Thread: U.S. Having A Garage Sale-Selling Off Infrastructure?

This is a very long article but did our government officials and banking investors holding a garage sale at the Waldorf selling off the nation's infrastructure? It sure sounds like it. Is this what happens when a country is in bad financial shape, they start selling off the assets, the infrastructure? Was the leasing of the Indiana toll road an experiment before doing it across the entire nation?

in mid-September, as the 61st United Nations General Assembly convened in New York, the Waldorf Astoria's dim, ornate lobby was teeming with diplomats and dignitaries who sat huddled in armchairs, conferring in a multitude of languages. Rumor had it that President Bush himself had dropped by the hotel the night before.

Down the hall, in the chandeliered entryway that leads to the Waldorf's Park Avenue entrance, 300 sharply dressed men and women were carrying on a different sort of diplomacy. These delegates, as they referred to themselves, were representatives from white-shoe investment banks and consultancies; high-powered lawyers; executives from the world's leading infrastructure companies; and, sprinkled here and there, federal and state officials, who never seemed to go long without being pulled into a conversation and handed a business card. They were at the Waldorf for North American ppp 2006—a conference dedicated entirely to infrastructure privatization in the United States.

As the conference opened, on the morning of September 19, Tom Nelthorpe, the editor of the trade magazine Project Finance, addressed the audience, drawing a laugh when he joked about pirates "plundering the resources of the New World." "I hope you'll find today's varied program evidence of a more sophisticated approach," he said.

Emerging markets rarely emerge solely on their own, and would-be road operators have spent years working to convince state and local officials that privatization is a no-lose proposition. It has created something of an echo-chamber effect, says John Foote, a senior fellow at Harvard's Kennedy School of Government who specializes in transportation issues. "If you've got enough people whispering in the ears of governors and mayors and so forth saying that this is the greatest thing since sliced bread and don't miss the boat, pretty soon people start believing it."

Perhaps the most tireless of the privatization advocates is Mark Florian, the chief operating officer of Goldman Sachs' municipal finance division, who advised Chicago and Indiana on their toll road deals and says he has personally visited more than 35 statehouses to "help spur the market." Florian was a speaker at the Waldorf conference, and after his remarks in the hotel's lavish ballroom, the Goldman Sachs executive—who bears a mild resemblance to Stephen Colbert—was instantly mobbed, rock star style, by delegates, all of whom seemed to be on a first-name basis with him.

"I at times tell my colleagues that I kind of feel like a missionary—out trying to sell the religion," Florian told Mother Jones. "We have been heavily invested in this."

Florian's employer isn't just any old Wall Street firm. It is one of the nation's most active and most profitable investment banks, and top Goldman Sachs officials have served in numerous administrations. Last summer, President Bush tapped its ceo, Henry "Hank" Paulson, as secretary of the treasury. Another former Goldman Sachs ceo is New Jersey governor Jon Corzine, who in September commissioned an analysis of whether state assets, including the New Jersey Turnpike, should be turned over to private companies. In addition to advising Indiana on the Toll Road deal, Goldman Sachs has worked with Texas governor Rick Perry's administration on privatization projects, and according to Schmidt, the former adviser to the Chicago mayor's office, it was a Goldman Sachs representative who first pitched the city on the idea of leasing out the Skyway.

That deal, which yielded $9 million in fees for Goldman Sachs, was "an eye-opener" for the company, Florian recalls: "That was a pretty phenomenal transaction. As soon as we were involved in that and saw the potential application of doing this more broadly, we were very excited about doing that." After the Skyway lease closed, Florian says, Goldman Sachs was inundated with calls from investors worldwide who wanted a piece of America's transportation infrastructure. "We said, 'Well, gee, if all these people are interested in investing, perhaps we can create a vehicle for them to invest through,'" he explains. To that end, Goldman Sachs put together an infrastructure fund that, by the time Florian addressed the conference, had already surpassed its original $3 billion target. Other investment firms, including Morgan Stanley and the Carlyle Group, began putting together their own funds. So appealing is the infrastructure market that Goldman Sachs has made significant changes to its municipal finance group to better position itself for a coming boom.

When Goldman Sachs began advising Indiana on selling its toll road, it failed to mention to the state that it was putting together a fund whose sole purpose would be to pick up infrastructure for the best price possible in order to maximize returns for its investors. Nor did the bank advertise the fact that, even as it was advising Indiana on how to get the best return, its Australian subsidiary's mutual funds were ratcheting up their positions in mig—becoming de facto investors in the deal.

"The firm is an established adviser, but we also have this big investment arm," Florian told Mother Jones, arguing that Goldman Sachs' dual nature typically doesn't cause a problem in corporate deals. "But this is a trickier marketplace, and people are cognizant of that because it is so public. It's so new.... We're going to really feel our way along here." A Goldman Sachs spokesman later contacted Mother Jones to stress that there is "a wall" between the firm's investment and advisory divisions. "Asset management makes its investment decisions independently of the rest of the firm," he said. Asked whether the firm has a system to prevent conflicts of interest, the spokesman demurred.

Florian says Goldman Sachs does have a system for avoiding conflicts in situations when Goldman is a principal investor in a deal. "We put in a voice mail and some information about that situation and what our role might be, and it literally goes around the world.... It's a good system, but it's not always perfect." Indeed, the system didn't stop Goldman Sachs last spring from vying to advise the city of Chicago on a deal to privatize Midway airport—even as it was seeking, along with other partners, to take over British Airports Authority, one of the companies likely to bid on the airport.

"One of the things we've learned in these recent corporate scandals is that those firewalls may not be very soundproof," says Duane Windsor, a professor of business management at Rice University and an expert on business ethics. "There is a lot of leakage back and forth...that kind of problem where the motives are so mixed that it's hard to tell why you are getting a certain piece of advice.

"There's no reason to think the people in these companies are abnormally honest," he adds wryly.

Dennis Enright, a principal at NW Financial Group, a New Jersey-based investment banking firm that advises municipal governments, says that in transactions involving vital public assets, investment banks such as Goldman Sachs should be carefully watched. "It does seem odd that they are effectively teeing up assets for their corporate clients to buy," he says. "In most situations, that wouldn't be deemed ethical." John Foote, the Kennedy School fellow, also suggests that Goldman Sachs has "some decisions to make. People don't want them playing on both sides of the fence."

So, we asked Florian, does Goldman Sachs want to be an adviser or an investor in the business of roads? "Both," he replied.

http://www.motherjones.com/news/feature ... aymen.html

Someone please check my cynicism ... Indiana Gov Mitch Daniels ...
is everyone from the Bush WH a slime bag anti-patriot?