NEW YORK ONCE HAD A REPUTATION FOR HAVING WORLD’S MOST HONEST FINANCIAL COURTS
Perhaps the single largest wealth destruction in history took place last week, due to the actions of only two people: New York Attorney General Letitia James and Judge Arthur Engoron. They fined former President Donald Trump nearly $500 million, using an interpretation of law never used before — where there were no victims claiming injury, and where Mr. Trump was not allowed a jury trial and is not being allowed to appeal without putting up the entire amount of money.
Ms. James said she will seize Mr. Trump’s properties if he does not come up with all the money within 30 days. She would then put them up for sale at fire-sale prices (probably 20% to 30% less than their pre-ruling value). The estimated value of private real estate in New York City has been placed at $1.7 trillion. Every owner of property there is probably shaking, realizing if they can do it to Mr. Trump, they can do it to anyone. Major investors have already announced they are either pulling out of New York or not going ahead with planned investments, which means all New York City real estate is suddenly worth considerably less. A conservative estimate might be 20% less, or a $340 billion reduction in value. This loss is over a hundred times as great as what Ms. James and Judge Engoron are trying to get from Mr. Trump — which can only be characterized as fiscal madness.
One example: Prominent real estate investor Grant Cardone responded to his team after hearing the ruling, “Pencils down. Don’t touch it. Don’t go there.” And then he announced that he decided to “immediately discontinue all underwriting on New York City real estate.” “The risk outweighs the opportunities at this time,” he said. “Recent political decisions will continue to deteriorate price and benefit states that don’t have these challenges. Focus on Texas and Florida.” Multiply his comments by most large and small real estate investors in or out of New York, and the economic disaster that Ms. James and Judge Engoron are about to unleash on New York are obvious.
Students learn in basic economics that riskier investments are priced lower than those with less risk. Bond prices are determined by both the basic cost of capital and the risk. New York was already viewed as a high-risk environment because of the increasing suffocating regulations and excessive taxes. Couple that with an attorney general who feels she has the right to seize your property merely because she doesn’t like you or your politics, and rational people will increasingly try to get out while they still can.
Stalin’s enforcer and executioner Lavrentiy Beria is reported to have said, “Show me the person and I will find a crime,” which is exactly what Ms. James did when she based her election campaign on getting Mr. Trump without naming a crime. So much for all people being treated equally before the law.
Countries and states that have a fidelity to the rule of law and protection of private property attract far more investment than those who ignore these basic principles.
The table below lists the wealthiest countries on a per-capita income basis. A common characteristic is their adherence to the rule of law and strong protection of private property rights, despite in many cases the lack of natural resources. Both the International Monetary Fund and the World Bank publish a ranking of countries by per-capita income each year. The 90 countries in the bottom half (easily found on the internet) are almost entirely characterized by weak legal systems and lack of protections for private property.
New York had a well-deserved reputation for having perhaps the most competent and honest financial courts and body of law in the world. This is why bond issues by foreign countries often have a provision that in case of disputes, New York law will prevail. This reputation was built over more than a century, yet it was greatly damaged last week, particularly by those around the world who do not understand the jurisdiction of the federal courts as contrasted with the state courts in New York. The Trump case was a state civil action, not a federal civil or criminal case.
In a gloating victory speech, Ms. James said she went after Mr. Trump to protect the average citizen. Against what? It is not only property owners who will suffer because of her and Judge Engoron’s actions, but also all people seeking a place to live or offices and stores to rent — because the supply of rentable real estate will shrink, meaning higher prices.
The field of law and economics is a discipline that uses economic concepts to explain the effects of laws and to assess which legal rules are economically efficient. It is not only in this case that the prosecutors show a profound lack of understanding of law and economics and the Bill of Rights, but also in the Colorado case, which seeks to remove Mr. Trump from the ballot, and the Georgia case, where the right of free speech is being attacked.
Letitia James and Arthur Engoron, through their ignorance of the consequences of their actions, as well as their hubris, are the ones who belong in jail. They have reduced the wealth of every New Yorker, just like a pickpocket — all to satisfy their childish vendetta against Mr. Trump.
• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.
https://www.washingtontimes.com/news/2024/feb/26/wealth-destroyers-new-york-once-had-reputation-for/
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