounds, subways, pools, and libraries of the city; their lives have taken shape within the community that is afforded by these public spaces My husband, Greg Vargo, has supported the writing of this book in countless ways small and large, from our “film series” of ’70s movies to his comments on the manuscript But his intellectual engagement, as treasured as it is, is the least of the gifts he has given me He has lived the writing with me Always and forever, more than I can say ALSO BY KIM PHILLIPS-FEIN Invisible Hands: The Businessmen’s Crusade Against the New Deal ABOUT THE AUTHOR KIM PHILLIPS-FEIN is the author of Invisible Hands: The Businessmen’s Crusade Against the New Deal She teaches history at New York University’s Gallatin School of Individualized Study, and has written for The Nation, Dissent, The Baffler, The Atlantic, and The New York Times , among other publications She lives in New York City You can sign up for email updates here Thank you for buying this Henry Holt and Company ebook To receive special offers, bonus content, and info on new releases and other great reads, sign up for our newsletters Or visit us online at us.macmillan.com/newslettersignup For email updates on the author, click here CONTENTS Title Page Copyright Notice Dedication Epigraph Introduction Part I: Origins Warnings The Gap The Neighborhood Bookkeeper Sounding the Alarm Things Fall Apart Washington Politics Part II: Crisis Big Mac Fear City The Facts of Life 10 On the Brink 11 Drop Dead 12 Pastrami and Rambouillet Part III: Legacies 13 State of Emergency 14 The People’s Firehouse 15 The College in the Tire Factory 16 A New New York 17 Blackout Politics 18 The Final Storm Epilogue Notes Index Photos Acknowledgments Also by Kim Phillips-Fein About the Author Copyright FEAR CITY Copyright © 2017 by Kim Phillips-Fein All rights reserved For information, address Henry Holt and Co., 175 Fifth Avenue, New York, N.Y 10010 www.henryholt.com Jacket design by David Shoemaker Jacket photograph © Photoquest / Getty Images The Library of Congress has cataloged the print edition as follows: Names: Phillips-Fein, Kim, author Title: Fear city: New York’s fiscal crisis and the rise of austerity politics / Kimberly Phillips-Fein Description: First Edition | New York: Metropolitan Books, 2017 | Includes bibliographical references and index Identifiers: LCCN 2016033559 | ISBN 9780805095258 (hardback) | ISBN 9780805095265 (electronic book) Subjects: LCSH: Financial crises—New York (State)—New York—History— 20th century | Fiscal policy—New York (State)—New York—History—20th century | New York (State)—New York—Economic conditions—20th century | BISAC: HISTORY / United States / State & Local / Middle Atlantic (DC, DE, MD, NJ, NY, PA) | HISTORY / United States / 20th Century Classification: LCC HB3722 P497 2017 | DDC 330.9747/1043—dc23 LC record available at https://lccn.loc.gov/2016033559 e-ISBN 9780805095265 First Edition: March 2017 Our e-books may be purchased in bulk for promotional, educational, or business use Please contact the Macmillan Corporate and Premium Sales Department at (800) 221-7945, extension 5442, or by e-mail at MacmillanSpecialMarkets@macmillan.com ... For a city, it’s the same There’s the short version of events, and then there’s the one that goes back The collapse of New York in the 1970s stunned the nation because for so long, the city had... the City Council and the Board of Estimate by April 15 (The voting members of the Board of Estimate included the five borough presidents, the comptroller, the president of the City Council, and. .. political mood of bleak hopelessness The fiscal crisis involved discarding a set of social hopes, a vision of what the city could be For Ford and those around him, the New York City fiscal crisis was