<html> <head><style type ="text/css">body { font-family: "Bloomberg Prop Unicode I", Verdana, sans-serif; font-size:125%; letter-spacing: -0.3pt; color: #FF9F0F; background-color: #000000; text-align: left; } p {line-height: 1.25em; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" );} h1, h2, h3 { text-align: left; font-weight: normal; color: #FFFFFF; } h1 { font-size: 130%; } h2 { font-size: 115%; } h3 { font-size: 100%; } #bb-style { font-size: 90%; max-width:900px; width:expression(document.body.clientWidth > 900? "900px": "auto" ); } b, strong { font-weight: bold; } i, em { color: #FEC54A; } pre { font-family: "Andale Mono", "Monaco", "Lucida Console"; letter-spacing: -0.3pt; line-height: 1.25em; } table { border: 0; font-size: 90%; width: 100%; margin-left: auto; margin-right: auto; } td, tr { text-align: left; } td.numeric { text-align: right; } a:link { color:#53B2F5; text-decoration: none; } a:visited {color:#53B2F5} a:active {color:#53B2F5} a:hover {color:#53B2F5} </style> </head> <body> <p>By Francis Wilkinson</p>&#xD; &#xD; <p>Aficionados of public debt fiascos may have been too busy keeping up with the serial calamities of Europe and the U.S. to register the news that former New York Governor <a href="http://www.bloomberg.com/news/2011-08-07/hugh-carey-new-york-governor-who-helped-city-avoid-default-dies-aged-92.html">Hugh Carey</a> died on Sunday. Carey's alabaster great-man bust rests on a single foundation: He pulled New York City back from the brink.</p>&#xD; &#xD; <p>By early 1975, when Carey was governor, the city had $14 billion in outstanding debt and was running annual deficits of $600 million if you believed city officials, which no one did. By the estimates of less creative accountants, the city's real deficits were closer to $2 billion. Since its debt had been downgraded in the mid-'60s, by which time the city's run of municipal profligacy was already well under way, interest payments were high and lenders were growing both nervous and scarce.</p>&#xD; &#xD; <p>When the last underwriters finally balked at supplying the city's fiscal fix, Carey was forced to step in. The state more or less stripped the city and its elected leaders of authority and placed power in the hands of two unelected boards -- the Emergency Financial Control Board and the Municipal Assistance Corp., led by investment banker Felix Rohatyn.</p>&#xD; &#xD; <p>The MAC sold bonds secured by city tax receipts and, together with the control board, put New York City on the road to solvency, renegotiating labor contracts, cutting spending and raising taxes. It was not an overnight success. But the city eventually came back, much stronger than before. The MAC finally closed shop in September, 2008. Perhaps it was an omen that Lehman Brothers filed for bankruptcy the week before.</p>&#xD; &#xD; <p>The California State Library, of all places, has put together a <a href="http://www.library.ca.gov/crb/95/notes/V3N1.PDF">good synopsis</a> of the crisis.</p>&#xD; &#xD; <p>(Francis Wilkinson is a member of the Bloomberg View editorial board.)</p>&#xD; &#xD; <p>&#xA0;</p>&#xD; &#xD; <p>&#xA0;</p> </body> </html>