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The original documents are located in Box 79, folder "New York City, November 1975
- July 1976 (2)" of the L. William Seidman Files at the Gerald R. Ford Presidential
Library.
Copyright Notice
The copyright law of the United States (Title 17, United States Code) governs the making of
photocopies or other reproductions of copyrighted material. Gerald R. Ford donated to the United
States of America his copyrights in all of his unpublished writings in National Archives collections.
Works prepared by U.S. Government employees as part of their official duties are in the public
domain. The copyrights to materials written by other individuals or organizations are presumed to
remain with them. If you think any of the information displayed in the PDF is subject to a valid
copyright claim, please contact the Gerald R. Ford Presidential Library.
Digitized from Box 79 of the L. William Seidman Files at the Gerald R. Ford Presidential Library
THE WHITE HOUSE
WASHINGTON
November 11, 1975
MEMORANDUM FOR THE PRESIDENT
FROM:
L. WILLIAM SEIDMAN
SUBJECT:
Meeting on New York City
A summary of a three-year financial plan for New York City, New
York State Agencies, and New York State, prepared by represen-
tatives of Big MAC and the Governor's Office is attached as is
an outline of a possible Administration position on New York
in light of these developments.
These documents will form the basis for our discussion of New
York today at 2:45 p.m.
MEMORANDUM FOR THE PRESIDENT
SUBJECT: New York Plan
Governor Carey, Felix Rohatyn, Chairman of MAC,
U
Stanley Steingent, Speaker of the State Assembly, Warren
Anderson, Majority Leader of the State Senate, and others
presented the outlines of a plan designed to meet the
financial needs of New York City, New York State and
the New York State agencies.
1. Summary of₁an. The plan involves new state
legislation to:
a. force a restructuring of New York City's
short term debt;
b. generate $200 million of new City tax
revenues;
C. reduce City pension contributuions by
$85 million.
d. generate sufficient State tax revenues
(approximately $600-700 million) to balance the
State's budget); and
e. provide funding for the Housing Finance
Agency to strengthen the financial condition of
that agency.
These provisions, and the commitments of the Unions and
the Banks are discussed in detail below.
FORD is LIBRARY GERALD
- 2 -
2. Proposed Federal Role. We have been asked to
provide seasonal financing on a short term, self-liquidating,
basis. For FY 76, approximately $1.3 billion would be
required during the period December 1975-March 1976, such
amount to be repaid by June 30, 1976. For FY 77 and FY 78,
the July-March need would peak at $2.3 billion in March,
and the entire amount would be repaid by June 30 of each
of these fiscal years.
Discussion of Plan
GERALD
LIBRARY
A. New York City
The key elements of the plan are a restructuring
of the short term debt and substantial commitments of new
cash from the union pension funds. The debt restructuring
is in two parts. First, the banks and other institutional
investors have agreed to exchange their short term New York
City notes for ten year City bonds carrying an interest
rate of 6 percent. They have also agreed to refinance their
holdings of MAC bonds to reduce the cash flow drain on the
City. These understandings are contained in letters to
MAC from the major New York banks (TAB ).
Individual short term City noteholders (who hold
$1.6 billion) will be offered a long term (10-15 year) MAC
bond, carrying an 8- percent interest rate. Holders who
do not accept the exchange will be subject, pursuant to new
legislation the Governor is introducing, to a 3 year moratorium
on their right to enforce the terms of notes: that is, their
- 3 -
ability to collect principal and interest at maturity.
This moratorium approach is modeled on the anti-mortgage
foreclosure legislation used by New York and other States
during the depression.
City employee pension funds have agreed to contribute
$2.5 billion of additional funds through FY 1978. This
commitment, as well as the commitment to restructure
existing holdings, is reflected in a letter to MAC signed
by the heads of the Teachers, Municipal Employee, and
Sanitationmen's unions. While these leaders cannot force
the pension funds to act, their influence is evidenced
by Shanker's delivery of the Teachers' fund to avoid
default on October 17.
There are two additional aspects of the City portion
of the plan. The Governor's legislation will include new
City taxes of $200 million and changes in certain pension
fund arrangements relieving the City of an $85 million
contribution obligation.
B. New York State
The key aspect of the State plan is new state
taxes to eliminate the $700 million deficit estimated for
the fiscal year ending March 31, 1976. At our meeting,
Governor Carey was not specific as to what types of tax
measurers might be taken. Moreover - - and perhaps more
importantly - - Senate Majority Leader Anderson refused to
accept the $700 million figur and was extremely vague as to
whether he would support new taxes as opposed to expenditure
- 4 -
cuts. The problem with the expenditure cut approach
over the short term is that it easily lends itself to
gimmickry such as merely deferring certain outlays into
the following fiscal year.
The Governor also indicated that he will seek to
achieve reductions in the welfare and social services area.
He was vague as to whether these reductions would come
through legislation, administrative actions or both.
The State has no concrete plans for meeting the
$4 billion seasonal borrowing requirement it faces in
April-June 1976. However, if the overall plan were put
in place, it would appear likely that the State would
the
have access to market to meet this need. And as a fallback,
the $11-plus billion in State employee pension plans could be
tapped.
C. State Agencies
Two major steps are being taken with respect to
the agencies. First, no new projects will be undertaken.
Second, the Governor is proposing legislation of the type
requested by the banking community to bolster the finances of
the Housing Finance Agency. Even if the legislation is
adopted, however, the banks have not agreed to meet the
agencies' , financing needs, which amount to approximately
$2.5 billion over the next two years. The State has
tentatively identified sources (pension funds, etc.) for
approximately $1.8 billion; it hopes to persuade the
banks to take the rest.
- 5 -
Evaluation of Plan
With respect to the City portion, the plan is basically
the Administration's bankruptcy proposal by another name.
Like our proposal, short term noteholders will not be paid
in cash, but will get long term bonds (or the equivalent)
instead. As would have been the case under our plan, the
Emergency Financial Control Board will run the City.
Whether the plan succeeds largely depends on two
factors. First, if any element of the legislation is
whittled back by the Legislature - - e.g. Fudging on the
amount of the State's deficit or the amount of new taxes
- - the existing commitments may not be kept and, more
importantly, the market - - essential for the State in
April - - may not be persuaded that the State has in fact
done what is necessary.
Equally important is the public's perception - - over
the next six months - - of how the State and City are
being managed. If reforms continue at their current pace,
the problem may be solved. If not, the problem may be as
great by April or May as fears return that the State will
have to commit more of its credit toward helping the City.
JBRARY
Timetable
We were asked for an answer by Monday. The view was
expressed that the Legislature will not act unless it has
a clear signal from Washington. As a practical matter,
this is probably not correct. If we indicate that we cannot
make a decision until we see the Legislation in its final
However, as a practical matter time is of the essence:
(1) The U.S. Congress, which must act on this matter
is planning to recess November 21.
(2) The restructuring of the short-term debt must be accom-
plished by December 10. Because of the complexity of the
restructuring arrangement, at least two weeks will be
required for this to take place.
THRARY
- 6 -
Options
Option 1. To turn down the requests for predefault
federal assistance and recommend that
further
actions be taken at. the state or
local level.
Option 2. Agree to support legislation authorizing
federal assistance to meet seasonal
borrowing needs on the following conditions:
(a) That it is limited to $1.5 billion
and with broad authority to revoke
assistance if state and city action
is not adequate,
(b) That the Governor of New York provides
us with written assurance that no
further requests for assistance for the
City, State, or for any of its agencies
will be forthcoming, and
(c) That the substance of such a letter be
embodied in a resolution of the state
legislature.
These are the two basic options available to you. It is,
f course, a matter of timing which provides you with several
GREAT FORD LIBRARY
- 7 -
additional alternatives:
(a) Indicate that you will consider federal assistance
as described above only after the State Legislature
has acted,
(b) That you are notconsidering any form of assistance
until the Legislature has acted, and
(c) If Legislature acts in a manner described in the
plan, you will provide assistance as described
above.
LIBRARY
[11-6-75]
NYC
GOVERNOR CAREY LETTER ON AID FOR N.Y. AGENCIES
Q. Will you support Governor Carey's request to the Federal
Reserve for a 90 day, $576 million loan for four agencies
of New York State?
A. I have received a letter from Governor Carey advising me
of his request to the Federal Reserve but, as you know,
the Federal Reserve Board is an independent body and the
Administration does not participate in or direct its de-
cisions. I have no control over whatever action the
Federal Reserve might take.
Background
For over a month, Governor Carey has had a detailed and care-
fully thought-out plan presented to him by the financial commun-
ity in New York to strengthen the credit of the New York State
Housing Finance Agency which would receive the great bulk of
the loan the Governor has requested. The plan is specifically
designed to put the Housing Finance Agency in the kind of fis-
cal condition necessary to restore market access. Press re-
ports of the Governor's request to the Fed indicate that he does
not intend to ask the Legislature to act on the plan until after
the State receives a loan from the Fed.
The financial community plan consists of the following:
1. Creation by State appropriation of an insurance fund in an
amount equal to 20% of annual debt service -- cost: approx-
imately $60 million.
2. Provide funding, by general fund appropriation, of the small-
er programs of the Agency -- $39 million.
3. Fund the $30 million shortage in the operating and mainten-
ance reserves of the component projects.
4. Finance the deficit in the Co-op City Project's debt ser-
vice - $12.5 million.
5. Agree to fund deficits in O ther projects as a line item in
the state budget.
6. Effect improvements in accounting methods and management con-
trols.
GERALD
-2-
There is, of course, no assurance that adoption of this program
would enable HFA to re-enter the market. As a practical matter,
however, the financial community could well be locked in: having
had their proposal adopted, they could not argue that financial
factors precluded their underwriting HFA securities.
Porter
November 6, 1975
LIBRARY
NEW YORK CITY
Q.
Why is Chancellor Schmidt so concerned about New York City?
A.
Chancellor Schmidt is the most appropriate and able person to
comment on his views. I might say that in a general sense
many concerns abroad regarding New York City are based on
psychological fears about a general disruption in financial
markets that could occur. As you know, I have proposed
legislation in the event of a New York City default, which we
all surely hope will not occur, that would provide for an orderly
procedure to handle the situation. Under this legislation there
need not be any major disruptions in the financial markets in
New York or anywhere else. Moreover, there are strong
indications that the markets have already made adjustments and
discounted for the possibility of a New York City default. In
short, the situation is manageable.
Porter
November 7, 1975
November 7, 1975
MEMORANDUM FOR:
JACK MARSH
FROM:
MAX FRIEDERSDORF
With regard to the Mansfield request for a meeting next week with the
President on New York City, this has been approved for 8:30 A.M. on
Monday, November 10.
In addition to Mansfield, the invitees will include Senators Muskle, Proxmire,
Robert Byrd, and Stevenson.
I have asked Bill Seidman and Alan Greenspan to attend and Bill will do the
President's briefing paper.
The New York City thing is rapidly building to a climax. We have a bill
reported by the House Banking and Currency Committee; by the House Judiciary
Subcommittee; Joe Waggonner wants to see the President next week on New
York City, and a Presidential letter from Lud Ashley was received here last
night.
CC: Bill Seidman
Alan Greenspan
all 5 senstars
have accepted
per many Kennedy
C 12:10 P.M. 11-7-75
FORD & LIBRARY GERALD
THE WHITE HOUSE
WASHINGTON
November 7, 1975
Dear Governor Carey:
The President has asked me to thank you for your
thoughtful letter of November 4 and for personally
advising him of the request for consideration of a
90-day extension of credit to the President of the
Federal Reserve Bank of New York.
As you know, the Federal Reserve Board is an
independent body and the Administration does not
participate in or direct its decisions.
I will continue to keep in contact with you regarding
developments and appreciate your thoughtfulness
in keeping us fully advised.
Sincerely,
LW Seedman
L. William Seidman
Assistant to the President
for Economic Affairs
Honorable Hugh L. Carey
Governor of New York
Albany, New York 12224
LIBRARY
STATE OF NEW YORK
EXECUTIVE CHAMBER
ALBANY 12224
HUGH L. CAREY
GOVERNOR
November 4, 1975
Dear Mr. President:
I have today sent the attached letter and supporting
materials to the President of the Federal Reserve Bank of
New York. On behalf of the people of the State of New York,
I am requesting that the Federal Reserve consider emergency
credit assistance for four agencies of the state that face
imminent default on their obligations. I wish to stress to
you that these agencies have nothing to do with the fiscal
crisis facing New York City. Each of them has an enviable
record of financial soundness and prudent management. Each
of them for years have been relied upon by the citizens of
New York to provide housing, health and environmental
facilities essential to the state's well being. Yet these
agencies, the models for similar agencies in over 30 other
states, now find themselves precluded from the investment
market a condition that has only been severely aggravated
since your recent speech calling for the bankruptcy of New
York City.
Should these agencies default, which certainly will occur
in the absence of Federal assistance, hundreds of projects
involving $2.5 billion in construction funds will be stopped
prior to completion and thousands of workers will be thrown
into the unemployment rolls. These projects include hospitals
and other health facilities, schools, and housing.
The general credit of the State will not only be placed
in jeopardy but, in my opinion, could be critically impaired
for many years to come.
Again, all of this does not have to occur. While these
agencies have no direct relationship with the New York City
problem, unfortunately the investment community views the
problem as one and the same. This will continue as long as
the Administration remains passive in the face of the New
York City crisis.
GERALD
- 2 -
In effect, the contagion of New York City has now
spread to agencies of New York State.
In addition, your many statements on this subject
continue to assert that the State of New York has
sufficient resources to meet the collapse of the city.
I would only remind you once more of what your own
financial experts know ----- the State of New York has its
own budget deficit of $700 million, and is in no position
to sustain the city's needs or meet the borrowing needs of
these state agencies.
I sense, Mr. President, as do many others across the
country that we are at an economic crossroads unparallelled
since those final moments in the darkest Depression. Whatever
points you thought necessary to make about the past mistakes
of New York City have been made. For our part, we have labored
long and hard over the past ten months of my administration to
right those wrongs. Now, despite all those efforts, we see the
rapid spread of financial confusion and distrust from the city
to the State, and potentially to other states as well.
It is not inappropriate, indeed it is in the tradition
of our nation for us now to look for and expect positive
leadership from a President and his administration.
Sincerely,
Hugh L. Carey
Governor
The Honorable Gerald R. Ford
President of the United States
The White House
Washington, D.C.
STATE OF NEW York
EXECUTIVE CHAMBER
ALBANY 12224
HUGH L. CAREY
GOVERNOR
November 4, 1975
Dear Mr. Volcker:
Pursuant to my responsibilities as Governor of the State
of New York, I herewith submit a preliminary application and
request for consideration of a 90-day extension of credit,
with the option of renewal for an additional 90 days, in the
amount of $576 million pursuant to Section 13 of the Federal
Reserve Act (12USC 343). The proceeds of this loan would be
applied to meet the immediate needs of the following public
benefit corporations which are authorized by statute to
operate within New York State:
-- Housing Finance Agency
-- Medical Care Facilities Financing Agency
-- Dormitory Authority
--- Environmental Facilities Corporation
Events in recent months and weeks have disrupted the
capital markets, closing them to the issues of several agencies
which have traditionally enjoyed high ratings and a reputation
for prudent and conservative management. New York State and
the Federal government, to the extent of their capacity, have
an obligation to help contain this crisis and to insure that
agencies with sound credit are not destroyed.
The President indicated in his address to the nation last
Wednesday that discerning investors would distinguish between
sound credits and weak ones, and that the market had already
largely discounted the potential insolvency of New York City.
Yet, as of this moment, the capital markets are closed to four
New York State authorities. Indeed, the prospects of securing
financing for these seasoned agencies are considerably dimmer,
not righter, following the President's speech.
- 2 -
Now more than at any other time, I believe, since creation
of the Federal Reserve System, the essentials of one of its
crucial national purposes are sharply defined by the demands of
the current crisis: to provide credit on an emergency basis to
sound agencies which find traditional sources of investment
temporarily closed to them.
In support of this application, enclosed is a series of
analyses prepared by my office which explain the circumstances
giving rise to this preliminary application.
I have discussed this request with the Lieutenant Governor,
the State Comptroller, the Speaker and Minority Leader of the
State Assembly, and the Majority and Minority Leaders of the
State Senate, and can report they endorse the course of action
proposed in this letter.
I have asked the legislative leaders to stand in readiness
to convene a legislative session the week of November 10th. As
you know, staff representatives of my office and the legislative
leaders have been meeting with financial institutions to discuss
steps that have been proposed to strengthen the viability of the
State agencies; the legislative session would provide a timely
opportunity for State action in support of the State agencies in
connection with any definitive action regarding an extension of
credit. It is my hope that this letter can lead to early dis-
cussion with you of the alternatives open to us and agreement on
a. common framework for action.
For a complete analysis and explanation of the public
purpose to be financed under the proposed loan, and to supply
further information, State Budget Director Peter C. Goldmark, Jr.
and the directors of the four public authorities involved are
prepared to answer any request you may have.
Sincerely,
/s/ Hugh L. Carey
Mr. Paul Volcker
President, Federal Reserve
Bank of New York
33 Liberty Street
New York, New York
Enclosure
94TH CONGRESS
1ST SESSION
H.R.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER , 1975
Mr. RODINO (for himself, Mr. EDWARDS of California, Mr. SEIBERLING, Mr.
DRINAN, Mr. BADILLO, and Mr. Dond) introduced the following bill; which
was referred to the Committee on
A
BILL
To revise chapter IX of the Bankruptcy Act.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 That chapter IX of the Bankruptcy Act is amended to read
4 as follows:
5
"CHAPTER IX
6 "ADJUSTMENT OF DEBTS OF POLITICAL SUBDIVISIONS AND
7
PUBLIC AGENCIES AND INSTRUMENTALITIES
8
"SEC. 81. CHAPTER IX DEFINITIONS.-As used in
9 this chapter the term-
10
(1) 'claim' includes all claims of whatever char-
11
acter against the petitioner or the property of the peti-
J.61-172-1
BERALD
2
1
tioner, whether or not such claims are provable under
2
section 63 of this Act and whether secured or unsecured,
3
liquidated or unliquidated, fixed or contingent;
4
(2) 'court' means court of bankruptcy in which
5
the case is pending, or a judge of such court;
6
"(3) 'creditor' means holder (including the United
7
States, a State, or subdivision of a State) of a claim
8
against the petitioner;
9
'(4) 'claim affected by the plan' means claim as
10
to which the rights of its holder are proposed to be
11
materially and adversely adjusted or modified by the
12
plan;
13
(5) 'debt' means claim allowable under section
14
88 (a) ;
15
(6) 'petitioner' means agency, instrumentality,
16
or subdivision which has filed a petition under this
17
chapter;
18
" (7) 'plan' means plan filed under section 90;
19
" (8) 'special tax payer' means record owner or
20
holder of title, legal or equitable, to real estate against
21
which has been levied a special assessment or special
22
tax the proceeds of which are the sole source of pay-
23
ment for obligations issued by the petitioner to defray
24
the costs of local improvements; and
11.
FORD is LIBRARY 9ERALD
25
(9) 'special tax payer affected by the plan' means
3
1
a special tax payer with respect to whose real estate the
2
plan proposes to increase the proportion of special assess-
3
ments or special taxes referred to in paragraph (8) of
4
this section assessed against that real estate.
5
"SEC. 82. JURISDICTION AND POWERS OF COURT.-
6
"(a) JURISDICTION.-The court in which a petition is
7 filed under this chapter shall exercise exclusive original ju-
8 risdiction for the adjustment of the petitioner's debts, and for
9 the purposes of this chapter, shall have exclusive jurisdiction
10 of the petitioner and its property, wherever located.
11
(b) POWERS.-After the filing of a petition under this
12 chapter the court may-
13
(1) permit the petitioner to reject executory con-
14
tracts and unexpired leases of the petitioner, after hearing
15
on notice to the parties to such contracts.-and to such
16
other parties in interest as the court may designate;
17
(2) during the pendency of a case under this
18
chapter, or after the confirmation of the plan if the
19
court has retained jurisdiction under section 96 (e) after
20
hearing on such notice as the court may prescribe and for
21
cause shown, permit the issuance of certificates of in-
22
debtedness for such consideration as is approved by the
23
court, upon such terms and conditions, and with such
FORD is LIBRARY GERALD
24
security and priority in payment over existing obliga-
4
1
tions, secured or unsecured, as in the particular case may
2
be equitable; and
3
" (3) exercise such other powers as are not incon-
4
sistent with the provisions of this chapter.
5
(c) LIMITATION.-Unless the petitioner consents or
6 the plan SO provides, the court shall not, by any order or de-
7 cree, in the case or otherwise, interfere with-
8
"(1) any of the political or governmental powers
9
of the petitioner;
10
"(2) any of the property or revenues of the peti-
11
tioner; or
12
(3) any income-producing property.
13
"SEC. 83. RESERVATION OF STATE POWER TO CoN-
14 TROL GOVERNMENTAL FUNCTIONS OF POLITICAL SUB-
15 DIVISIONS.-Nothing contained in this chapter shall be con-
16 strued to limit or impair the power of añy State to control,
17 by legislation or otherwise, any municipality or any politi-
18 cal subdivision of or in such State in the exercise of its politi-
19 cal or governmental powers, including expenditures therefor:
20 Provided, however, That no State law prescribing a method
21 of composition of indebtedness of such agencies shall be bind-
22 ing upon any creditor who does not consent to such composi-
23 tion, and no judgment shall be entered under such State law
24 which would bind a creditor to such composition without his
FORD & LIBRARY GERALD
25 consent.
5
1
"SEC. 84. ELIGIBILITY FOR RELIEF.-Any State's
2 political subdivision or public agency or instrumentality
3 which is not prohibited by State law from filing a petition
4 under this chapter is eligible for relief under this chapter
5 if it is insolvent or unable to meet its debts as they mature,
6 and desires to effect a plan to adjust its debts.
7
"SEC. 85. PETITION AND PROCEEDINGS RELATING
8 TO PETITION.-
9
"(a) PETITION.-An entity eligible under section 84
10 may file a petition for relief under this chapter. In the case
11 of an unincorporated tax or special assessment district having
12 no officials of its own, the petition may be filed by its govern-
13 ing authority or the board or body having authority to levy
14 taxes or assessments to meet the obligations of the district.
15 Any party in interest may file a complaint with the court,
16 not later than 15 days after the mailing of notice required
17 by subsection (d) is completed, objecting to the filing of
to
18 the petition. The court shall, Lot the extent practicable, hear
tr
19 and determine all such complaints in a single proceeding.
20
"(b) LIST.-The petitioner shall file with the court a
21 list of the petitioner's creditors, insofar as practicable. If an
22
identification of any of the petitioner's creditors is imprao-
23 ticable, the petitioner shall state in the petition the reasons
FORD is LIBRARY GERALD
24 such identification is impracticable. If the list is not filed with
25 the petition, the petitioner shall file the list at such later
6
1 time as the court, upon its own motion or upon application
2 of the petitioner, prescribes.
3
(c) VENUE AND FEES.-The petition and any accom-
4 panying papers, together with a filing fee of $100, shall be
5 filed with a court in a district in which the petitioner is
6 located.
7
(d) NOTICE.-The court shall give notice of the filing
8 or dismissal of the petition to the State in which the peti-
9 tioner is located, to the Securities and Exchange Commission,
10 and to creditors. The notice shall also state that a creditor
11 who files with the court a request, setting forth that creditor's
12 name and address and the nature and amount of that credi-
13 tor's claim, shall be given notice of any other matter in which
14 that creditor has a direct and substantial interest. The notice
15 required by the first sentence of this subsection shall be pub-
16 lished at least once a week for three successive weeks in at
17 least one newspaper of general circulation published within
18 the jurisdiction of the court, and in such other papers having
19 a general circulation among bond dealers and bondholders
20 as may be designated by the court. The court may require
21 that it be published in such other publication as the court may
22 deem proper. The court shall require that a copy of the
23 notice required by the first sentence of this subsection be
24 mailed, postage prepaid, to each creditor named in the list
25 required by subsection (b) at the address of such creditor
FORD is LIBRARY GERALD
7
1 given in the list, or, if no address is given in the list for any
2 creditor and the address of such creditor cannot with reason-
3 able diligence be ascertained, then a copy of the notice may,
4 if the court so determines be mailed, postage prepaid, to
5 such creditor addressed as the court may prescribe.
6 All expense of giving notice required by this subsection
7 shall be paid by the petitioner, unless the court for good
8 cause determines that the cost of notice in a particular in-
9 stance should be borne by another party. The notice shall be
10 first published, and the mailing of copies of the notice shall be
11 completed, as soon as practicable after the filing of the
12 list required by subsection (b).
13
(e) STAY OF ENFORCEMENT OF CLAIMS AGAINST
14 PETITIONER.-
15
'(1) EFFECT OF FILING A PETITION.-A petition
16
filed under this chapter shall operate as a stay of the
17
commencement or the continuation of a judicial or
18
other proceeding against the petitioner, its property, or
19
an officer or inhabitant of the petitioner, which seeks
20
to enforce any claim against the petitioner, or of an act
21
or the commencement or continuation of a judicial or
22
other proceeding which seeks to enforce a lien upon
23
the property of the petitioner, and shall operate as a stay
24
of the enforcement of any set-off or counterclaim relating
FORD & LIBRARY GERALD
25
to a contract, debt, or obligation of the petitioner.
8
1
"(2) DURATION OF AUTOMATIC STAY.-Except
2
as it may be terminated, annulled, modified, or condi-
3
tioned by the court under the terms of this section, the
IN THIS SUBSECTION
4
stay provided for herein shall continue until the case
5
is closed or dismissed, or the property subject to the lien
6
is, with the approval of the court, abandoned or trans-
7
ferred.
8
"(3) RELIEF FROM AUTOMATIC STAY.-Upon the
9
filing of a complaint seeking relief from a stay provided
10
for by this section, the court may, for cause shown, ter-
11
minate, annul, modify, or condition such stay.
12
"(4) OTHER STAYS.-The commencement or con-
13
tinuation of any other act or proceeding may be stayed,
14
restrained, or enjoined by the court, upon notice to each
15
person and entity against whom such order would apply,
16
and for cause shown. The petitioner shall not be required
17
to give security as a condition an order under this
18
paragraph.
19
"(f) UNENFORCEABILITY OF CERTAIN CONTRACTUAL
20 PROVISIONS.-A provision in a contract or lease, or in any
21 law applicable to such a contract or lease, which terminates
22 or modifies, or permits a party other than the petitioner to
23 terminate or modify, the contract or lease because of the
24 insolvency of the petitioner or the commencement of a case
FORD is LIBRARY GERALD
25 under this Act is not enforceable if any defaults in prior per-
9
1 formance of the petitioner are cured and adequate assurance
2 of future performance is provided.
3
"SEC. 86. REPRESENTATION OF CREDITORS.-
4
"(a) REPRESENTATION AND DISCLOSURE.-Any credi-
5 tor may act in person or by an attorney or a duly authorized
6 agent or committee. Every person representing more
7 than one creditor shall file with the court a list of the cred-
S itors represented by such person, giving the name and ad-
9 dress of each such creditor, together with a statement of
10 the amount, class, and character of the claim held by that
11 creditor, and shall attach to the list a copy of the instrument
12 signed by the holder of such claim showing such person's
13 authority, and shall file with the list a copy of the contract
14 or agreement entered into between such person and the
15 creditors represented by that person. Such person shall dis-
16 close all compensation to be received, directly or indirectly,
17 by that person. That compensation shall be subject to mod-
18 ification and approval by the court.
19
"(b) MULTIPLE COMPENSATION.-The court shall
20 examine all of the contracts, proposals, acceptances, deposit
21 agreements, and all other papers relating to the plan, specifi-
22 cally for the purpose of ascertaining if any person promoting
23 the plan, or doing anything of such a nature, has been or is
24 to be compensated, directly or indirectly, by both the peti-
FORD & LIBRARY GERALD
J.61-172-2
10
1 tioner and any of its creditors, and shall take evidence under
2 oath to determine whether any such compensation has
3 occurred or is to occur. After such examination the court
4 shall make an adjudication of this issue, and if it be found
5 that any such compensation has occurred or is to occur, the
6 court shall dismiss the petition and tax all of the costs against
7 the person promoting the plan or doing anything of such a
S nature and receiving such multiple compensation, or against
9 the petitioner, unless such plan is modified, within the time
10 to be allowed by the court, so as to eliminate the possibility
11 of such compensation, in which event the court may proceed
12 to further consideration of the confirmation of the plan.
13
"SEC. 87. REFERENCE AND JOINT ADMINISTRATION.-
14
"(a) REFERENCE.-The court may refer any special
15 issue of fact to a referee in bankruptcy for consideration, the
16 taking of testimony, and a report upon such special issue
17 of fact, if the court finds that the condition of its docket is
18 such that it cannot take such testimony without unduly de-
19 laying the dispatch of other business pending in the court,
20 and if it appears that such special issue is necessary to the
21 determination of the case. A reference to a referee in bank-
22 ruptcy shall be the exception and not the rule. The court
23 shall not make a general reference of the case, but may
FORD
24 only request findings of specific facts.
GERALD
25
' (b) EXPENSES OF REFERENCE. -The court may allow
11
1 reasonable compensation for the actual and necessary ex-
2 penses incurred in connection with the case, including com-
3 pensation for services rendered and expenses incurred in
4 obtaining the deposit of securities and the preparation of the
5 plan, whether such work has been done by the petitioner or
6 by a representative of creditors, and may allow reasonable
7 compensation for an attorney or agent of any of them. No
8 fee, compensation, reimbursement, or other allowances for an
9 attorney, agent, or representative of creditors shall be as-
10 sessed against the petitioner or paid from any revenues,
11 property, or funds of the petitioner except in the manner
12 and in such sums, if any, as may be provided for in the plan.
13
'(c) JOINT ADMINISTRATION.-If more than one peti-
14 tion by related entities are pending in the same court, the
15 court may order a joint administration of the cases.
16
"SEC. 88. CLAIMS.-
17
"(a) ALLOWANCE OF CLAIMS.-In the absence
18 of an objection by a party in interest, or of a filing of a
19 proof of claim, the claim of a creditor that is not disputed,
20 contingent, or unliquidated, and appears in the list filed
21 by the petitioner under section 85 (b) shall be deemed al-
22 lowed. The court may set a date by which proofs of other
23 claims shall be filed. If the court does not set a date,
24 such proofs of other claims shall be filed before the
25 entry of an order confirming the plan. Within thirty days
GERALD FORD LIBRARY
12
1 after the filing by the petitioner of the list under section
2 85 (b), the court shall give written notice to each person
3 and entity whose claim is listed as disputed, contingent, or
4 unliquidated, informing each such person or entity that a
5 proof of claim must be filed with the court within the time
6 fixed under this subsection. If there is no objection to such
7 claim, the claim shall be deemed allowed. If there is an
S objection, the court shall hear and determine the objection.
9
(b) CLASSIFICATION OF CREDITORS.-The court shall
10 designate classes of creditors whose claims are of substantially
11 similar character and the members of which enjoy sub-
12 stantially similar rights, consistent with the provisions of
13 section 89, except that the court may create a separate class
14 of creditors having unsecured claims of less than $100 for
15 reasons of administrative convenience.
16
" (c) DAMAGES UPON REJECTION OF EXECUTORY CON-
17 TRACTS.-If an executory contract or an unexpired lease
18 is rejected under a plan or under section 82 (b), any per-
19 son injured by such rejection may assert a claim against the
20 petitioner. The rejection of an executory contract or unex-
21 pired lease constitutes a breach of the contract or lease as
22 of the date of the commencement of the case under this
23 chapter. The claim of a landlord for injury resulting from
i
FORD
24 the rejection of an unexpired lease of real estate or for
25 damages or indemnity under a covenant contained in such
GERALD
13
1 lease shall be allowed, but shall be limited to an amount not
2 to exceed the rent, without acceleration, reserved by such
3 lease for the year next succeeding the date of the sur-
4 render of the premises to the landlord or the date of reentry
5's of the landlord, whichever first occurs, whether before or
6 after the filing of the petition, plus unpaid accrued rent, with-
7 out acceleration, up to the date of such surrender or reentry.
S The court shall scrutinize the circumstances of an assign-
9 ment of a future rent claim and the amount of the considera-
10 tion paid for such assignment in determining the amount of
11 damages allowed the assignee of that claim.
12
"SEC. 89. PRIORITIES.-The following shall be paid
13 in full in advance of the payment of any distribution to
14 creditors under a plan, in the following order:
15
'(1) The costs and expenses of administration
16
which are incurred subsequent to the filing of a petition
17
under this chapter.
18
(2) Debts or consideration owed for services or
19
materials actually provided within four months before
20
the date of the filing of the petition under this chapter.
21
(3) Debts owing to any person or entity, which
22
by the laws of the United States (other than this Act)
23
are entitled to priority.
24
"SEC. 90. FILING AND TRANSMISSION OF PLAN AND
GERALD R-* FORD
25 MODIFICATIONS.-
11
1
(a) FILING.-The petitioner shall file a plan for the
2 adjustment of the petitioner's debts. If such plan is not filed
3 with the petition, the petitioner shall file the plan at such
4 later time as the court, upon its own motion or upon applica-
5 tion of the petitioner, prescribes. At any time prior to the
6 confirmation of a plan, the petitioner may file a modification
7 of the plan.
8
" (b) TRANSMISSION OF PLAN AND MODIFICATIONS.-
9 As soon as practicable after the plan or any modification of
10 the plan has been filed, the court shall fix a time within
11 which creditors may accept or reject the plan and any
12 modification of the plan, and shall transmit by mail a copy
13 of such plan or modification, or a summary and any analysis
14 of such plan or modification, a notice of the time or times
15 within which the plan or modification may be accepted or
16 rejected, and a notice of the right to receive a copy, if it
17 has not been sent, of such plan or modification, to each of
18 the creditors, to each of the special tax payers affected by
19 the plan, and to each such other party in interest as the
20 court may designate. Upon request by a recipient of such
21 summary and notice, the court shall transmit by mail a copy
22 of the plan or modification to that recipient.
23
"SEC. 91. PROVISIONS OF PLAN.-A petitioner's plan
24 may include provisions modifying or altering the rights of
25 creditors generally, or of any class of them, secured or un-
GERALD
15
1 secured, either through issuance of new securities of any
2 character, or otherwise, and may contain such other provi-
3 sions and agreements not inconsistent with this chapter as
4. the parties may desire, including provisions for the rejection
5 of any executory contract or unexpired lease.
6
"SEC. 92. ACCEPTANCE.-
7
(a) WHO MAY ACCEPT OR REJECT.-Unless a claim
S has been disallowed or is not materially and adversely
9 affected, any creditor included on the list filed under sec-
10 tion 85 (b) or who files a proof of claim and whose claim is
11 not then disputed, contingent, or unliquidated as to amount,
12 and any security holder of record as of the date of the trans-
13 mittal of information under section 90 (b), may accept or
14 reject the plan and any modification of the plan within the
15 time fixed by the court. Notwithstanding an objection to a
16 claim, the court may temporarily allow such claim in such
17 amount as the court deems proper for the purpose of accept-
18 ance or rejection under this section.
19
"(b) GENERAL RULE.-Except as otherwise provided
20 in this section, the plan may be confirmed only if it has
21 been accepted in writing by or on behalf of creditors hold-
22 ing at least two-thirds in amount of the claims of each class.
23
(c) COMPUTING ACCEPTANCE.-The two-thirds ma-
24 jority required by subsection (b) is two-thirds in amount
GERALA FORD
25 of the claims of creditors who file an acceptance or rejection
16
1 within the time fixed by the court, but not including claims
2 held, or controlled by the petitioner, or claims of creditors
3 specified in subsection (d).
4
"(d) EXCEPTION.-It is not requisite to the confirma-
5 tion of the plan that there be such acceptance by any creditor
6 or class of creditors—
7
"(1) whose claims are not affected by the plan;
S
" (2) if the plan makes provision for the payment
9
of their claims in cash in full; or
10
(3) if provision is made in the plan for the pro-
11
tection of the interests, claims, or lien of such creditor
12
or class of creditors.
13
(e) ACCEPTANCE OF MODIFICATION.-If the court
14 finds that a proposed modification does not materially and
15 adversely affect the interest of a creditor, the modification
16 shall be deemed accepted by that creditor if that creditor
17 has previously accepted the plan. If the court determines that
18 a modification does materially and adversely affect the inter-
19 est of a creditor, that creditor, if entitled to accept or reject
20 the plan, shall be given notice of the proposed modification
21 and the time allowed for its acceptance or rejection. The
22 number of acceptances of the plan as modified required by
23 subsection (b) shall be obtained. The plan as modified shall
24 be deemed to have been accepted by any creditor who
GERALD FORD
25 accepted the plan and who fails to file a written rejection of
17
1 the modification with the court within such reasonable time
2 as shall be allowed in the notice to that creditor of the pro-
3 posed modification.
4
"SEC. 93. OBJECTION TO PLAN.-A creditor affected by
5 the plan or a special tax payer affected by the plan may file a
6 complaint with the court objecting to the confirmation of the
7 plan. The Securities and Exchange Commission may also file
8 a complaint with the court objecting to the confirmation of
9 the plan, but in the case of a complaint filed under this sec-
10 tion, the Securities and Exchange Commission may not
11 appeal or file any petition for appeal. A complaint objecting
12 to the confirmation of the plan may be filed with the court
13 any time prior to ten days before the hearing on the con-
14 firmation of the plan, or within such other time as prescribed
15 by the court.
16
"SEC. 94. CONFIRMATION-
17
"(a) HEARING ON CONFIRMATION.-Within a reason-
18 able time after the expiration of the time set by the court
19 within which a plan and any modifications of the plan may
20 be accepted or rejected, the court shall hold a hearing on the
21 confirmation of the plan and any modifications of the plan.
22
The court shall give notice of the hearing and of the time
23 allowed for filing objections to all parties entitled to object
24 under section 93.
FORD is LIBRARY GERALD
18
1
"(b) CONDITIONS FOR CONFIRMATION.-The court
2 shall confirm the plan if satisfied that-
3
'(1) the plan is fair and equitable and feasible
4
and does not discriminate unfairly in favor of any
5
creditor or class of creditors;
6
"(2) the plan complies with the provisions of this
7
chapter;
8
" '(3) all amounts to be paid by the petitioner
9
or by any person for services and expenses in the case
10
or incident to the plan have been fully disclosed and
11
are reasonable;
12
'(4) the offer of the plan and its acceptance are
13
in good faith; and
14
" (5) the petitioner is not prohibited by law from
15
taking any action necessary to be taken by it to carry
16
out the plan.
17
"SEC. 95. EFFECT OF CONFIRMATION.-
18
" (a) PROVISIONS OF PLAN BINDING.-The provisions
19 of a confirmed plan shall be binding on the petitioner and
20 on all creditors who had timely notice or actual knowledge
21 of the petition or plan, whether or not their claims have been
22 allowed under section 88, and whether or not they have
23 accepted the plan.
24
(b) DISCHARGE.-
GERALD FORD LIBRARY
25
" (1) The petitioner is discharged from all claims against
19
1 it provided for in the plan except as provided in paragraph
2
(2) of this subsection as of the time when-
3
"(A) the plan has been confirmed;
4
'(B) the petitioner has deposited the consideration
5
to be distributed under the plan with a disbursing agent
6
appointed by the court; and
7
(C) the court has determined—
8
(i) that any security so deposited will con-
9
stitute upon distribution a valid legal obligation of
10
the petitioner; and
11
(ii) that any provision made to pay or secure
12
payment of such obligation is valid.
13
"(2) The petitioner is not discharged under paragraph
14 (1) of this subsection from any claim-
15
"(A) excepted from discharge by the plan or order
16
confirming the plan; or
17
((B) whose holder, prior to confirmation, had
18
neither timely notice nor actual knowledge of the peti-
19
tion or plan.
20
"SEC. 96. POSTCONFIRMATION MATTERS.-
21
'(a) TIME ALLOWED FOR DEPOSIT UNDER THE PLAN.-
22
Prior to or promptly after confirmation of the plan, the court
23 shall fix a time within which the petitioner shall deposit with
24 the disbursing agent appointed by the court any consideration
FORD & LIBRARY GERALD
25 to be distributed under the plan.
20
1
(b) DUTIES OF PETITIONER.-The petitioner shall
2 comply with the plan and the orders of the court relative to
3 the plan, and shall take all actions necessary to carry out the
4 plan.
5
(c) DISTRIBUTION.-Distribution shall be made in
6 accordance with the provisions of the plan to creditors whose
7 claims have been allowed under section 88. Distribution
8 may be made at the date the order confirming the plan be-
9 comes final to holders of securities of record whose claims
10 have not been disallowed.
11
"(d) COMPLIANCE DATE.-When a plan requires pre-
12 sentment or surrender of securities or the performance of
13 any other action as a condition to participation under the
14 plan, such action shall be taken not later than five years after
15 the entry of the order of confirmation. A person who has
16 not within such time presented or surrendered that person's
17 securities or taken such other action required by the plan
18 shall not participate in any distribution under the plan, and
19 the consideration deposited with the disbursing agent for
20 distribution to such person shall become the property of the
21 petitioner.
22
'(e) CONTINUING JURISDICTION.-The court may re-
23 tain jurisdiction over the case for such period of time as the
24 court determines is necessary for the successful execution of
GERALD 18V8817 A. FORD
25 the plan.
26
(f) ORDER OR DECREE AS EVIDENCE AND NOTICE.-
21
1 A certified copy of any order or decree entered by the court
2 in a case under this chapter shall be evidence of the jurisdie-
3 tion of the court, the regularity of the proceedings, and the
4 fact that the order was made. A certified copy of an order
5 providing for the transfer of any property dealt with by the
6 plan shall be evidence of the transfer of title accordingly,
7 and, if recorded as conveyances are recorded, shall impart
8 the same notice that a deed, if recorded, would impart.
9
"SEC. 97. EFFECT OF EXCHANGE OF DEBT SECURITIES
10 BEFORE DATE OF THE PETITION.-The exchange of new
11 debt securities under the plan for claims covered by the plan,
12 whether the exchange occurred before or after the date of the
13 petition, does not limit or impair the effectiveness of the
14 plan or of any provision of this chapter. The written consents
15 of the holders of any securities outstanding as the result of
16 any such exchange under the plan shall be included as
17 acceptances of such plan in computing the acceptance re-
18 quired under section 92.".
19
"SEC. 98. DISMISSAL.-The court may dismiss the
20 case after hearing on notice-
21
"(1) for want of prosecution;
22
(2) if no plan is proposed within the time fixed
23
or extended by the court;
24
(3) if no proposed plan is accepted within the
BERALD FORD LIBRARY
25
time fixed or extended by the court;
22
1
(+) if confirmation is refused and no further time
2
is granted for the proposal of other plans; or
3
(5) where the court has retained jurisdiction after
4
confirmation of a plan-
5
"(A) if the debtor defaults in any of the terms
6
of the plan; or
7
"(B) if a plan terminates by reason of the
8
happening of a condition specified therein.
9
"SEC. 99. SEPARABILITY.-If any provision of this
10 chapter or the application thereof to any agency, instrumen-
11 tality, or subdivision is held invalid, the remainder of the
12 chapter, or the application of such provision to any other
13 agency or instrumentality or political subdivision shall not
14 be affected by such holding.".
FORD i LIBRARY GERALD
94TH CONGRESS
1ST SESSION
H. R.
A BILL
30899
To revise chapter IX of the Bankruptcy Act.
By Mr. RODINO and Mr. EDWARDS of California
NOVEMBER , 1975
Referred to the Committee on
OREGON of The STATE &
OFFICE OF MANAGEMENT AND BUDGET
Nov. 8
TO :
Roger Porter
FROM: Calvin J. Collier
Associate Director for
Economics and Government
Each week the Administration
produces a paper with brief
statements of position on
legislation scheduled to come
before either House of Congress.
The statements are made available
to House and Senate Republican
leadership.
Attached is a proposed position
on the House version of the
New York City guarantee legislation.
Treasury (Gerard) drafted it.
Please have it cleared for me.
Thanks.
or till But morning after hold and Jus
NYC
Littie Simmons
Congressional Relations
Mr. Collier may we have a position on the following bill by COB 11/6/75:
The Rules Committee of the House is meeting Friday at 10:30 a.m.
HR 10481 - To authorize emergency guarantee of obligations of states and
political subdivisions thereof, to amend the Internal Revenue
Code of 54, to provide that increase from certain obligations
guaranteed by the US should be subject to taxation, to amend
bankruptcy Act and other purposes.
Administration position. The Administration opposes enactment. The
Administration does not feel that Federal assistance should be provided
to prevent a default by New York City. There appears to be no legitimate
reason for American taxpayers to underwrite past deficits of that city.
To do so would weaken restraints on government spending at the state and
local level. It would also have an adverse effect on all costs of
government borrowing.
11/13: LWS concurred and we responded to Cal
SPECIAL
SERVICE
The New York Times.
2/20
NOV 1 2 1975
Burns Expresses Concern
Over City's Fiscal State
By MARTIN TOLCHIN
Special to The New York Times
WASHINGTON, Feb. 11-Ar-
having difficulty meeting ex-
thur F. Burns, chairman of the
penses, they've had to make
Federal Reserve Board, ex-
sharp reductions and they
pressed concern today over
might lose businesses and their
New York City's fiscal situa-
tax base."
tion, in contrast to the optimism
Dr. Burns was asked if he
expressed last week by Treas-
believed that there was merit
ury Secretary William E. Simon.
in Senator Proxmire's conten-
"I wish it were going better,"
tion that the new taxes im-
Dr. Burns said at a luncheon
posed by the Legislature may
meeting of New York Times
prove counter-productive be-
reporters and editors. "It ap-
cause they could drive out busi-
pears that they're not within
ness and industry and weaken
their financial guidelines, and
the city's tax base.
people who follow it closely
"I think that there's a lot
are seriously concerned."
of merit to that, if you take
Last week, Secretary Simon
the kind of legislation written
expressed general satisfaction
in New York, taxes on business,
with the city's finances, said
taxes on banks," Dr. Burns
that there was a "reasonable
said.
prospect" that the city would
"I think they have been ter-
repay its loan, and added that
ribly unwise," Dr. Burns contin-
deficiencies alleged in a report
ued. If they had instead
made by Arthur Anderson &
raised the sales tax, this would
Company "appear to be based
have been very productive,"
on the erroneous assumption
he added. "Such a tax could
that the three-year plan is im-
be absorbed without driving
mutable.
out business, without driving
Repayment Due in June
out people, without weakening
But Dr. Burns said today that
their economy dangerously."
"I don't know if they'll be
Dr. Burns, when asked what
able to make it."
New York City would have
He declined to comment,
to do to become fiscally sound,
however, on what the Federal
replied that "New York City
reaction would be of the city
will have to lead a life of
failed to repay its loans. Repay-
austerity."
ment is due in June, and is
"They've made very substan-
required by law before addi-
tial cuts," he added, "and they
tional funds can be extended.
may have to do more of it.
Dr. Burns's concern echoed
Look at City University, and
that of Senator William Prox-
the various things that New
mire, Democrat of Wisconsin
York tries to do.'
and chairman of the Senate
In the long run, Dr. Burns
Banking Committee, who said
said, New York City will sur-
last week that he was "con-
vive.
cerned that this would be a
"I think there's plenty of
very tough obligation for New
good sense left in New York
York City to meet."
and plenty of energy," Dr.
"Their revenue has declined,"
Burns said. "I think they'll
Senator Proxmire said, "they're work their way out of it."
MEMORANDUM
COUNCIL ON INTERNATIONAL ECONOMIC POLICY
Bill Seed man
November 12, 1975
FYI This tracks w/ my our
conversations w/smilar
FOR:
J. M. Dunn
THROUGH: Samuel M. John Rosemblatt
types
FROM:
Wilbur Monroe form
mike
SUBJECT:
International Considerations of New York City
Financial Crisis
I met with Adolphe J. Warner of Becker Securities Corporation.
Warner is Director of Research, a senior, well-seasoned analyst,
and is highly regarded in the international financial area. In our
discussion, the subject of New York City came up and Warner
made some points that should be of interest to you. You may wish
to draw on some of these points as the occasion arises.
First, the European "man in the street" is somewhat unsophis-
ticated and less familiar with U.S. political-institutional arrange-
ments concerning the budgeting-taxing powers between local, state
and federal levels. All of these relations and arrangements are
very different from those in Europe. Hence, the present difficulties
and the threat of default are seen by the foreign public as casting
aspersions on the soundness of New York State and even the Federal
Government.
Second, one often thinks of a lack of confidence as being followed
by an outflow of funds. It can also be reflected by a reduced inflow.
This year, OPEC placements in the U.S. have been absolutely, and
also relative to the total available surplus, substantially below
1974 levels. In this regard, Dick Debbs of the New York Fed, who
was reported in the press the other day to have spoken out in concern
of the New York crisis, is known to have close Arab connections and
(he is himself either Arab by birth or of Arab extraction) may have
been reflecting Arab unease.
Third, in Warner's view, easing of the dollar against major
currencies in recent weeks does not reflect primarily (as many
officials have insisted) easing U.S. interest rates. Other motivations
- 2 -
such as concern about the New York crisis, may be as important
if not more SO. (Changes in interest rate differentials have not
in fact been so great between the U.S. instruments and those in
other key centers.)
Fourth, the 1974 experience with the German Herstatt bank failure,
and Franklin National Bank as well, had great impact on foreign
exchange markets for months afterward. Comparison of a New York
City default to Herstatt may be too low key because of great
uncertainty over larger political and financial considerations as to
just what a default would entail.
Fifth (and this point is made in the November 12 New York Times
article dealing with Paul Volcker's concern on the subject), to
superimpose a financial crisis on the U.S. economy at a time when
we are emerging from a long recession could abort recovery.
Corporate and general liquidity are easing but new investment in
plant and equipment and increases in employment naturally lag
behind final demand in the recovery phase and are at a very delicate
stage. The international ramifications of even a pause in U.S.
recovery would be substantial in view of the psychological importance
being given to our economic performance.
LIBRARY
RESPONSE TO THE MAC PLAN FOR NEW YORK CITY
OPTIONS
Option 1
Reaffirm the position outlined in your National Press Club
speech: "I am prepared to veto any bill that has as its pur-
pose a Federal bailout of New York City to prevent a default.
I am fundamentally opposed to this so-called solution, and I
will tell you why. Basically, it is a mirage. By giving a
Federal guarantee we would be reducing rather than increasing
the prospects that the City's budget will ever be balanced.
New York City's officials have proved in the past that they
will not face up to the City's massive network of pressure
groups as long as any other alternative is available. If they
can scare the whole country into providing that alternative
now, why shouldn't they be confident they can scare us again
into providing it three years from now? In short, it encourages
the continuation of 'politics as usual' in New York -- which is
precisely not the way to solve the problem.
Indicate that there will be no pre-default Federal assistance.
Option 2
Indicate that you believe that the plan is on the "right track"
and request that the plan be finalized and be signed by all the
interested New York parties, without providing any indication
of what Federal action, if any, might be taken.
Option 3
Same as Option 2 but indicate that the plan, if implemented,
would not involve a Federal bailout and would have the effect
of a default in that it would require a restructuring of the
City's obligations. Under these circumstances, the Federal
government could consider providing short-term assistance for
essential services and/or seasonal financing only.
Option 4
Indicate that you believe that the plan is on the "right track"
and that the seasonal financing requirements of the plan should
be financed through private banks and investigate the possibility
of assuring that such private financing will be available.
IBRARY
Option 5
Indicate that you believe that the plan is on the "right track"
and that you are requesting Secretary Simon to work with New
York State and City officials to assure that the plan is imple-
mented. Secretary Simon's instructions would be to assure that
any Federal participation does not constitute a Federal bail-
out.
Option 6
State that the plan in its present form is inadequate and re-
quest that the New York officials make changes to require fur-
ther commitments of revenue increases or expenditure reductions.
Option 7
Make no public response to the New York plan.
11/12/75
LIBRARY
11/12/75
OPTIONS WITH RESPECT TO THE PRESENTATION
OF THE MAC PLAN FOR NEW YORK CITY RECEIVED YESTERDAY
Option 1
Reaffirm the position outlined in your National Press Club speech and
indicate that under no circumstances will you consider Federal bailout
prior to a New York City default. [Get exact language from speech]
Option 2
Request a firm plan, signed by all the interested New York parties,
without providing any indication of what Federal action, if any, might
be taken.
Option 3
Indicate that the MAC plan, if implemented, would have the effect of a
New York City bankruptcy in terms of preventing a bailout and thus the
Federal Government would consider providing assistance for: (1) essen-
tial services and (2) seasonal financing.
Option 4
Indicate that the seasonal financial requirements of the MAC plan should
be financed through private banks and investigate the possibility of
assuring that such private financing will be available.
2
Option 5
Indicate that you believe the MAC plan is on the right track and that you
are requesting Secretary Simon to work with New York State and City
officials to assure that the plan is implemented in such a way that it
does not constitute a Federal bailout.
Option 6
Make no response.
Option 7
Request that the New York officials impose further additional taxes in
order to remove the need for outside assistance to meet seasonal
financing problems.
LIBRARY
11/12/75
I am encouraged by reports that after many months of effort the
officials of New York State and New York City, bankers and union
representatives appear to have finally arrived at a realistic solution to
the financial problems of the City of New York. The tentative plan
involves major concessions and sacrifices on the part of all interested
parties who have come to recognize that the solution to New York City's
problems requires the marshaling of the vast financial resources of the
City and State of New York -- and that they could not count on a bailout
by the American taxpayer. Basically the program provides for:
(1) New taxes to be enacted on a bipartisan basis.
(2) Deferral of payment on debts and a reduction of interest
payments.
(3) Amendments to union contracts requiring pension contribu-
tions and fundamental changes in the pension systems.
(4) A reduction in city operating expenditures.
(5) Additional credit financed through the City pension funds.
Should this program be implemented, it would accomplish all of the
difficult long-term adjustments which ordinarily can be accomplished
only through bankruptcy proceedings.
They are on the right track. I encourage them to firm up their plans
and I instruct
,
, and
of my staff to work with them.
FORD CIBRAPY