New Geography

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  • Cap And Trade And The Smog Market Ripoff

    Now that Senators have reconvened from summer hiatus, one of their first tasks will be to contemplate the greenhouse-gas cap-and-trade carbon market that President Obama would like to institute to blunt global warming. Their necks better be limber. Partisans of Keynesian, market-based regulations will undoubtedly point to the Midwest’s federally run “acid rain” program to reduce harmful power-plant emissions as proof that giving industry profit incentives in cleaning up their operations can be successful. Regulation skeptics will wave that example off dismissively, urging Senators to swivel their heads for a look across the Atlantic, where the European Union’s Emissions Trading System has registered lousy results.

    Whatever those markets do or don’t foreshadow, if the American Clean Energy and Security Act of 2009 and its mandated cap-and-trade become law, a glimpse of an unintended — and unsavory — future may reside in the tale of the inscrutable businesswoman from smog-bound Southern California who scammed the area’s pollution exchange…twice (see my site, www.chipjacobs.com, for the newest revelations of a second scam). Rather than a tale of a dreamer’s demise, Anne Sholtz’s story is a bracing reminder that to create a market, no matter its aim, is also to inspire a class of people determined to game it.

    If Wall Street traders can commodify sub-prime mortgages with impunity, and the Enrons of the world can manipulate energy markets like a pinball machine, imagine a future when tradeable permits for carbon dioxide and other heat-trapping gases are auctioned and swapped over the public’s head. A Heritage Foundation economist expects the action to hit $5.7 trillion in value, and many experts say it all adds up to an irresistible buffet for chicanery.

    Few in Washington ever heard of Sholtz, 44, before last spring, when the former Caltech economist was sentenced in federal court to a year of home-detention and five years of probation for defrauding the nation’s first air pollution cap-and-trade market. Sholtz was cozy with the RECLAIM program and the bureaucrats who run it at the South Coast Air Quality Management District (AQMD). That’s because in the early-1990s she had helped design the concept as an adviser.

    Her know-how proved dangerous. Between November 2000 and April 2001, Sholtz tried fooling one of her clients, a New York-based energy trader, into believing she could complete a fat, multimillion-dollar deal with what is now ExxonMobil Corp. when in fact she could not. Stringing executives at the client company along until she could reactivate a transaction, she emailed and faxed falsified sales documents, including phony invoices.

    Pleasant, brainy and ever-hustling, Anne Sholtz was not somebody folks expected to see handcuffed. Her 2004-arrest by EPA agents on white-collar fraud charges shocked and mystified local environmental circles. She and her companies, Automated Credit Exchange and EonXchange, had boasted a heavyweight list of clients and financial partners, and had worked with the Dutch government on an emissions test-market. As one of California’s rising green-entrepreneurs, Sholtz was a niche-celebrity with access to powerful politicians and regulators, and a hillside mansion, fine cars and whatnot to show for her ingenuity.

    For our purposes, the reasons she’d risk all that matters less than the fact she was able to do so undetected. (You can read the entire expose here.) And that Obama’s proposed carbon market would look a lot like L.A.’s now 15-year-old smog bazaar. RECLAIM sets progressively lower emissions’ limits for roughly 330 of the Southland’s largest oil refineries, power plants and other manufacturers, and allocates credits calculated for each one. Companies that install new particle-trapping equipment or develop cleaner operations in other ways to reduce oxides of nitrogen and sulfur can sell their unused credits to peers who may exceed their allotment. Since 1994, there have been about $1 billion in trades, which brokers help negotiate, and about 40-million pounds of smog chemicals transacted.

    AQMD contends that, after a languid start, its regimen has achieved its emission-cutting goals. At first, an over-allocation of credits to ease industry into the new system simply encouraged many companies to delay purchasing greener equipment. (Using the same logic, the current Obama-backed energy bill, sponsored by House Democrats Henry Waxman of California and Edward Markey of Massachusetts, would initially give away an eye-popping 85 percent of greenhouse-gas credits to cushion carbon-dependent states. This means dramatic emission reductions likely won’t happen for years.)

    RECLAIM added another bold move to Southern California’s environmental pedigree, a change that industry actually wanted. But in developing such an open-ended, boutique market officials essentially flaunted their gullibility to cheaters, scammers and profiteers. It took AQMD several years to learn of Sholtz’s deceit, and only then after nine of her clients complained about being cheated.

    A year before that, in 2001, the air district had been blindsided by California’s electricity crisis, and the subsequent order by then-Gov. Gray Davis that power-plants run nonstop to prevent rolling brownouts. Speculators from Texas to New York with no industrial operations in the South Coast basin hoarded RECLAIM credits they knew utilities needed, later reselling them at huge markups. The market teetered near meltdown, and district brass had to yank power companies from the market.

    Ironically, one reason AQMD officials were oblivious to Sholtz’s actions was because they’d nixed her very own recommendation during RECLAIM’s design phase to stamp each credit with identifying marks, somewhat akin to a bar code. Loose trade-reporting requirements added more vulnerability. As California’s experience makes clear, building an incorruptible greenhouse-gas market may not be just formidable, it may be impossible, because the money and opportunities for deception are so tantalizing.

    This May, two Republican congressmen skeptical of Obama’s cap-and-trade plan, Joe Barton of Texas and Greg Walden of Oregon demanded extensive answers from the EPA about the Sholtz case. Why, they asked, were so many case documents still sealed by the Justice Department? How could this have happened on regulators’ watch, and what does it portend for a greenhouse-gas market?

    On their heels, AQMD executive officer Barry Wallerstein defended his market as virtually bulletproof to further criminality, while the EPA downplayed the matter as an isolated case. Those declarations occurred before documents emerged showing that Sholtz had told prosecutors during her 2005 settlement plea about “rampant” violations and graft by AQMD executives administering the market.

    All of which is to say Senators should look straight forward with furrowed, “prove-it” brows when fellow members and environmental glitterati pronounce that a greenhouse gas market will operate cleanly because really smart people with nifty technology will be policing it. As the Waxman-Markey legislation stands, the Federal Energy Regulatory Commission, the EPA, and perhaps several more agencies will be patrolling for fraud, speculation, price manipulation and so-forth. Other enforcement details are hazy.

    Chip Jacobs is the co-author, with William J. Kelly, of Smogtown: The Lung-Burning History of Pollution in Los Angeles. Jacobs can be reached at chip@chipjacobs.com

  • Asian Manufacturers : Is Turnabout Fair Trade?

    When the British troops laid down their arms at Yorktown, Virginia, a colonial band played “The World Turned Upside Down,” a popular air marking the absurdity of the occasion. Now the American economy is turned upside down, and the small businesses that once fortified it have exchanged places with Asian manufacturers that America once sought to protect. No man’s enlightenment is complete without the deepening amazement that comes with having seen such a reversal.

    In the case of the US economy, it happened in a piecemeal fashion — with Fair Trade laws playing a pivotal role — that was all the more insidious for being deliberate. The national agenda that was followed was intended to prevent the fragile nation states of the world from going communist.

    As a kid, I had a zoomed-in view of the transition. My father was part of it, as president of a company that attempted an end run around the nation’s Fair Trade laws, which, for those too young to remember, specified the minimum retail price at which a product could be sold. These laws were intended to protect small mom and pop businesses from being bankrupted by chain stores during the Great Depression. And they largely succeeded in their mission. Main Street thrived because outfits like Wal-Mart were prohibited from rolling back prices.

    Needless to say, the Fair Trade laws weren’t fair to consumers, who were forced to pay virtually the same price for goods sold at linoleum-floored outlets like Wal-Mart as they did at marbled emporiums like Saks Fifth Avenue.

    The complexity of the market, which created gray areas in the laws and made their enforcement difficult, was seized on by my father as an opportunity. He bought surplus stock from well-known manufacturers, re-labeled it, and sold it for considerably less. His private label, “Amcrest,” is still remembered fondly by smart shoppers as having been an economical way to buy everything from mouthwash and undergarments to watches and refrigerators. The brand became so big that the government sued my father and nearly put him out of business.

    End of story? Not quite. Shortly after the government filed suit, someone at the State Department had a bright idea. While the government would not permit my father to continue to buy surplus output from American manufacturers, it encouraged him to do the same thing…from manufacturers in the Far East.

    The State Department considered this an act of enlightened self-interest along the lines of the Marshall Plan. Experts opined that it would save Japan and Taiwan, and possibly the rest of Asia, from falling into the communist orbit. After all, China and North Viet Nam had already fallen to communism. Singapore was toying with the ideology. Who could say where it would pop up next? People like my father would bring jobs and prosperity to Japan and Taiwan, and the grateful citizenry would form vibrant democracies and become bastions of anti-communism. Nobody ever imagined that these once backward nations would someday be eating our lunch – and our dinner.

    The U.S. policy further allowed manufacturers in these nations to sell their wares largely free of American tariffs. So what began as a trickle of surplus output became a flood of finished goods. At the beginning, most of the stuff was simply cheaply made. But it didn’t take long for Japan to learn the gospel of quality from the American engineer Edward Deming, whom American manufacturers shunned.

    Japan moved up the value chain. My father was among the first to begin importing Sony TVs, which were leagues better than American sets. South Korea followed Japan’s arc. Taiwan, too, stepped up, though it did so with industrial policies that targeted the software and microprocessor industries.

    As these trends were taking shape, the U.S. was hit with high inflation. By the 1970s, most states decided to repeal their Fair Trade laws, setting Wal-Mart on a trajectory to become the nation’s largest corporation. Later, under pressure from Wal-Mart and others, Taiwanese businessmen moved their factories to China, where they could turn out the same umbrellas and Tupperware at one tenth the cost.

    Taiwan didn’t suffer. It went on to manufacture the first IBM desk-top computer, and to found Taiwan Semiconductor, whose chips run most of Dell’s products. By the mid nineties, Taiwan, no bigger than New Jersey, had a larger store of foreign currency reserves than the United States did.

    Wal-Mart and other American firms that were committed to low cost production then lobbied the U.S. to permit China to join the World Trade Organization. This would allow China to sell its wares in America without tariffs. Once China was accepted as a member, American-based factories found themselves unable to compete with the cheap goods that flooded in from the Middle Kingdom. To survive, they, too, moved their production and jobs there.

    By the new millennium, the government policy that had begun years earlier to prevent nations like Japan, South Korea and Taiwan from going communist had been turned upside down. The economic forces that our policies unleashed effectively mandated that all production take place in China, a communist country that has no interest in democracy, freedom or human rights. The transplantation into China of millions of American jobs and thousands of U.S. industries that once paid taxes to the U.S. Government has forced that government to borrow from China, now America’s largest creditor, just to meet expenses.

    Ironically, China is providing a significant amount of the money needed to bail out our sick economy. The U.S.’s high unemployment, tottering banks and vast trade and government deficits actually mirror conditions in Japan and Taiwan after World War II, conditions that our own government believed to be fertile ground for communism.

    It is as if the points of the compass were reversed, and the United States was suddenly in the grip of antipodal forces intent of turning our world upside down. And what’s left of our treasure is falling fast from our pockets, and into the iron rice bowl of a communist dictatorship.

    Tim Koranda is a former stockbroker who now works as a professional speechwriter. He can be reached at koranda@alum.mit.edu.

  • Russell Weaver

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  • California Wastes Its Public Space

    California’s favorable climate makes it a haven for outdoor activity. Enlightened and forward-looking planning has largely preserved the waterfronts for public access and set aside a lot of space for public use and activity. Yet despite this, there are few great urban gathering spaces. This is most obvious in the two largest population centers – Los Angeles and San Francisco.

    As a result, potentially great urban districts are dragged down by a dearth of desirable activity, something exacerbated by an already damaging real estate slump. Although all is not lost in these cities, some of the most high profile public spaces fail to attract large numbers of visitors on a daily basis, particularly when no special events are planned.

    Pershing Square, Los Angeles – Located in the heart of downtown, Pershing Square is poorly designed, both as its own project and in a contextual sense. In an already warm climate made even hotter by its CBD location, there is too much hardscape. Extensive softscape, whether flowers, grass, and/or trees, would provide a cooling effect. There are also too many symbolic structures serving no purpose. These are expensive to install and maintain; they provide very little benefit. Also, an already bad relationship to the street was made worse by restricting access points and hiding the interior space. Although some changes over the past several years have softened the space somewhat, it still lacks some basic creature comforts, such as adequate lighting and clean restrooms, to make it a daily destination for the scores of office workers within easy walking distance.

    County Mall, Los Angeles – County Mall, located west of Los Angeles City Hall between Broadway and Grand Avenue, is in the unenviable position of being relatively unknown. Poor graphics and signage do little to improve its profile. Although there was extensive softscape in the design, many of the original shrubs and flowers have eroded. Further, the large space is not properly organized to allow and encourage different types of activity. Adjacent uses alone are not enough to sustain the park. Unlike in Pershing Square, the design here is not the primary issue. Instead, more programming and better maintenance would make County Mall successful, and provide for a dramatic promenade connecting City Hall and the Los Angeles Music Center.

    Union Square, San Francisco – Despite an expensive redesign nearly five years ago, Union Square is still not the central urban gathering space for San Francisco. Although it does serve as an incidental focus of pedestrian activity within the immediate neighborhood, the primarily hardscaped design is too fussy and too formal to encourage casual passive use and extended stays, except, perhaps, within limited zones at the fringes. The little available seating is poorly designed, intended to prevent homeless use rather than to promote use by casual park visitors. Primarily a concrete space with grass at the corners, Union Square lacks the “warmth” that makes such spaces comfortable. Imagine a Union Square with a great lawn in the middle, rather than cold (and expensive) hardscape.

    Market Street, San Francisco – Punctuated by intermittent triangular plazas along most of its downtown stretches, portions of Market Street’s public space are more the domain of homeless panhandlers than workers, residents, strollers, and the like (it should be noted, however, that some parts of Market Street, such as in the Financial District, can be pleasant at times). The plazas, quality architecture, and mix of uses create potential. But the pedestrian environment discourages extended dwell times, except by the homeless, panhandlers and drug dealers, many of whom, the city has documented, commute daily to Market Street from elsewhere in the Bay Area. The design offers little in the way of seating options and softscape. Sanitation and maintenance need to be substantially upgraded and programming is needed.

    Proper seating, adequate lighting, and extensive horticultural displays would serve to populate these public spaces. Proper management and maintenance would ensure long-term success. Places such as Bryant Park in Midtown Manhattan, itself the beneficiary of a remarkable turnaround masterminded by Daniel Biederman of the Bryant Park Restoration Corporation, have shown what visionary management can do to struggling urban public spaces. [Kozloff worked for BRV Corp., Biederman’s private consulting company that is independent of the Bryant Park Restoration Corporation, from 2001-2004.] Although once run on a city budget of $200,000, Bryant Park is now managed on a privately-funded budget. Biederman turned Bryant Park – once the domain of drug dealers and other such undesirables – into Manhattan’s premier address without using public coffers.

    Given the warm weather, long growing seasons, and urban renaissance occurring in adjacent portions of Los Angeles and San Francisco, even in the midst of our current downturn, there are opportunities to improve the public realm so that it serves its intended purpose, including boosting civic pride and, in turn, encouraging public stewardship. And, these improvements could be made without costly redesigns and extensive capital construction. Urban environments do not need places that drain public funds and then are shunned by the citizenry; there are enough other issues for urban mayors to deal with. Great cities need comfortable and inviting gathering places that both anchor and bolster civic pride, and simultaneously provide backdrops for special events and day-to-day activity.

    Howard Kozloff is Manager of Development Strategies and Director of Operations at Hart Howerton, an international strategy, planning and design firm based in New York, San Francisco and London. Kozloff is also a lecturer on Urban Real Estate Markets at the University of Pennsylvania.

  • Immigrants Are ‘Greening’ our Cities, How About Giving them a Break?

    Debate about immigration and the more than 38 million foreign born residents who have arrived since 1980 has become something of a national pastime. Although the positive impact of this population on the economy has been questioned in many quarters, self-employment and new labor growth statistics illustrate the increasingly important role immigrants play in our national economy.

    There has also been an intense debate within the environmental community about the impact of immigrants. Yet there has been relatively little research done about how immigrants get to work and where most immigrants live. As the ‘green’ movement in the U.S. has increasingly pushed for higher-density housing and transit-oriented development in order to improve public transportation (specifically rail), few have considered how immigrants use transit and what might be the best way to accommodate their needs. In fact, all too often, “green” policies advocate transit choices – favoring such things as light rail over buses – that may work against the interests of immigrant transit riders.

    Based on the 2007 American Community Survey, 117.3 million native-born and 21.9 million foreign-born individuals commuted to work. As Table (1) illustrates, a higher percentage of immigrants rode buses (5.7% vs. 2.1%) and subways (4.1% vs. 1.2%) and many walked to work (3.7% vs. 2.7%). A much smaller percentage drove to work (79.8% vs. 87.7%). Unfortunately, despite their higher usage of alternate means of transportation to work, or perhaps because of it, the commute to work time was on average longer for the foreign-born commuters than their native-born counterparts (28.8 minutes versus 24.7).

    Clearly in terms of using public transportation, immigrants are a bit greener than those born here. But why? Is this habit formed elsewhere? In that case, are recent immigrants even more likely to use public transportation than those who immigrated earlier? Or is it their income that affects their transportation choices?

    Table (2) provides the answer to the first question. Recent arrivals are clearly less likely to drive to work and have a higher propensity toward using public transportation, compared to all foreign-born individuals (and significantly more than the native-born). Additionally, over 6% of the immigrants who have arrived since 2000 walk to work.

    Overall, more than a quarter of the immigrants who have arrived since 2000 use an alternative mode of transportation to work. If the rest of America could do the same, we’d be a bit ‘greener’ already. However, it seems that as immigrants stay longer, they eventually tend to use cars more often because automobile usage allows for access to better jobs, better shops, and better schools. For example, immigrants who arrived in the U.S. in the 1970s (which means they have been here over three decades) drive a bit more and use public transportation less.

    Even so, their rates are still slightly better than the native-born (compare Tables 1 and 2). This may be in part because of their lower incomes (see Table 3) yet at every level of income they are still more likely to take transit. Table (4) illustrates this point by grouping commuters into income categories and their nativity. In every income category, immigrants use their cars less and are more likely to use public transportation, even though their car ridership increases with income.

    The message from these statistics is loud and clear. Immigrants are more likely to ride public transportation than those born in the U.S., regardless of their income. The ones arriving more recently are even more likely to do so. Overall, this suggests that familiarity with public transportation, combined with the effects of income and place of residence, has made the immigrants’ lives in the U.S. a bit ‘greener’ than those of the native-born. In fact, one factor that may contribute to their higher usage of public transportation stems from their living in neighborhoods whose densities are, on average, 2.5 times higher than those of the native-born. Immigrants, in essence, are doing precisely what planners want the rest of us to do.

    Moving to Southern California

    Southern California still stands as the icon of immigration and multiculturalism and is home to a large number of immigrants in the urban region that extends from eastern Ventura County to the southern tip of Orange County and the Inland Empire. As Figure (1) illustrates, in a number of neighborhoods in Southern California, the foreign-born population outnumbers the native-born by large margins. For example, in areas west and south of downtown Los Angeles, immigrants are more than three times as numerous as the native-born.

    A comparison of Figures (2) and (3) suggests a wide geographic difference between the native-born and the foreign-born and how long it takes them to get to work. The foreign-born population experiences much longer commutes in highly urbanized areas around downtown Los Angeles and the San Gabriel Valley. Conversely, in the more rural areas, such as northern Ventura County, the foreign-born population experiences shorter commutes compared to their native-born counterparts.

    Figure (4) provides a clear comparison of average travel time to work for both populations (visually comparing Figures 2 and 3). In all areas appearing in the darkest shade of green, the foreign-born population experienced shorter commutes compared to the native-born. These shorter commutes, however rarely occur in high density areas (compare with Figure 5). Conversely, in areas such as Santa Monica, the Wilshire corridor, East Los Angeles, and southern sections of downtown Los Angeles, the foreign-born population experiences much longer commutes than the native-born.


    Statistically speaking, there is a positive relationship between average travel time and density – i.e., the higher the density, the higher the reported average travel time. For the foreign-born population who live in higher density areas, this means much longer commutes, a problem caused by a number of factors, including their dependency on slower public transportation systems and the long distances they have to travel to reach job centers outside the city center.

    Figure (6) illustrates the geographic pattern of bus ridership among the foreign-born commuters. As with national patterns, immigrants in Southern California are more likely to settle in high density areas and use public transportation to work, but unfortunately, they also suffer much longer commutes.

    What should the policy responses be? One may be to promote increased car ownership among immigrants and low-income populations in the U.S. This may be objectionable to some environmentalists and planners, but it’s clear that those people who live by the principles of higher density and public transportation use are not rewarded and indeed suffer longer commutes.

    An even more relevant question is why advocates for public transportation focus disproportionately on rail, when buses are so frequently used by low income populations, including immigrants. In California, these riders outnumber the native-born on buses. The situation is reversed on rail and subways. An intelligent policy response to public transportation planning would suggest that buses should receive much more attention. Major metropolitan areas have become polycentric in their employment patterns, and most major employment centers are located at long distances from the central city. Specially-designed buses for reverse commutes could help alleviate transportation problems while helping working immigrants reach their destinations more quickly.

    This challenges the priorities of some public transport advocates, who tend to focus on very expensive rail projects designed primarily to draw more middle class, largely native-born riders who commute to places like downtown Los Angeles. Meanwhile those ‘new’ Americans who already live by a number of ‘green’ standards suffer from the misallocation of transit resources. Those who are already doing what we hope the middle class will do deserve better.

    Ali Modarres is an urban geographer in Los Angeles and co-author of City and Environment.

  • Origins and Growth of Al Capone’s Outfit: Chicago’s First Ward Democratic Organization and its Aftermath

    Barack Obama ran for President with his headquarters in downtown Chicago. Obama’s election night victory speech was just blocks away in Chicago’s Grant Park. To historians of organized crime both locations are located in a significant place: Chicago’s old First Ward. This valuable plot of land is where Chicago’s Democratic Machine and Al Capone’s criminal organization both began. The connection between the two is of great historical significance. Why? Because the Chicago Mob is nothing but an outgrowth of Chicago’s old First Ward Democratic Organization.

    The First Ward contained not only the big office buildings of downtown Chicago but also the near south side which contained the Levee (which was America’s premier vice district for prostitution and gambling) in the early part of the twentieth century. Crime researcher Ovid Demaris explains the origins of the First Ward in the first decade of the Twentieth Century:

    The chain of command on the levee started at the top with committeeman Michael “Hinky Dink” Kenna and Alderman Bathouse John Coughlin, bosses of the First Ward, the wealthiest plot of real estate (it contains the Loop) in the Midwest. Their bagman was Ike Bloom, a ward heeler and proprietor of a busy dance hall. The next in command was Big Jim Colosimo, an Italian pimp and restaurateur, who started out as a street cleaner. When he married a madam with a pair of dollar houses, Hinky Dink made him a precinct captain in charge of getting out the Italian vote.

    By 1912, Jim Colosimo owned 200 brothels, many located in the First Ward. Colosimo is considered by the FBI to be the first head of the Chicago Mob. His base – organizing street sweepers – presaged the powerful role of public unions in Chicago nearly a century later.

    Another important First Ward Democratic precinct captain with connections to Kenna and Coughlin was Harry Guzik. Guzik, like Colosimo, was a pimp who passed his political connections on to his son, Jake. Jake Guzik, also a pimp, became the Chicago Mob’s accountant until his death in 1956. Guzik (note 1) was considered the number two man in the Chicago Mob and the financial brains behind the operation until his death in 1956.

    In 1909, Colosimo reached out for help in running his expanding empire. New York street gang leader John Torrio came to Chicago to help manage Colosimo’s empire from Colosimo’s Cafe at 2126 South Wabash Avenue at the south end of the First Ward.

    In 1919, on the eve of Prohibition, Torrio wanted the operation to expand into bootlegging. Colosimo was content with the money he was making from the existing rackets. So, Torrio had Colosimo executed. Before Colosimo was executed, Torrio had brought to Chicago a street thug he mentored in New York: Al Capone. With Colosimo, out of the way, Torrio moved the operation headquarters a few blocks away to the 2222 S. Wabash. Capone acted as the underboss of the operation.

    Torrio and Capone no longer needed to take orders from Kenna and Coughlin of the First Ward. Over time, as the Chicago Mob became wealthy, they began to tell Kenna and Coughlin how to operate. Jake Guzik became the de facto political boss of the First Ward issuing orders to Kenna and Coughlin.

    By 1925, Torrio stepped down as boss after an assassination attempt and left Chicago. Al Capone took over. The mob extended its political influence into other Chicago wards, to the surrounding suburbs of Chicago and even downstate.

    Capone’s reign only lasted until 1932, but his legacy and organization were just beginning. Robert Cooley and Hillel Levin in their monumental book When Corruption Was King explain:

    Oddly enough, far less is known about his successors and their grip on the city during the last half of the twentieth century. But that is when Chicago’s Mafia became the single most powerful organized crime family in American history. While Mob bosses knocked each other off on the East Coast, in Chicago they united into a monolithic force called the Outfit…By the Seventies, the FBI reported that Chicago’s Mob controlled all organized criminal activity west of the Mississippi – including and especially Las Vegas. Millions were skimmed from casinos like the Tropicana and the Stardust, and bundles of cash, stuffed in green army duffel bags, found their way back to the Outfit’s bosses.

    By the 1950s, the Chicago Mob realized it would be more efficient to send one of their own “made members” to City Council (Note 2). John D’Arco was a high ranking made member elected to City Council in 1951. D’Arco also became the First Ward Democratic Committeman, the boss of the precinct captains. He got caught by the FBI meeting with Sam Gianciana near Chicago’s O’Hare Airport, in 1962, and stepped down from City Council but kept his ward committeemanship until the 1990s. He was a regular visitor to Mayor Jane Byrne’s office in the late 1970s and early 1980s.

    In 1968, the Chicago Mob sent Fred Roti, one of their most effective high ranking made members, to the City Council. Roti grew up in the First Ward just blocks away from Capone headquarters. He was a precinct captain for John D’ Arco. Roti’s success on City Council surpassed John D’Arco. By 1982, the Chicago Tribune reported that Roti was Chicago’s most powerful City Council member:

    Roti’s name is always called first during council roll calls, and he revels in that privilege. His initial response gives other administration aldermen their cue as to what Roti – and, therefore, the mayor – wants. It’s often said that roll calls could stop after Roti votes – the outcome is already known. Roti, an affable fellow, controls the Chicago City Council with an iron fist.

    According to the Justice Department, Roti was an important co-conspirator in turning a large segment of Chicago’s organized labor movement into a racketeering enterprise.

    In the 1980s, criminal defense lawyer Robert Cooley wore a wire on Alderman Roti and his boss Pat Marcy. Cooley became the star witness in a series of sensational trials from an investigation titled Operation Gambat. Roti was indicted in 1990 and “was convicted of RICO conspiracy, bribery and extortion regarding the fixing of criminal cases in the Circuit Court of Cook County, including murder cases involving organized crime members or associates, and was sentenced to 48 months’ imprisonment.” John D’Arco’s son was also indicted and convicted of taking bribes. John D’Arco Jr. was the Chicago Mob’s man in Springfield, rising to the position of Assistant Majority Leader of the Illinois Senate.

    The Chicago Mob was never the same. Without Roti and Marcy, the judges could no longer be bribed into allowing the mob hitmen back on the street. The regular killings, to get people in line, stopped. The First Ward got mapped out of existence in the early 1990s. Senior FBI agent William Roemer explained the devastation to the Chicago Mob by Robert Cooley’s “Operation Gambat”:

    As a result of Gambat, Tony Accardo’s people were deeply wounded. For decades Pat Marcy and John D’Arco, Sr., has been to Accardo what Hinky Dink and Bathhouse John were to Colosimo, Capone, and Nitti. Since 1950 – some forty years – John D’ Arco had been there. They were themselves a great one-two punch for Accardo and for Greasy Thumb…

    So, the Chicago Mob has been in retreat. But, it still exists and has great access to power.

    In 1999, at Fred Roti’s funeral, his best friend on City Council Alderman Bernard Stone spoke. Alderman Stone, set the record straight in case there was any illusion of how important Fred Roti was in the history of Chicago:

    “Our skyline should say ‘Roti’ on it,” Stone said at the funeral. “If not for Fred Roti, half the buildings in the Loop would never have been built.”

    At the time of his indictment in 1990, Roti was Chairman of the City Council Buildings Committee. This is the key committee in Chicago that determines the height of buildings.

    After Fred Roti’s funeral, his body was laid to rest at the Mount Carmel Cemetery in the Chicago suburb of Hillside. Roti was buried in Section 34 of the Cemetery. Just a short walk from Roti’s casket in Section 35 of the Cemetery is Al Capone’s grave.

    The man who brought down the First Ward, FBI informant Robert Cooley, is back in the news. Days after Governor Rod Blagojevich was arrested, WLS TV reported that according to Cooley, Blagojevich was bookmaker for the Chicago Mob. WLS TV did a follow up report in which a former senior FBI agent confirmed that Cooley made bookmaking allegations about Blagovich in the 1980s. This isn’t the only mob tie concerning Blagojevich. His wife is related to the recently deceased Chicago Mob Consiglerie Alphonse Tornabene.

    Lurking in the background of the Blagojevich criminal case is a casino license that was to be auctioned off. The license was by far the most valuable asset Blagojevich had control over. Blagojevich wanted the casino built in the Chicago Mob dominated suburb of Rosemont. The Chicago Mob also wanted the casino built there. In November of 2005, Blagojevich brought in Eric Holder to give Rosemont a clean bill of health. Holder and Blagojevich had a news conference outside the Thompson Building, which is in the old First Ward.

    The mob connection extends beyond the Blagojevich case. In their drive to retain President Obama’s U.S. Senate seat, the frontrunner is Obama’s friend, Alexi Giannoulis. He is so tainted by Chicago Mob allegations that Illinois Democratic Party Chairman Mike Madigan refused to endorse him in a past race for State Treasurer.

    As the Senate race heats up, these connections between the Chicago machine and the mob could prove embarrassing at least for the man the machine has helped elevate to the White House.

    Note 1: Jake “Greasy Thumb” Guzik earned his nickname from counting stacks of money and bribing public officials.

    Note 2: In preparation for this article, a former FBI agent identified John D’ Arco Sr. as a high ranking made member of the Chicago Mob. His status was at the level of a capo in which he was allowed to run a political crew.

    Steve Bartin is a resident of Cook County and native who blogs regularly about urban affairs at http://nalert.blogspot.com. He works in Internet sales.

  • JimE

  • Britain, the Big Blue State

    This week in the UK saw the publication of a much-awaited report on social mobility. Member of Parliament Alan Milburn chaired the “Panel on Fair Access to the Professions,” which studied which segments of the British population are advancing upward into the professional class. The report has generated coverage and discussion in nearly every media outlet. So what did the report conclude? Essentially, it found that, in increasing measure, the more affluent a child’s family, the more likely he or she will get a professional job such as a lawyer, doctor, or teacher, while children in poorer families will not. It further concludes that the UK’s track record on social mobility is not good and, since professional jobs require higher educational attainment, education reform must be a top priority in the next British government.

    In some ways, these conclusions were anti-climactic, because they repeated what observers of intergenerational mobility have already seen, namely that the UK has had flatter social mobility compared to other European countries (consider this Sutton Trust report). And it’s hardly news that the present economy places a premium on services and knowledge-based industries, which in turn makes education all the more important. The report, as a product of a Labour government, should be applauded for going so far as to recommend school vouchers as a way to improve educational attainment.

    But the report’s logic regarding the “professions”—those valuable occupations that hold the key to upward mobility—has gone untested in the media’s coverage of the findings. The report claims that there are currently 11 million jobs in Britain that qualify as “professional” occupations. The largest single group within this elite cohort is listed as “local government,” which accounts for 2.25 million jobs. The next largest is NHS, the UK’s national health program, at 1.4 million. The third largest is teaching at 700,000, the majority of which are presumably government-funded salaries. Together, these three groups account for 40 percent of the total.

    Are the other 60 percent of professional jobs supposed to generate the tax revenue that will pay for the other 40 percent? Probably not. Financial sector jobs, which create a sizable portion of British GDP, are not included in the list of “professions.” Therefore it seems that an unstated aspect of the report’s logic is that the UK needs to ensure that financial services continue to generate enough income that can be taxed at high rates to pay for “ the professions.” Or, perhaps to be fairer, new types of professional jobs (the report cites a rapid growth in “creative industries” such as music, fashion, and TV) will be created to pay the bill.

    Either way, it is odd that a government report puts forward a strategy for increasing upward mobility that relies so heavily on government-funded jobs—especially considering that the government plans to tax top earners at 50 percent next year, a rate that would presumably affect a fair number of professional people. And all of this is on top of a general agreement that government spending needs to be reduced somehow in order for the UK’s economy to recover.

    Does this problem sound familiar? Regular readers will surely have noted Joel Kotkin’s important July 22 article on the meltdown in blue states, a key ingredient of which is bloated public sector employment. These are the same states that have relied upon the self-defeating strategy of raising taxes to pay for it all. And these are the same states that have a disproportionate effect on the logic that Obama and Congress use to make economic decisions. Britain is, in some way, a big blue state. The U.S. is not yet a blue country. How and whether it increases the rolls of government-funded jobs as an overall percentage of the workforce will be a key indicator of how blue it becomes. This is clearly a live issue Obama’s healthcare, energy, and stimulus spending priorities.

    Ryan Streeter is a senior fellow at the Legatum Institute.

    This blog entry originally appeared at The American.