New York Saved from Bankruptcy
New York in1975
With New York on the verge of bankruptcy, President Ford reluctantly signed legislation granting New York federal loans. The loans of 2.3 billion dollars were to be given every year for three years. They enabled New York to avoid bankruptcy.
New York in the early ’70s had was losing jobs especially manufacturing jobs at a rapid rate.
This resulted in a fiscal condition that slowly worsened. By October 16th, 1975 New York financial situation was looking dire. New York had $453 million debt payment to make the next day and only $34 million in the banks. Banks were refusing to lend any more money to the city. That night was the night of the annual Al Smith Dinner where all of the city and state leaders gathered. The evening was usually one of levity, but that year the guests at the city’s largest annual Catholic charity gathering were grim. When it was Mayor Beame’s turn to speak, he used the opportunity to attack the Ford administration for not helping. The only hope was that the teachers union would invest their pension funds in the city bonds. By the end of the evening, the teachers union had said that they too were not willing to invest. Governor Carey asked his fixer Richard Ravitch to find the head of the teachers Union Al Shanker and convince him to invest the teacher's pensions. They met until 5 AM but came to no conclusion.
Meanwhile, Mayor Beame was sitting with his advisors trying to decide which services were essential and which were not. With the help of his friend and unpaid media advisor Arthur Rubinstein, he prepared an announcement announcing the bankruptcy of the city. Beame made one more call to the White House but was told that President Ford was asleep.
The next morning the city awoke to dread of an imminent default. The stock market fell, gold went up. President Ford began to hear warnings that a New York default would hurt the dollar as well as the American economy beyond. His press secretary Ron Nessen stated, however, “This is not a natural disaster or an act of God. It is a self-inflicted act by the people who have been running New York City.”
Shanker was not at peace with his decision not to invest the pension funds. On one hand he felt he had a fiscal responsibility to spend his teacher's money carefully. On the other hand, he knew that if the city went bankrupt thousands of his teachers would lose their jobs. Shanker asked to meet with the governor again. They met in Ravitch’s apartment. By the end of the meeting, Shanker was convinced. He went to meet with his board and at 2:07 PM <Insert Date> less than two hours from the <What Deadline?> deadline the Teacher’s Union announced that they would invest
With the immediate crisis delayed the city continued to ask the Federal government for help. On the 29th of October 1975 President Ford spoke at the National Press Club. In the speech, he stated “What I cannot understand—and what nobody should condone—is the blatant attempt in some quarters to frighten the American people and their representatives in Congress into panicky support of patently bad policy. The people of this country will not be stampeded; they will not panic when a few desperate New York City officials and bankers try to scare New York’s mortgage payments out of them.”
He went on to say “I can tell you, and tell you now, that I am prepared to veto any bill that has as its purpose a federal bailout of New York City to prevent a default.”’
That speech prompted the New York Daily News to Print its iconic headline FORD TO CITY: DROP DEAD.
Ford had misgivings about what he said as did others around the White House led by Vice President Rockefeller, who lobbied for the Federal government to take a role in helping the city. In the meantime, the New York City government, the unions, and the banks worked on a fiscal recovery plan. At a press conference on November 26, Ford changed his tone and said “I have, quite frankly, been surprised that they have come as far as they have” Ford asked Congress and Congres granted New York $2.3 billion in loans at 1% above the Federal borrowing rate. This was enough to allow the city to restructure its finances and the city regained a sound fiscal footing that has lasted to this day.