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America for Sale: An Exclusive Excerpt from Matt Taibbi’s New Book on the Economic Meltdown

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"I was in my office on a Monday," says Rey Colon, an alderman from Chicago's Thirty-fifth Ward, "when I got a call that there was going to be a special meeting of the Finance Committee. I didn't know what it was about."

It was December 1, 2008. That morning would be the first time that the Chicago City Council would be formally notified that Mayor Richard Daley had struck a deal with Morgan Stanley to lease all of Chicago's parking meters for seventy-five years. The final amount of the bid was $1,156,500,000, a lump sum to be paid to the city of Chicago for seventy-five years' worth of parking meter revenue.

Finance Committee chairman Ed Burke had the job of informing the other aldermen about the timetable of the deal. Early that morning he called for a special meeting of the Finance Committee that Wednesday, to discuss the deal. That afternoon the mayor's office submitted paperwork calling for a meeting of the whole City Council the day after the Finance Committee meeting, on December 4, "for the sole purpose" of approving the agreement.

"I mean, they told us about this on a Monday, and it's like we had to vote on a Wednesday or a Thursday," says Colon.

"We basically had three days to consider the deal," says fellow alderman Leslie Hairston.

On that Tuesday, December 2, Daley held a press conference and said the deal was happening "just at the right time" because the city was in a budget crunch and needed to pay for social services.

He then gave them the details: he had arranged a lease deal with Morgan Stanley, which put together a consortium of investors which in turn put a newly created company called Chicago Parking Meters LLC in charge of the city's meters. There was no mention of who the investors were or who the other bidders might have been.

The next day the Finance Committee met to review the deal, and ten minutes into the meeting some aldermen began to protest that they hadn't even seen copies of the agreement. Copies were hastily made of a very short document giving almost nothing in the way of detail.

"It was like an eight-page paper," says Colon.

The Chicago Reader's write-up of the meeting describes the commotion that followed:

"We're rushing through this," says Alderman Robert Fioretti. "Why?"
"We've been working on this for the better part of a year, so we haven't been hasty," [city chief financial officer Paul] Volpe insists.
"You had a year, but you're giving us two days," says Alderman Ike Carothers.
To help aldermen understand some of the terms, Jim McDonald, a lawyer for the city, reads some legalese from the proposed agreement.
[Alderman Billy] Ocasio bellows: "What does that all mean?"

 

The aldermen are told by CFO Volpe that the reason the deal has to be rushed is that a sudden change in interest rates could cost the city later on, which makes one wonder about Volpe's qualifications for the CFO job — this was in the wake of the financial crash, and interest rates were at rock bottom, meaning the city stood only to lose money by hurrying. Higher interest rates would have allowed them to use the interest on the lump payment to fill their budget gaps, rather than the principal of the payment itself.

"I hear that excuse a lot whenever the mayor wants to pass something fast," says Colon. "As far as I'm concerned, I'll take that risk."

Again, the council at this time has no idea who's actually behind the deal. "We were never informed," says Hairston. "Not even later."

Nonetheless, the measure ended up passing 40–5, with Hairston and Colon being among the votes against. I contacted virtually all of the aldermen who voted yes on the deal, and none of them would speak with me.

Mayor Daley, who had already signed similar lease deals for the Chicago Skyway and a series of city-owned parking garages, had been working on this deal for more than a year. He approached a series of investment banks and companies and invited them to submit bids on seventy-five years' worth of revenue on the city's 36,000 parking meters. Morgan Stanley was one of those companies.

Here's where it gets interesting. What Morgan Stanley has to do from there is two things. One, it has to raise a shitload of money. And two, it has to find a public face for those investors, a "management company" that will be presented to the public as the lessee in the deal.

Part one of that process involved the bank's Infrastructure group going on a road tour to ask people with lots of cash to pony up. It was these guys from Morgan's Infrastructure desk who took their presentation to the Middle East and pitched Chicago's parking meters to a room full of bankers and analysts in Abu Dhabi, the Abu Dhabi Investment Authority, who ultimately agreed to purchase a large stake.

Here's how they pulled off the paperwork in this deal. It's really brilliant.

At the time the deal was voted on in December 2008, an "Abu Dhabi entity," according to the mayor's office, had just a 6 percent stake in the deal. Spokesman Peter Scales of the Chicago mayor's office has declined to date to identify which entity that was, but by sifting through the disclosure documents, we can find a few possibilities, including a group called Cavendish Limited that is headquartered in Abu Dhabi.

Apart from that, most of the investors in the parking meter deal at the time it was voted on look like they were either American or from nations with relatively uncomplicated relationships with America. The Teacher Retirement System of Texas had a significant stake in one of the Morgan Stanley funds at the time of the sale, as did the Victorian Funds Management Corporation of Australia and Morgan Stanley itself. A Mitsubishi fund called Mitsubishi UFJ Financial Group also had a stake. There were a variety of other German and Australian investors.

All of these companies together put up the $1.2 billion or so to win the bid, and once they secured the deal, they created Chicago Parking Meters LLC, a new entity, which in turn hired an existing parking management company called LAZ to run the meter system in place of cityrun parking police. The press stories about the deal invariably reported only that the city of Chicago had leased its parking meters to some combination of Morgan Stanley, Chicago Parking Meters LLC, and LAZ. A Chicago Sun-Times piece at the time read:

Under questioning from Finance Committee Chairman Edward M. Burke (14th), top mayoral aides acknowledged that the partnership that includes Morgan Stanley Infrastructure Partners and LAZ Parking recently formed a limited liability corporation in Delaware, but never bothered to register in Illinois.

 

But two months after the deal, in February 2009, the ownership structure completely changed. According to Scales in the mayor's press office:

In this case, after the Morgan Stanley investor group's $1.15 billion bid was accepted and approved by the City in December 2008, Morgan Stanley sought new investors to provide additional capital and reduce their investment exposure — again, not an unusual move.
       So, while a group of several Morgan Stanley infrastructure funds owned 100% of Chicago Parking Meters, LLC in December 2008, by February 2009, they had located a minority investor — Deeside Investments, Inc. — to accept 49.9% ownership. Tannadice Investments, a subsidiary of the government-owned Abu Dhabi Investment Authority, owns a 49.9% interest in Deeside.

 

So basically Morgan Stanley found a bunch of investors, including themselves, to put up over a billion dollars in December 2008; a big chunk of those investors then bailed out to make way in February 2009 for this Deeside Investments, which was 49.9 percent owned by Abu Dhabi and 50.1 percent owned by a company called Redoma SARL, about which nothing was known except that it had an address in Luxembourg.

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Matt Taibbi

Matt Taibbi is a contributing editor for Rolling Stone. He’s the author of five books and a winner of the National Magazine Award for commentary. Please direct all media requests to taibbimedia@yahoo.com.

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