Centres of excellence

Covid-19 challenges New York’s future

Cities around the world, take heed

By night, Manhattan holds 1.6m souls, a large number for a small island. In the morning over twice as many more rush in like a tide, filling up office blocks, coffee shops and spin classes. In the evening this tide drains back out over bridges and through tunnels, leaving just a thin residue of small-hours stop-outs and shift workers.

The ebb and flow is shallower at weekends, and in summer. But it has held its rhythm for more than a century.

In mid-March the tide stopped. Following stay-at-home orders issued by Andrew Cuomo, New York’s governor, workplaces shut down as hospitals filled. The city became one of the deadliest hotspots of the covid-19 pandemic, with 20,000 dying over three months. Times Square emptied, the museums and concert halls closed.

At the end of May the streets came to fitful life as thousands protested against racism and police violence in the wake of the death of George Floyd under the knee of a Minnesota police officer. Bill de Blasio, the city’s mayor—and, as a newly enthusiastic backer of the police department, one of the targets of the protests—instituted a curfew which lasted until June 6th, two days before the city began its official reopening.

Construction and manufacturing have now restarted; shops offer pavement pickups. But many businesses are still shut, and most office workers at home. Broadway will stay dark until at least September. The schools’ chancellor has said that there is a 50-50 chance schools will reopen in the autumn.

The city that never sleeps looks as if it will be sedated for much of the rest of the year. If covid comes back in a big way, or if workers stay in front of screens at home, it could become moribund.

All the mystery and beauty 
Nowhere represented the 20th century’s love affair with the idea of the city better than New York. In size—surpassing London, the previous top dog, in 1925—grandeur, cultural attainment and animal spirits of all sorts it was for decades the toast of the world and a model to emulate.

Over the century more and more cities grew large, dense and rich. By 2016 more than a fifth of humankind was living in cities of 1m people or more. The largest 300 metropolitan areas now generate half the world’s gdp and two-thirds of that gdp’s growth.

And New York remains at the tip of the top tier. At almost $1.8trn its GDP is the largest of any city in the world. It is home to as dense a cluster of globally important firms as you can find anywhere.

Workers and firms have continued to pile into cities like New York, even as travel and telecommuting have become easier, because there is so much to be gained by proximity to other human beings, especially when it comes to the “knowledge economy” reliant on highly skilled, highly educated and highly productive workers.

Geoffrey West, a physicist at the Santa Fe Institute, has shown that these benefits in terms of wages and innovation grow faster than the cities which provide them.

Edward Glaeser, an economist at Harvard University, has shown that urban density increases workers’ productivity and minimises their carbon footprints. Americans who live in big metropolitan areas are, on average, more than 50% more productive than those who live in smaller metros.

This holds true even for workers with the same education, experience, working in the same industry and boasting the same iq. Much the same is true in other rich countries. In poorer ones the advantages of city life are even greater.

Closing down such powerhouses in the face of covid-19 was a dramatic and expensive step for the governments that did so. But it was at least conceptually simple.

Reopening them is harder, in large part because of the conflicting requirements of amenity and transport. For almost all cities reopening will see increased congestion as people who previously used mass transit commute by car and on their own. New York—big by European standards, uniquely mass-transit dependent by American ones—will have those problems on a scale all of its own.

“A 1% decline in transit use into Manhattan would translate into a 12% increase in car traffic,” says Nicole Gelinas of the Manhattan Institute, a think-tank. Corey Johnson, the city-council speaker, warns of “Carmageddon”.

But making mass transit safe in a world of social distancing is hard. The Metropolitan Transportation Authority (MTA), which is run by the state, is responsible for the city’s buses and a subway system which boasts more stations than any other in the world. It was already in poor financial and physical shape before the pandemic; during the covid closure it lost 90% of its riders and more than $2bn in revenue.

Though it is working on new ways to clean subway cars and distance passengers, it cannot put on enough services to keep commuters safely distanced. Indeed, if it does not get a substantial bail-out—which the state says it cannot afford—it is likely to have to cut jobs and services, worsening the problem.

Very careless and confused

Mr de Blasio has done little to help. Asked for 100km (60 miles) of new bus lanes to help with the situation he has provided just 30km. He has also been grudging when it comes to pedestrianising streets so that people can keep a respectful distance from each other while getting around and increasing provision for the use of bicycles.

This all means that New Yorkers cannot safely return to work in one fell swoop. But the point of a dense city is that it needs density to work. According to Enrico Moretti, an economist at the University of California, Berkeley, each of the “knowledge jobs” that make cities like San Francisco or New York so successful supports five service jobs, some high paying—lawyers—some much less so—baristas.

If office workers stay at home, the workers who depend on them being in town have no income.

If, faced with half-empty offices, such service workers do not come back for want of custom, that will add to the commuters’ disinclination to return. If the businesses providing services actually go bust waiting for the tide to turn things will go even worse.

Even if reopening goes well, the hole in the city’s finances will be vast. The declines in sales, income and property taxes that came with the shutdown will result in a $9bn tax-revenue hit over the next two fiscal years, according to Mr de Blasio.

The city’s independent budget office, which said on May 18th that the city’s fiscal situation is one of “absolute gloom and uncertainty”, thinks employment will not return to pre-pandemic levels until 2024 (see chart).

Without federal support, Mr de Blasio has said “any and all options will be on the table” for spending cuts, including laying off city workers. The state is unlikely to be able to bail out the city, given its own shortfalls.

Despite these dire straits, there are two good arguments for expecting New York to come back after covid.

First, cities in general have proven inordinately resilient to enormous shocks. In 2002 Donald Davis and David Weinstein, both professors at Columbia University, looked at Japanese cities bombed during the second world war and found that “temporary shocks, even of frightening magnitude, appear to have little long-run impact on the spatial structure of the economy.” It took just 20 years for Nagasaki’s population growth to get back to the trend line it had been on before America dropped an atom bomb on it.

And if cities are resilient in theory, New York has also proved so in practice. The attacks which brought down the World Trade Centre in 2001 were estimated by the city’s comptroller to have cost $83bn-95bn in lives and property. Lower Manhattan, where the twin towers had stood, lost almost 30% of its office space, temporarily displacing 100,000 workers.

But in 2002 Michael Bloomberg, the city’s newly elected mayor, began offering incentives to companies to move downtown, and commercial occupancy rebounded. The population in the area has more than doubled since the attacks.

By 2007 the employment rate had recovered to what it had been before. The next year Lehman Brothers collapsed, and the city’s flagship industry, financial services, looked hugely vulnerable.

But though by 2018 it accounted for just over a third of jobs in lower Manhattan, down from 55% in 2001, it is still there. Even the $19bn of damage done by Hurricane Sandy in 2012 amounted to only a glancing blow.

Property values on the Manhattan waterfront now stand 70% above the pre-Sandy level: on the Queens waterfront they are 128% higher.

What, though, if covid is not just the latest in a series of shocks?

Cities that can shrug off a disaster can still fade if their economic base—and with it their tax revenues—suffers a structural shift. Again, New York has the history to prove it.

Like other American cities, New York saw rioting in the 1960s. Between 1969 and 1974 two recessions saw New York City lose almost 300,000 manufacturing jobs. Most American cities experienced some “white flight” during that period. New York saw a lot.

The city lost 1.3m net residents during the 1970s, almost all of whom were white, more than the number lost by Los Angeles and Chicago combined.

Its tax base shrinking, by 1975 the city could not pay its bills or service its debt. Asked for help, Gerald Ford, then president, demurred. “FORD TO CITY: DROP DEAD” the front page of the Daily News bellowed in 144-point type.

Can’t repeat the past?

In the budget cuts which followed 13,000 teaching jobs were lost. For four years no police officers were hired; arrests fell by a fifth as crime, already bad, got worse. The subway was unsafe, there were graffiti everywhere, parks became drug dens. Today, St Mark’s Place is lined with busy bars, chic coffee shops and yoga studios.

Then it was grimy enough to supply an album-cover image of urban decay for Led Zeppelin and hosted crimes that ranged from mugging through murder to cannibalism.

But the city still had the advantages that come from packing knowledge workers together. In the 1980s Michael Milken of Drexel Burnham Lambert invented the junk bonds that enabled Henry Kravis, a co-founder of KKR, a large private-equity firm, to pull off the first leveraged buy-outs, revolutionising corporate finance.

This was not without its controversies—some of Mr Milken’s financial activities landed him in prison—but it did help the city regain solvency, not to mention pizzazz.

New York is in far better shape now than it was in the 1970s. But some 900,000 workers are expected to file for unemployment by the end of June, a level far higher than that seen in the Great Recession or after the attacks of 2001. Many businesses have closed thanks to covid-19; some may never reopen.

And the workers to start new ones might be sorely lacking. Immigrants make up almost half of small business owners in New York, and it is unclear when restrictions on immigration will be lifted.

Even if the federal government is generous—the $7.5bn provided so far has not been seen as such by Mr Cuomo, who thinks almost ten times that amount is needed—there are sweeping budget cuts to schools, health care and local government on the way.

Poorer services may keep those who have fled the virus from coming back. One in 20 New York City residents have left the city in the past months, taking up residence in single beds in childhood homes in all America’s contiguous states.

For Manhattan, the richest borough, the proportion is a sixth: in its swankiest zip codes it is more than a third, for all that most of the deaths have been in poorer neighbourhoods in the outer boroughs.

A further outbreak of disease would both worsen the economy and weaken the urge to return. Mr Glaeser thinks that an enduring threat from sars-cov-2, the virus which causes covid-19, “could lead to a serious and long-standing reorientation—at least for those that could afford it—towards de-urbanising of people’s lives.” It is worth noting that, pandemics apart, diseases generally tend to spread well in cities; Mr West finds that a city’s propensity for infection tends to grow faster than the city itself, just like wages and productivity.

And in a future where the virus remains under control the economic benefits of being packed tight, a boon in the city’s renaissance, might still be lost if some mixture of personal convenience and corporate strategy sees distance working turned from a temporary expedient to a lasting change in the way the urban economy works.

Take financial services, which account for a third of the Manhattan payroll. Barclays, JPMorgan Chase and Morgan Stanley, three banks, employ more than 20,000 workers in Manhattan and occupy more than 930,000 square metres (10m square feet) in its office blocks, an area roughly equivalent to all the office space in downtown Nashville. James Gorman, the boss of Morgan Stanley, which occupies much of a tower that looms over Times Square, has said that the company has “proven we can operate with no footprint.

That tells you an enormous amount about where people need to be physically,” though he has since stressed that most of the firm’s jobs will still be in offices. Jes Staley, the chief executive of Barclays, has said that “the notion of putting 7,000 people in a building may be a thing of the past.” In an internal memo JPMorgan Chase, one of the largest office tenants in New York, said the firm was reviewing how many workers would be allowed to return.

“Office space is where the biggest debate is,” says Ken Caplan, who runs the property investment arm of Blackstone, a New York-based private equity firm. Compliance with social-distancing measures seem likely to require more space per worker for many months. That will give companies a reason to encourage some workers to stay away some or all of the time while not changing the demand for office space much; Mr Caplan is confident in long-term demand.

Borne back ceaselessly

If workers can conduct their jobs from home permanently, some will leave the city for good. According to a survey conducted by Redfin, a property platform, more than half of those currently working from home say they would move away from their city if given the opportunity to work from home permanently.

This may be an exaggeration. Thinking you might like to move and moving are quite different; searches on property websites do not show an immense appetite for life in the boondocks (which, to true New Yorkers, basically means all parts of the country outside the city’s limits).

Scott Stringer, New York City’s comptroller, for one, thinks flight to places like Austin, Texas, is unlikely. “You know why?” he laughs. “Because they’d have to live there.”

What is more, an entirely decentralised workforce, however Slacked, Teamed, Hung-out and Zoomed it might be, cannot capture all the benefits the city has to offer, either for its members (in terms of finding better jobs) or its employers.

Paco Ybarra, an executive at Citigroup, another bank, has said that firms might be able to work remotely now because they have already built up client and team relationships face-to-face in the past, but that this would “erode over time”.

Supposing you brought the light inside?

There may thus be a new balance to be found as individuals and companies seek to meld continuous online connections with an adequate exposure to the physical serendipities and contacts of city life. Office attendance will become a memory for some, a daily delight for others and a movable feast for most.

This will encourage a new sort of sprawl. Living near the heart of the city has long seemed worth it—in terms of high property prices and rents, and therefore small apartments—because the job opportunities and amenities are so valuable. If the daily tide of commuters weakens, so will some of those benefits, because the customer base will have shrunk, and the attraction of moving somewhere larger will grow.

“If you only need to commute two or three days a week, you can spend the same total amount of time commuting but live much farther out in a bigger house with space for an at-home office,” says Taylor Marr, an economist at Redfin.

For their many flaws, cities have been an engine of prosperity, as well as a way of reducing the damage modern lifestyles do to the environment. In prior episodes of turmoil cities like New York have bounced back because their people have been drawn together more than they have been pulled asunder. Stepping onto a crowded subway or elevator was an act of defiance in the face of terrorism fears.

This time around the city’s leaders will not be able to rely on the gritty resilience of its inhabitants to restart the city. They will need to create inventive schemes that help workers travel safely and make sure the city has the contact-tracing and testing capacity to prevent a second outbreak.

They will also need to keep a close eye on how the ways in which people work, and the places where they do so, may change. If New York can increase its telecommuting while keeping its vibrancy, it may again be a model to cities around the world. If it cannot, density will return—either there, or, if the city fails this latest test, elsewhere.

The mystery document holding up China’s sale of Anbang hotels

A legal fight over the ownership of US assets threatens to embarrass the Chinese Communist party

Henny Sender in Hong Kong, Don Weinland in Beijing and James Fontanella-Khan in New York

© FT montage

When South Korean asset manager Mirae pulled the plug on a $5.8bn hotel deal with China’s Anbang in April, it looked like one more casualty of the coronavirus outbreak.

The acquisition agreed in September 2019 had dragged on into the pandemic, which has devastated the hotel industry.

Mirae’s last-minute termination of the deal in April led to accusations from Anbang that the buyer “got cold feet”.

But a previously undisclosed document — revealed in a US court by Mirae, part of its defence in a suit brought by Anbang — suggests the pandemic was just one element of why it walked away from the purchase of 15 hotels including the JW Marriott Essex House overlooking New York’s Central Park and Four Seasons and Ritz-Carlton resorts in California.

The document reveals competing claims of ownership on the hotels, which were stripped from Anbang’s former chairman Wu Xiaohui by Chinese authorities in 2017. Purportedly signed by Wu, the Delaware Rapid Arbitration Act agreement, or DRAA, appears to be an attempt to transfer ownership of the hotels from Anbang to four Delaware-based parties, and also give his own family a claim to the assets, just weeks before he was detained in China in June 2017 on corruption charges.

At the time he was arrested Wu was the most high-profile tycoon to be ensnared in President Xi Jinping’s anti-corruption drive. Anbang was once considered the darling of Chinese M&A, launching an $18bn buying spree between 2014 and early 2016. Along with a small cohort of other acquisitive conglomerates such as HNA and Dalian Wanda, its deals were often viewed as part of the Chinese government’s “going out” policy that endorsed overseas investments.

Now Beijing is potentially saddled with billions of dollars in debt from that spending spree and facing a bitter US legal fight over Anbang’s assets that threatens to embarrass the Communist party’s top leadership. Among those who have been drawn into the legal fight is the family of the late Communist party leader Deng Xiaoping — who opened up the economy in the 1970s.

A granddaughter of Deng became Wu's third wife.

Anbang’s former chairman Wu Xiaohui addresses a court in Shanghai. Wu was arrested in Beijing and eventually sentenced to 18 years in prison
Anbang’s former chairman Wu Xiaohui addresses a court in Shanghai. Wu was arrested in Beijing and eventually sentenced to 18 years in prison © AP

“The politics behind Anbang got very complicated for Xi Jinping, mainly because there are other powerful families with interests in the company,” says one person close to its senior management. There has been a continuing internal fight over the company assets since Wu’s arrest, the person adds.

Anbang and bust

The sale of the hotels to Mirae — which won a hotly contested auction involving 17 bidders, including private equity firms Blackstone and Brookfield — was supposed to be one of the last large disposals of Anbang’s financial and property empire. The transaction would have helped reduce its debt, to the relief of Beijing regulators, who had already given the leveraged insurer a $10bn state bailout.

Founded by Wu as a small insurance group in 2004, Anbang was from the beginning a one-man show. But the one man at the heart of it — a former car salesman from Wenzhou — proved to be erratic.

The company underwent rapid expansion after 2011 with its by then billionaire owner quickly garnering a reputation as the country’s most prominent dealmaker. In a matter of months in 2015, it bought Dutch insurer Vivat and a large stake in South Korea’s Tongyang Life.

By 2016, Anbang held insurance and real estate assets spanning the globe. That same year, Wu was involved in a bitter battle with Marriott to buy Starwood Hotels, at one point offering $14bn for the chain only to abruptly withdraw the bid without explanation days later.

Military commander turned entrepreneur Chen Xiaolu, the former Anbang director who died of a heart attack in February 2018 after being questioned by Chinese regulators about his role in the insurer
Military commander turned entrepreneur Chen Xiaolu, the former Anbang director who died of a heart attack in February 2018 after being questioned by Chinese regulators about his role in the insurer. His seal was on disputed DRAA document © Giles Sabris/New York Times/Redux/ eyevine

But the company was not built on a solid foundation. Chinese investigators alleged in 2017 that the company’s founder had been injecting insurance premiums into Anbang to artificially inflate its stock, bolstering the size of the group and fuelling his buying spree.

The same year — and with pressure mounting on his business empire — the Wu signature and seal appeared on the DRAA, apparently giving his family and that of former Communist party leader Deng claim to billions of dollars in California hotel properties, in the event of Beijing seizing control of Anbang.

The existence of the DRAA — dated May 15 2017 — was not widely known until April of this year. Much of its content focuses on trademark disputes. But a clause towards the end of the 16-page document states that, in the event that Anbang is seized by China’s insurance regulator or other government entities, the Wu and Deng families “unconditionally agree to have the four parties of the United States to sue and file an additional complaint against the institutions”.

Travis Laster, the vice-chancellor of the Court of Chancery in Delaware who will be the judge when the case between Anbang and Mirae resumes in August, recently said of the “parties”: “Those folks have vanished into the ether. It may be because they never existed in the first place. It may be because they are fraudsters. It may be because they are somewhere in China. I don't know.”

Central Park, New York: Mirae walked away from the purchase of 15 hotels, including the JW Marriott Essex House overlooking the park
Central Park, New York: Mirae walked away from the purchase of 15 hotels, including the JW Marriott Essex House overlooking the park © Andreas von Einsiedel/Alamy

The document also warns that the DRAA is confidential and may not be leaked “in particular, to Xi Jinping’s family, [then anti-corruption chief] Wang Qishan’s family and other families of members of the Standing Committee, or any personnel from the central government, any law enforcement personnel, and other personnel, lest that relevant personnel be subject to criminal liability or death penalty”.

The document adds that any party that contravenes the agreement could be liable for a penalty of up to $270bn. Wu once described Wang to the FT as his biggest enemy. Just three weeks after the DRAA was signed, Wu was arrested in Beijing and eventually sentenced to 18 years in prison.

Former aides say Wu was normally reluctant to sign documents, which has led some in Anbang to question the authenticity of the DRAA. Anbang legal representatives in the US have sought to portray the DRAA as a fraud, saying that Mirae is using it as an excuse to brake the deal, and on Wednesday asked the Delaware court to dismiss the document from the case.

Adam Offenhartz, a lawyer at Gibson, Dunn & Crutcher, representing Anbang, said in a May 8 hearing: “I find it remarkable that Mirae, an international company with billions of dollars under its management wing, with billions of dollars of investments, is basically cloaking itself with the cloud generated by these fraudsters.”

Anbang executives in China did not formally respond to emailed questions and requests for interview about the document.

The DRAA also bears the seal of military commander turned entrepreneur Chen Xiaolu. Chen, a so-called princeling, was the son of Chen Yi, a revered revolutionary who served as mayor of Shanghai during Mao Zedong’s era.

The younger Chen also served in the military but later moved into business, becoming a director at Anbang, though he was never formally on the payroll.

He left the company in 2016, months before the DRAA was drawn up.

A security guard tries to prevent photos being taken outside the Anbang Insurance building in Beijing
A security guard tries to prevent photographs being taken outside the Anbang Insurance building in Beijing © Greg Baker/AFP/Getty

Chen died of a heart attack in February 2018, after being questioned by Chinese regulators about his role in the insurer and the extent of the compensation he might have received from Wu, Anbang insiders say.

Mr Xi sent a relative to the funeral service, who gave a short speech in which he described Chen as an elder brother to the Xi family, they add.

According to a February 2020 letter by DLA Piper sent to the then-counsel of record for the entities named in the DRAA, it was Chen’s idea to shift the ownership of at least some of the hotels from Anbang to the Wu and Deng families. The law firm said it had been engaged by other parties to the DRAA to explore the agreement’s validity and potential claims against Anbang but it has subsequently stopped representing the entities.

The DLA Piper letter notes that Wu’s signature on the DRAA “appears to match the signatures on Anbang Insurance’s trademark applications filed to the” US Patent and Trademark Office.

Yet it is not identical “so as to be a cut-and-paste copy”.

The uncertainty over the ownership of the hotels was enough to trigger Mirae’s refusal to close the purchase in late April.

“Once those litigations and related matters came to light within days of the . . . closing, the title insurers refused to unequivocally insure [Mirae] as the sole owner of the properties, and the lenders, several of the world’s leading financial institutions, were unwilling to provide the $4bn in financing needed to close,” according to Mirae’s counterclaim against Anbang.

Unpicking the M&A spree

The DRAA’s existence also poses problems for China’s banking and insurance regulator. The CBIRC took control of Anbang in February 2018 with a mandate to dispose of its overseas assets, reduce its mountain of debt and withdraw from the insurer, now renamed Dajia, within two years.

Anbang’s management hired investment bankers to sell off its offshore assets. The priority was to find a buyer for the hotels, all under the Strategic Hotels & Resorts brand which Anbang had initially purchased from Blackstone in 2016 for $6.5bn.

Shenzhen: a billboard features Deng Xiaoping, the late Communist party leader who opened up the Chinese economy in the 1970s. Wu Xiaohui is married to Deng's granddaughter 
A billboard in Shenzhen featuring Deng Xiaoping, the late Communist party leader who opened up the Chinese economy in the late 1970s. Wu Xiaohui’s third wife is Deng's granddaughter © Nicolas Asfouri/AFP/Getty

A senior CBIRC regulator, Luo Sheng, was put in charge of the process despite having limited overseas experience to deal with complicated transactions such as the legal dispute with Mirae. Despite early successes — such as the sale of the Fidea Belgian assets for $543m — it quickly became clear that unpicking Anbang was going to be a complex process for the regulator, which declined to comment for this article.

Problems surfaced even before the deal was signed in September 2019 when Mirae discovered grant deeds — separate from the instructions in the DRAA — that purported to show that ownership of six Californian hotels, including a Four Seasons in Silicon Valley and a Ritz-Carlton in Half Moon Bay, had already been transferred to other unrelated parties, according to legal documents reviewed by the FT. But Anbang reassured Mirae that it could expunge what it said were fraudulent titles, and later cleared most of the six.

But with competing claims on some of the properties, the title insurance companies refused to provide the unconditional cover required for lenders to finance Mirae’s $5.8bn purchase. The Korean group had already paid a $581m deposit to Anbang and a $50m fee to its bankers.

On February 24, Mirae’s leading lender Goldman Sachs alerted the South Korean company that its counsel Cleary Gottlieb had found that in addition to the disputes in California, Anbang’s remaining nine properties faced similar challenges in court in Delaware.

Mirae’s lawyers now argue that Anbang deliberately failed to inform it of the competing ownership claims, fearing that such a disclosure would have sunk the deal. “It’s like someone pulled the emergency brake,” says a person involved at the time.

“The discovery of the Delaware matters was a shock (and embarrassment) not only to Buyer, but to the title insurers and the lenders, who immediately pulled their commitment letter and demanded a full explanation,” Mirae said in a lawsuit against Anbang.

Gibson, Dunn & Crutcher, Anbang’s lawyer, says the insurer was not obliged to inform Mirae of the DRAA and only made it available to the South Korean group 24 hours before the transaction was scheduled to close.

Anbang continues to contest Mirae’s right to walk away from the deal to buy Strategic Hotels, whose value has almost halved from the $6bn it reached less than a year ago. But there is no obvious alternative buyer even at a substantial discount. “The legal quagmire that is emerging is going to make it very hard, even for the most aggressive buyer of distressed assets, to make a move,” says one investor familiar with the properties.

The purported signature of Wu Xiaohui in blue ink on the DRAA document, dated May 15 2017

Legacy problem for Beijing

If Anbang fails in its case against Mirae, it and the Chinese state could be left holding billions of dollars of debt — used to buy the properties in the first place — with no obvious way to repay it.

“This isn’t the best environment,” says one investor familiar with Anbang’s original purchase of the hotels. “That debt will have to be restructured.

It will take years.”

Even those who have dealt with both the company and regulators in the past, such as Blackstone and JC Flowers, say they are not interested in these assets, according to people close to the private equity groups.

Nor is it clear where Anbang will get the money to complete the promised multibillion-dollar renovation of Wu’s most famous acquisition, the Waldorf Astoria, which he bought in 2015 for $1.95bn.

Wu’s downfall signalled a larger shift for corporate China. In 2017 and 2018, several aggressive conglomerates began unwinding tens of billions of dollars in global investments. China’s global mergers and acquisitions footprint has already shrunk dramatically outside the technology sector.

China itself no longer has massive funds to recycle to the rest of the world. Failure to close the Anbang hotels deal or finding a new buyer, however, could seriously dent its capacity and that of Chinese companies to be taken seriously in developed markets for years to come.

“Chinese buyers are no longer considered the buyer of first choice,” says one investor with experience of the market. “Whether as buyers or sellers, they have lost credibility.”

Leaders Re-examine U.S. Reopenings as Coronavirus Cases Hit Another Record

Officials nationwide were rethinking their efforts to slow the virus, which the nation’s top infectious disease expert said were “not working.”

By Patricia Mazzei, Sarah Mervosh and Shawn Hubler

Tasia Markantonis, the manager of West Alabama Ice House in Houston, closed a customer’s tab at noon Friday, when Texas bars had to close again because of the coronavirus.Credit...Callaghan O'Hare for The New York Times

MIAMI — As coronavirus cases surge across much of the United States, leaders are urgently rethinking their strategies to curb the spread, which the nation’s top infectious disease expert said on Friday were “not working.”

For the first time, some governors are backtracking on reopening their states, issuing new restrictions for parts of the economy that had resumed.

Leaders in Texas and Florida abruptly set new restrictions on bars, a reversal that appeared unthinkable just days ago. And Gov. Gavin Newsom of California told rural Imperial County, where hospitals have been overwhelmed with patients, that it must reinstate a stay-at-home order, the most restrictive of requirements.

More than 45,000 new cases were reported on Friday in the United States, according to a New York Times database. It was the third day in a row that the country set a daily record during the pandemic. At least six states — Florida, Idaho, Kansas, Oregon, South Carolina and Utah — hit daily highs on Friday, but even leaders outside of the new hot zones in the South and West expressed mounting anxiety.

“This is a very dangerous time,” Gov. Mike DeWine of Ohio said in an interview on Friday, as cases were trending steadily upward in his state after appearing to be under control for more than a month. “I think what is happening in Texas and Florida and several other states should be a warning to everyone.”

“We have to be very careful,” he said.

The stock market responded badly, with the S&P 500 dropping 2.4 percent. Losses accelerated after the Texas announcement, adding to investors’ concerns that the virus continued to be a threat to the economy.

The shifting assessments of the nation’s handling of the virus stretched to the highest levels of the federal government, where Dr. Anthony S. Fauci, the director of the National Institute of Allergy and Infectious Diseases, made clear that the standard approach to controlling infectious diseases — testing sick people, isolating them and tracing their contacts — was not working. The failure, he said, was in part because some infected Americans are asymptomatic and unknowingly spreading the virus but also because some people exposed to the virus are reluctant to self-quarantine or have no place to do so.

In a brief interview on Friday, he said officials were having “intense discussions” about a possible shift to “pool testing,” in which samples from many people are tested at once in an effort to quickly find and isolate the infected.

Dr. Fauci also issued an urgent warning that while coronavirus infections were spiking mostly in the South, those outbreaks could spread to other regions.

Even in the face of the alarming news, the White House continued to praise its own efforts.

“We have made truly remarkable progress in moving our nation forward,” Vice President Mike Pence said at what has become a rare public briefing by the coronavirus task force in Washington. “We’ve all seen the encouraging news as we open up.”

Mr. Pence did not wear a mask, although the health officials around him did.

Florida residents waited in their vehicles at a coronavirus testing site at Raymond James Stadium in Tampa on Friday. The state hit a daily high for new confirmed cases.
Florida residents waited in their vehicles at a coronavirus testing site at Raymond James Stadium in Tampa on Friday. The state hit a daily high for new confirmed cases.Credit...Eve Edelheit for The New York Times

The renewed sense of urgency comes as the United States confronts a new, treacherous phase of the pandemic, no longer defined by a crisis concentrated in New York City, but by rising cases in many cities and states.

Alabama, Alaska, California, Georgia, Missouri, Nevada, Oklahoma and Texas also reported their highest single-day totals of new known cases this week, and the United States set records for daily new cases on both Wednesday and Thursday. By Friday, new daily cases were rising in 29 states.

From Miami to Los Angeles, mayors were contemplating slowing or reversing their plans to return cities to public life. On Friday, San Francisco announced it was delaying plans to reopen zoos, museums, hair salons, tattoo parlors and other businesses on Monday, citing a spike in new cases.

“Our numbers are still low but rising rapidly,” Mayor London Breed wrote on Twitter, adding, “I know people are anxious to reopen — I am too. But we can’t jeopardize the progress we’ve made.”

Mayor Carlos Gimenez of Miami-Dade County said late Friday that he would sign an emergency order closing beaches from July 3 to July 7, citing the surge of cases and fears about mass gatherings during the holiday weekend. Parks and beaches will be closed to fireworks displays, and gatherings of more than 50 people, including parades, will be banned.

“The closure may be extended if conditions do not improve,” he said in a statement, adding, “I have decided that the only prudent thing to do to tamp down this recent uptick is to crack down on recreational activities that put our overall community at higher risk.”

The decisions in Texas and Florida to revert to stronger restrictions represented the strongest acknowledgment yet that reopening had not gone as planned in two of the nation’s most populous states, where only days ago their Republican governors were adamantly resisting calls to close back down.

On Thursday, Gov. Greg Abbott of Texas placed the state’s reopening on pause, while remaining firm that going “backward” and closing down businesses was “the last thing we want to do.”

But by Friday, he did just that, ordering bars closed and telling restaurants to limit themselves to 50 percent capacity rather than 75 percent.

“If I could go back and redo anything, it probably would have been to slow down the opening of bars,” Mr. Abbott said in an interview with KVIA-TV in El Paso on Friday evening.

“People go to bars to get close and to drink and to socialize,” he said. “And that’s the kind of thing that stokes the spread of the coronavirus. So sure, in hindsight, it may have been better to slow the opening of the bar setting.”

Eight weeks ago, Mr. Abbott started a phased-in reopening of Texas, when the state had reported about 29,000 cases and more than 800 deaths. Bars had been allowed to open since late May.

New cases and hospitalizations have increased significantly in recent days in Houston, San Antonio and other large cities. By Friday, Texas had more than 130,000 known coronavirus cases and more than 2,300 deaths, and the leader of the third-largest county in America — Harris County, which is home to Houston — had deemed the region to be on a code-red coronavirus threat level.

“We find ourselves careening toward a catastrophic and unsustainable situation,” the top elected official in Harris County, Lina Hidalgo, said at a news conference. She said the current hospitalization rate was on pace to overwhelm the hospital system “in the near future.”

Patrons at Big Dean’s, a bar and restaurant by the Santa Monica pier, waited to have their temperatures taken on Thursday. Mayor Eric Garcetti of Los Angeles said he was urging health officials to come to a consensus strategy in California.

Patrons at Big Dean’s, a bar and restaurant by the Santa Monica pier, waited to have their temperatures taken on Thursday. Mayor Eric Garcetti of Los Angeles said he was urging health officials to come to a consensus strategy in California.Credit...Bryan Denton for The New York Times

In Florida, the speed of the virus’s growth was dizzying: State officials reported 8,942 new coronavirus cases on Friday, by far outpacing its earlier single-day record of 5,508 cases, which had been set on Wednesday.

Officials announced limits on bars, immediately banning alcohol consumption on the premises. Bars can still sell food if they are licensed to do so, but their facilities must remain at 50 percent capacity.

The return to stricter limits left local officials worried whether residents would follow the rules, especially now, months into the crisis.

“People are tired of being in a stay-at-home environment, and they’re not going to be compliant,” said Carlos Migoya, president and chief executive of the public Jackson Health System in Miami. “You can’t put the genie back in the bottle. We’ve got to deal with it being in the environment.”

Pete Boland, who co-owns the Galley, a restaurant and bar in St. Petersburg, Fla., was sorting through the details of Florida’s latest order on Friday to determine what the rules will be for establishments that also serve food.

He had just reopened on Wednesday, following a professional deep cleaning after some employees fell ill with the virus.

“I don’t know if we can continue to do this: open, closing, open, closing,” he said. “You have people who desire to socialize and to earn and to live and to have some fun in this crazy world.”

In Arizona, Gov. Doug Ducey has held out on setting new limits in his state, even as cases there surged past 66,000, with an average of 2,750 new cases per day. He warned this week that hospitals were likely to hit surge capacity soon but he has remained opposed to backtracking on reopening.

“This is not another executive order to enforce, and it’s not about closing businesses,” he said this week. “This is about public education and personal responsibility.”

Phoenix residents walked in Coronado Park on Wednesday. Gov. Doug Ducey of Arizona warned this week that hospitals would likely hit surge capacity, but he has not backtracked on reopenings.
Phoenix residents walked in Coronado Park on Wednesday. Gov. Doug Ducey of Arizona warned this week that hospitals would likely hit surge capacity, but he has not backtracked on reopenings.Credit...Adriana Zehbrauskas for The New York Times

Still, shutting down businesses again in Arizona is not out of the question, Daniel Ruiz, the state’s chief operating officer, said in an interview on Friday.

“We want to treat that like a last resort,” Mr. Ruiz said. “It’s a tool in the toolbox, but it’s something that we’re going to use very judiciously.”

California, which had the first stay-at-home order in the nation this spring, has surpassed 200,000 cases, and on Friday, Mr. Newsom announced new restrictions on Imperial County, which has the state’s highest rate of infection. The county has exceeded its hospital capacity so severely that some 500 patients have had to be moved to beds elsewhere, and hospitals as far away as the Bay Area have been seeing Imperial County patients.

“This disease does not take a summer vacation,” said Mr. Newsom, noting that at least 15 of California’s 58 counties were being monitored closely as the virus surges.

In Los Angeles County, health officials estimate that every 400th person may currently be infected. Mayor Eric Garcetti of Los Angeles said he planned to wait three to five days before deciding whether to pull back on the city’s reopening.

“We’re not in the red zone but we’re in the yellow zone,” the mayor said in an interview on Friday.

From case counts to hospitalizations, he said, the city’s metrics are moving in the wrong direction, in part because of a patchwork of responses in neighboring areas.

Mr. Garcetti said he would like health officials in the state, the county and the surrounding region to come to a consensus strategy.

“If you don’t move together, there’s no point in being the lone holdout,” he said. “If you don’t have an entire region working together, who cares if you keep your gyms closed?”

Patricia Mazzei reported from Miami, Sarah Mervosh from Pittsburgh and Shawn Hubler from Sacramento. Contributing reporting were Nicholas Bogel-Burroughs and Giulia McDonnell Nieto del Rio from New York, Julie Bosman from Chicago, Manny Fernandez from Houston, Frances Robles from Miami, Michael D. Shear and Sheryl Gay Stolberg from Washington, and Dave Montgomery from Austin, Texas.

The US Walks a Fine Line in Eastern Europe

Washington wants to rebuild a capable, conventional deterrent without agitating the country it is meant to deter.

By: Caroline D. Rose

In early June, White House National Security Adviser Robert O’Brien signed a memorandum authorizing yet another drawdown of American troops, this time directing the Pentagon to remove more than a quarter of its forces stationed in Germany and placing a cap of 25,000 personnel in the country.

Following similar actions throughout the Middle East, the move affirms Washington’s commitment to restructuring its defense posture.

This restructuring, or at least the timing of it, may not have been possible without the coronavirus pandemic and subsequent recession, which have been distracting enough to give the U.S. Defense Department the opportunity to act on its long-term plans to counter conventional threats.

Chief among them is Russia. Moscow’s adventurism in Georgia, Ukraine and elsewhere over the past decade reminded Washington that it ought to strengthen its forces along Europe’s eastern flank.

Hence why it is moving its soldiers in Germany farther east to places like Poland. But this is more of a balancing act than a true pivot; Washington isn’t vacating Germany entirely any more than it is setting up a new iron curtain in Poland. Instead, the U.S. is layering its forces, keeping a permanent presence in Germany while supporting its rotational presence along the Eastern European frontier.

Germany Makes Eastward Force Projection Possible

After the end of World War II, U.S. operational presence in Germany was the foundation of its Cold War strategy and was thus seen as the guarantor of peace on the Continent. Creating a transatlantic foothold was as much about safeguarding North American interests as it was about making sure Europe didn’t again succumb to the kind of infighting that would implicate everyone else in another world war.

Implicit in the strategy was to keep Germany from rearming and reemerging as a continental power.

The 1949 Occupation Statute enabled Allied forces to monitor West German disarmament while keeping a close eye on Soviet forces, and even after West Germany gained autonomy over its military, the 1954 Convention on the Presence of Foreign Forces enabled the U.S. and its NATO partners to remain in the country. And for 40 years, American forces in Germany swelled. At the height of the Cold War, Germany hosted 400,000 foreign troops – more than half of them American.

But for nearly two decades, the U.S. has been slowly chipping away at its operational presence in Germany. After the Berlin Wall fell and the Soviet Union disintegrated, the Pentagon understood that Eastern Europe was no longer the threat it once was and so began a gradual disengagement, which was accelerated by the global war on terror after 9/11.

During the early 2000s, the Pentagon reduced ground forces to a few combat brigade teams, and scaled down the size and scope of operations as other NATO members eased conscription and slowed large-scale reinforcement. As a result, from 2006 to 2018, Washington clipped its presence in Germany by half.

In that sense, O’Brien’s announcement in June is pretty standard stuff, especially since the U.S. has no intention of leaving Germany altogether.

The country is simply too important to transatlantic operations and too integrated into its defense infrastructure.

U.S. bases in Germany continue to play a core role in the U.S. defense posture, second only to Japan in terms of gross numbers of U.S. soldiers.

Germany serves American defense interests not just in Europe but also in the Middle East, North Africa and South Asia.

The U.S. stages its largest foreign base in Bavaria, stores 20 B61 bombs in the Buechel air base, and uses its Ramstein and Stuttgart bases to conduct operations in conflict zones such as Yemen and Afghanistan.

Germany hosts a world-class training center for U.S. forces and its partners in Grafenwoehr, five of seven army garrisons in Europe, and a level-III trauma care center that services U.S. personnel, contractors and embassy workers. Germany may not be Europe’s easternmost frontier, but it makes eastward force projection possible.

Pivot to Poland?

The U.S. still has some of the same imperatives it did in the Cold War, but the theater has changed. German reunification and the liberation of former Soviet satellite states have put more than 1,300 miles (2,100 kilometers) between U.S. installations in Germany and the near-500,000 Russian troops stationed along the Western Military District.

And as Russian provocations have intensified and distrust among NATO members has increased, Eastern European governments have encouraged the U.S. to deploy to the region as a deterrent.

Hence Washington’s relatively newfound interest in Poland, which occupies an area on the North European Plain that has historically served as a flashpoint in Russia-Europe tensions.

Poland’s natural distrust of Russia makes it a natural U.S. ally, as does the fact that it is geographically close to Russia, is one of six NATO members that actually meets the defense spending target of 2 percent of gross domestic product, has launched a $5 billion 2026 Technical Modernization Plan that will provide its forces with fifth-generation equipment (fighter jets, unmanned armored vehicles, assault helicopters, short-range rockets and submarines), and has demonstrated time and again that it is more than eager to build the necessary infrastructure to host American forces.

The U.S. already has a growing presence in the country: a rotational Armored Brigade Combat Team, a U.S.-led multinational NATO battle group, and an Air Force detachment.

And since 2018, the U.S. has made public plans to build a forward-deployed division headquarters, pre-positioned equipment, logistical units and MQ-9 Reaper drone squadron there.

Even so, the U.S. has come to realize that making Poland the vanguard of the eastern front is easier said than done. There are legal, logistical and financial obstacles in Washington’s way. Foremost among them is any perceived infringement of the 1997 NATO-Russia Founding Act, which prohibits the U.S. and its NATO allies from constructing any permanent basing in former Warsaw Pact countries.

Some argue the act is outdated – rendering its commitments void – but the Kremlin has signaled that permanent U.S. basing in Russia’s former buffer zone would, in any security environment, cross a red line. The Founding Act is why the U.S. will be consigned to rotational deployments to Poland for the foreseeable future, careful not to incite a serious Russian reaction without having the legal upper hand.

Moreover, Poland and the U.S. are on very different pages. Just one year ago, U.S. President Donald Trump and Polish President Andrzej Duda agreed to a 1,000 troop bump and plans for a permanent base to be called “Fort Trump.” But discussions have broken down. Poland has lobbied Washington to increase the amount of ABCTs and combat enablers, while the Pentagon dismisses the idea as too ambitious.

The Pentagon has already reactivated its V Corps with the goal of eventually sending rotational troops to an undisclosed location in Eastern Europe (widely suspected to be Poland) for command and control operations, but standing up additional brigades when the Defense Department has only 11 armored brigades would be exceedingly expensive.

The bigger disagreement, however, is over where exactly to position U.S. forces. Warsaw wants U.S. forces smack-dab on Poland’s border with Russian client state Belarus – a move that could easily ruffle the Kremlin’s feathers. The U.S. prefers to position itself a few steps back in central or western Poland where it can keep a healthy distance from Russian troops and is closer to some of its German installations.

The U.S. is trying to walk a fine line. It’s determined to rebuild a capable, conventional deterrent without overly agitating the country it is meant to deter. For all the talk of drawing down troops in Germany, this isn’t an “either/or” situation. As military destinations, Poland and Germany complement U.S. interests, so the allocation of resources between the two needs to be thought of within the context of the United States’ broader strategic defense needs.

Money Is Moving Out Of U.S.: The Debt Party Is Over

John M. Mason


• Foreign money that had been invested in the United States appears to be leaving the country as the extent and length of the economic downturn is now being realized.

• The huge amount of debt that has been created over the past twenty years, combined with the debt now being issued, is creating a huge burden that must be satisfied.

• Federal Reserve actions will help meeting the liquidity needs of financial markets but are not expected to create the economic growth needed to cover the debt burden.

In only three of the last 20 years has the United States experienced foreign investors being net sellers of US Treasury securities. The last his this happened was in 2016.

“Goldman Sachs expects foreign investors to be net sellers of US Treasuries this year,” writes Eva Szalay in the Financial Times.

Ms. Szalay cites data from the Institute of International Finance, a trade body, saying that “After record capital outflows of $83bn in March, some investors are returning — $23bn found its way back in April and May….” And, for the year as a whole, Goldman Sachs believes that there will be an overall outflow.

This viewpoint is consistent with the conclusions that I have reached at an earlier date.

Behind The Flow of Money

For much of the past 20 years, the United States has served as a “safe haven” for “risk averse” investors around the world as they moved their money to currency areas in the world they thought would be “safer” for their assets.

One of the major reasons for the US being a “safe haven” is that the US dollar is the reserve currency of the world. Another major reason why the US dollar has remained the reserve currency of the world is that the Federal Reserve has conducted its monetary policy in a way that has maintained the trust of the world. Investors from around the globe have trusted that their funds would be “safe” in the United States.

Concern was raised in 2016 with the election of Donald Trump as president of the US. Mr. Trump had a reputation as a wheeler/dealer, debt-loving commercial real estate billionaire from New York city. And, he came into office pushing for the Federal Reserve to loosen up on its monetary policy to create a much weaker US dollar so as to spur on US exports to get the United States growing faster. In the fall of 2016 the statistics showed that foreign money began to flow “off shore” due to the net selling of Treasury securities took place. 
The Federal Reserve Gets Control

The Federal Reserve did not follow the wishes of Mr. Trump, which he did not accept quietly, and kept moving methodically ahead to keep the economy growing slowly, but steadily. In effect, Fed chairs Janet Yellen and Jerome Powell carried the economy through the early part of his tenure by maintaining a steady hand at the wheel of the central bank, which helped to maintain the economic expansion through 2019.

This leadership at the Fed helped to retain the confidence of the international investment community and foreign monies continued to flow into the United States in 2017, 2018, and 2019.

Then, early in 2020, the coronavirus pandemic hit the United States.

Something Changed

As the effects of the coronavirus pandemic spread and the US economy started to shut down. At the end of February 2020, the Federal Reserve turned its full attention toward protecting the US economy by moving to protect the US financial system.

But. as was mentioned above, foreign investors were net sellers of Treasury securities and $83 billion moved off shore. But, the Fed’s moves appeared to be convincing as we saw some monies returned in the April and May period.

However, things changed at the end of May. As I wrote in early June, investors began to realize that maybe the Federal Reserve could not carry the entire burden. The things that had been taking place in Washington, D. C. were not really supportive of strong economic growth. In fact, if anything, they were destructive, reducing world trade and world cooperative interactions.

The efforts by the administration to follow protectionist trade policies, withdrawal from the architectural pillars of globalization such as the Paris Agreement on Climate, Trans-Pacific Partnership, World Health Organization and traditional Atlantic alliances, gross mismanagement of COVID-19 response, together with wrenching social turmoil not seen since the late 1960s, were all painfully visible manifestations of America’s sharply diminished global leadership.

Furthermore, the recent announcement that US troops will be withdrawn from Germany just added to the growing gulf between the leaders of Germany and the United States. And, this put us back to where we were in late 2016 and early 2017. The concern is that the United States will not be able to achieve the economic growth it needs to cover the debts that have been built up in the past twenty years.

Another Consequence

The looming consequence of all this, as Eva Szalay “will leave the US relying on domestic investors to finance its deficit.” Here we turn to Mohamed El-Erian to fill us in on what might be in store for us.

Mr. El-Erian begins by bringing us up-to-date with what has happened in the recent past, a period when “The US economy relied on a mix of public and private finance to liquefy financial markets, boost asset prices and drive economic growth.”

Individuals who have read my posts over the years will see that it fits my description of credit inflation, a process that has been the foundation of government economic policy since the 1960s.

But, Mr. El-Erian continues: “The resulting explosion in leverage has been cheered by markets and most economists…. But, it will become a lot more problematic should finance’s front-running of the economy not be validated by strong growth that is also inclusive and sustainable.”

He describes the process of credit inflation in some detail, but places it within the context of the Great Recession and the economic recovery that followed. The steady advancement of credit inflation, beginning in the Great Recession, became one where “Government debt and the Federal Reserve’s balance sheet exploded.”

And, although the government gave assurances that this expansion “would be reversed once economic growth recovered,” the reversal did not take place. In fact, the Federal Reserve kept interest rates extremely low in order to sustain the expansion and “the private sector went on a borrowing binge” where corporations could buy back stock, pay high dividends and pursue mergers and acquisitions.

The Surprise Hit

Then the Covid-19 shock hit. And, the Fed took a “whatever it takes” stance as the Fed moved to provide protection against liquidity problems and, hopefully, solvency problems. But, the Fed had to do it. (For a good defense of the Fed’s actions, check out the interview with Raghuram Rajan, former head of the central bank of India and economics professor at the University of Chicago.)

But, the huge expansion of financial leverage will only add to the burden of the debt that already exists. This a problem connected with the building up large quantities of debt…an unknown unknown can creep up and hit you between the eyes, while your debt still must be paid off.

Mr. El-Erian states that “This huge rise in financial leverage will prove advisable and sustainable if, and only if, economic growth picks up quickly and validates it.”

“But if growth disappoints, the economy and markets will have to cope with a massive debt overhang that results in even greater central bank distortions of markets and lower growth potential. There will be widespread debt restructurings too, and disorderly non-payments. “

And, herein lies the problems for the future. On Wednesday, the Federal Reserve System released its latest economic projections. The projections showed that Fed officials believe that the real economy will be smaller in the fourth quarter of 2021 than it was in the fourth quarter of 2019.

The economic recovery, according to Federal Reserve expectations, will not be V-shaped as many people were hoping for. Not only with the recession be a relatively deep one, the recovery from it will be relatively slow and strung out over several years.

This will bring on, as Mr. El-Erian suggests “widespread debt restructurings” and “disorderly non-payments” of debts. In other words there is a lot of stress to work through in the next few years.

Debt Party Is Over

In other words, the debt party is over, and now we must suffer the consequences of it. And, it is not going to be a very comfortable time because if the foreign money is leaving the United States, because all of the upcoming adjustments will have to be carried by “domestic investors.”

Although the pandemic is not the fault of Mr. Trump, he will be held accountable for many of the consequences connected with the spread of the pandemic through the economy. And, given his background in the commercial real estate game, he will also be criticized for the debt buildup during his tenure that created such an exposure to any unknown shocks that might hit the economy. This just goes with the territory.

So, now we have to deal with an extended economic recovery and a substantial restructuring of the financial obligations that are outstanding in the economy. Hard work is ahead.

Oh, by-the-way, Mr. El-Erian signs off with the suggestion that “companies need to resist the temptation to use debt for more financial engineering and higher executive pay.” This is always easy to say after a financial catastrophe has been experienced.