Today's guest is Richard E. Farley, author of Drop Dead, a history of how the richest city in America got addicted to spending, saturated in debt, and crashed the municipal bond market—and then managed to get a federal bailout in the nick of time.

In 1975, New York City almost went bankrupt. Farley argues that the same conditions are reemerging today: runaway budgets, gimmicky accounting, overpromised entitlements, and politicians more interested in ideology than arithmetic. He wrote all this before the rise of mayoral candidate Zohran Mamdani, who promises to blow spending through the roof, enact new taxes, and create masses of new regulations.

If you want to understand what it takes to bankrupt a city, listen up. New York might be sleepwalking into another fiscal disaster, and this time, there might not be a bailout waiting.

0:00—Intro

1:24—Mamdani's agenda and economic collapse

6:03—How New York went broke in 1975

8:21—Budget fraud and political chicanery

12:20—Out of control spending

16:20—Municipal bond market saturation

20:11—Bailout politics of Mayor Abraham Beame, Governor Hugh Carey, and President Gerald Ford

31:47—Who is Felix "the Fixer" Rohatyn?

36:37—Why the budget grew during the austerity era

38:59—How NYC returned to budget normalcy

42:53—Is New York repeating the mistakes of its past?

47:00—Mayor Eric Adams and former Gov. Andrew Cuomo

50:12—Why NYC won't return to the Bloomberg model

56:32—Generation gaps and voter behavior

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Transcript

This is an AI-generated, AI-edited transcript. Check all quotes against the audio for accuracy.

Nick Gillespie: Richard E. Farley, thanks for talking to Reason.

Richard Farley: Thank you for having me.

You work in the world of finance and all of this—what is your best estimate of, if Mamdani wins in the fall and he gets his, you know, he runs the table, he gets to do everything he wants. What happens to the population of New York?

Well, let's talk about what happens to the fiscal situation and the taxes, because that will drive a lot of it. And also, there's one thing we need to talk about too, which is law and order.

I think that if you increase the budget by $20 to $25 billion—which I think he's clearly capable of doing—we're not even talking about the nonsense about grocery stores, although he's only saying 5 or 6 grocery stores. So that's probably a sidebar.

If you increase the budget by $20 billion—which I think he's capable of doing—that's an increase of 15 to 20 percent in a time when every projection says revenue is going to decrease. If you throw into that taxes that will drive people to New Jersey, Westchester, etc.

Or totally out of the area.

Or totally out of the area. That could create a structural deficit equal to that. That money's not coming from the federal government as long as Trump's here, and there's a Republican Congress—or even one house of Republicans.

And part of what you argue in the book is, the bigger difference too, is New York is still the fourth most populous state, but it is no longer in play.

What's amazing to be reminded of in reading Drop Dead is that New York would sometimes vote Republican, sometimes vote Democrat. It was a swing state. And now everybody knows—like, Democrats can say "fuck you," and Republicans can certainly say "fuck you"—right? Because it's not coming their way.

Correct. Now I think no one will allow New York City to devolve into chaos. There will be a bailout at some point. The issue under consideration are what would those conditions be?

When you have to worry about winning the nomination in 1976, you have to treat New York with a little bit of kid gloves. If you don't have to worry about that—because a Democrat couldn't lose it if he tried or she tried, and a Republican couldn't win it if he or she tried—you can play politics the other way and be more draconian.

So that's something to keep an eye on.

But I think the real issue—of whether or not you lose people in New York and degrade the tax base to create a very serious fiscal crisis quickly—is if people feel unsafe in New York City.

And by that, you don't mean financially. You mean…

It's partly that, but also physically.

If I have a Marxist in Gracie Mansion—I wonder if the Marxist will live in Gracie Mansion; I don't know—and I think he is a Marxist. I mean, he says, "I want to seize the means of production." I think you trust people when they say these things.

Who also says things like "globalize the intifada" and then won't really back off of that in a way that decries violence. What will the policing policies be? He's never really backed off of "defund the police" in an aggressive way. He won't say he'll keep Keechant as police commissioner who now, I think, may be the most popular political figure in the city, if you want to call the police commissioner a political figure.

You absolutely should. And, you know, there has been—this is also something to think about nationwide—there's been a decline in violent crime year over year.

People are talking about it's going to be the biggest single thing. Clearly, policing matters. But it's not clear exactly how much. But you're basically saying if we get a guy who is a "defund the police," romancer of revolutionary violence, things are going to get hairy.

I don't know. I think there's a risk of that.

He's a bit of an empty vessel. He's 33 years old. He's a bit of a dilettante, in my judgment. He's relatively new to city politics. Never really run anything. He is very glib. He's very handsome. He's charismatic. But what does he really stand for and mean?

And when you have the executive function of overseeing the largest police force in the country—in a city where there's a thin veneer of law and order—we saw that in 2020. It doesn't take much for street gangs to go down and decide they're going to loot and make a lot of money off of a ineffective law enforcement apparatus.

The book is Drop Dead: How a Coterie of Corrupt Politicians, Bankers, Lawyers, Spinmeisters, and Mobsters Bankrupted New York, Got Bailed Out, Blamed the President, and Went Back to Business as Usual (And It Might Be Happening Again).

I have no responsibility for the subtitles.

But you know what? You've got to own it, right? I don't know that I need to read any more of the book after that. But this is about the fiscal crisis of New York City in 1975.

Correct.

Can you summarize quickly what was happening in New York that brought the biggest city in America to the brink of bankruptcy?

Yeah. I think the larger quantity of factors affected all large industrial Northern and Midwestern cities. Recession of 1973 and of 1974, rising interest rates, the cutback in aid from Washington—LBJ's poverty programs, et cetera—being scaled back by Nixon. You had a longer-term impact of the hemorrhaging of industrial jobs, really starting in the late '40s but accelerating.

The peak year for industrial jobs as a percentage of the economy was in the late '40s.

Correct. I think New York was still the leading industrial state until about '48, '49. Even though the low-skilled jobs were moving out, you had an influx of low-skilled workers from the South escaping discrimination. And from Puerto Rico, obviously, looking for a higher standard of living. You had a similar exodus of white ethnic working-class voters. So you had this shift in demographics and economic impact, which would have been a problem no matter what.

But in a lot of ways, I mean, one of the things you're arguing is that, "Yeah, that's true, and it was true everywhere in every type of city, but the real problem was what was going…"

Absolutely. You can discuss it a number of different ways, but there were two things unique to New York. One was the chicanery—the accounting shenanigans, the budgetary fraud, the illegal incurrence of debt to mask deficits. So we'll put that in one bucket.

That's, of course, the most fun to talk about. If we're not going to talk about chicanery and characters, we might as well write about librarians in the 1970s.

What was going on in New York City was also mirrored at the state level under Nelson Rockefeller

Correct. Not quite as bad, but on a larger scale.

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Could New York Go Bankrupt Again?