With demands for a bank bailout, Silicon Valley shows its ‘small government’ mantra was just a pose
Michael Hiltzik, Los Angeles Times– March 13, 2023
For decades, the dominant mantra of Silicon Valley’s powerful has been that government is just a drag on their innovative spirit. Get regulators off our backs, they’ve argued, and we’ll improve people’s lives to an indescribable degree.
Not at the moment. The same investors and entrepreneurs who argued for less government and less regulation in the past successfully lobbied for a government bailout of Silicon Valley Bank, which failed Friday as a result of astoundingly imprudent business practices.
Driving their demands were the financing issues facing thousands of SVB corporate and individual customers who collectively had more than $150 billion of their cash on deposit at the bank under conditions that left it largely uninsured against the bank’s collapse.
This specific industry could exceed$30 billion by 2025 The Federal Deposit Insurance Corp. insures individual and business deposits up to $250,000 per depositor. Many of the bank’s depositors had cash balances at SVB of hundreds of millions of dollars each.
Dispensing with that limit, the Federal Reserve, Treasury Department and FDIC announced Sunday that all SVB depositors would have access to all their money on Monday. Previously, the FDIC said it would make only the insured balances available Monday, with the balances to be repaid later and possibly not entirely.
The three agencies said no taxpayer funds would be spent on the rescue. The repayments will come from the sale of SVB’s assets, which include treasury securities, with any shortfall covered by an FDIC assessment on its member banks. The agencies may have concluded that there were enough assets on the bank’s balance sheet to cover all deposits, once the assets are sold.
This isn’t a “bailout” by the government, since SVB’s shareholders may yet be the losers; they’re not covered by the regulators’ relief program.
As it happens, the government has turned out to be the savior of Silicon Valley’s small-government libertarians in this crisis. The FDIC is one of many programs launched during Franklin Roosevelt’s New Deal that preserve Americans’ livelihoods and way of life during a crisis, and that conservatives have been trying to undermine since the 1930s.
As we reported last week, the sudden collapse of SVB resembled almost all bank runs of the past — the accumulation of huge sums of deposits that could be withdrawn on demand, backed by long-term investments that could retain their value only if held to maturity.
On Thursday, the bank announced that it needed to raise more than $2 billion in new capital, largely because long-term securities it had put up for sale had lost billions in value as interest rates rose over the last year or more.
The announcement spooked venture investor Peter Thiel and venture firms, which advised their portfolio companies to pull their cash out of the bank.
The result was an incredible $42 billion in withdrawals initiated that day, a torrent that rendered the bank almost instantly insolvent.
California regulators and the FDIC shuttered the bank Friday morning. When that happened, the shaky foundations of the bank’s business model were exposed to daylight, and the cries for a government bailout of its customers swiftly followed.
The context of these events was a fundamental change in the economics of the high-tech and biotech companies the bank served. As interest rates moved higher, its clients had more difficulty raising funds from private investors and therefore relied more on their cash balances at the bank. Their markets shrank, intensifying the rate at which they were burning cash.
It’s not unusual for a crisis to turn people’s most cherished beliefs on their head. The old joke says a conservative is a liberal who’s been mugged, and a liberal is a conservative who’s been sent to jail. An old military saw has it that “there are no atheists in foxholes,” an insight that investment commentator Barry Ritholtz expands to read, “there are also no Libertarians during a financial crisis.”
One other immutable principle of American capitalism is at play: The goal in business to privatize profits and socialize losses. In other words, when things are good, companies will keep their profits for distribution to shareholders. When things turn sour, the cry is heard for government to step in with bailouts and subsidies.
What’s overlooked in this case is that Silicon Valley Bank’s problems were in part the consequence of a Trump-era deregulation movement in banking that was fully backed by the banking industry and the management of — yes — Silicon Valley Bank itself. More on that in a moment. But first, let’s call the roll of small-government advocates who got their wish for a big-government bailout.
Start with billionaire hedge-fund operator Bill Ackman, who has advocated for self-regulation by the crypto-currency sector and has pushed back against efforts by the Securities and Exchange Commission to regulate one of his investment funds. Ackman went all-in for Donald Trump after Trump’s election in 2016, gushing that the U.S. has been “undermanaged for a very long period of time. We now have a businessman as president.”
In a lengthy tweet Saturday, Ackman flayed banking regulators for “allowing [SVB] to fail without protecting all depositors,” which he called “a-soon-to-be-irreversible mistake.”
He added, “Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits … this could have been avoided and SVB’s 40-year franchise value could have been preserved.”
Then there’s David Sacks, an intimate of Thiel and Elon Musk, who were his partners in establishing and growing PayPal. Sacks and his friends have promoted a worldview that opposes progressive laws and regulations, including those aimed at reining in economic inequality.
Appearing on Megyn Kelly’s Sirius XM satellite show June 7, the day of the successful recall vote against San Francisco’s progressive district attorney, Chesa Boudin — a recall movement Sacks helped to finance — he called Democrats “useful idiots for the Chinese Communist Party.
“By this weekend Sacks was squealing: “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe.” (His references are to Federal Reserve Chair Jerome H. Powell and Treasury Secretary Janet L. Yellen.)
Venture investor Brad Gerstner called in a tweet for the Federal Reserve to “act now to make sure depositors are 100% protected.” In a second tweet, he asserted that the savings of thousands of small investors are at risk “just [because] the system failed.”
That drew a horselaugh from veteran investor Jim Chanos, whose experience as a short-seller has given him a uniquely percipient feel for Wall Street foibles. “The chutzpah here beggars belief,” Chanos replied on Twitter.
Chanos observed, accurately, that it was venture investment firms that actually launched the run on SVB on Thursday, when they suddenly urged their companies to pull their deposits from the bank, triggering the $42-billion outflow. “And they now want the Taxpayer to bailout their investments…?! Capitalism, Silicon Valley-style.”
It’s not only the entrepreneurial brotherhood demonstrating that, to quote what has become known as Miles’ Law, “Where you stand depends on where you sit.”
Consider former Treasury Secretary Lawrence H. Summers, who last year was heard disdaining President Biden’s student loan relief as inflationary. His argument was that the $10,000 to $20,000 in proposed relief “consumes resources” better used to help those who don’t attend college, and invites colleges to raise tuitions.
By Friday, however, Summers was saying that it’s “absolutely imperative” that “all depositors be paid back and paid back in full.” Interestingly, the same cadres who argue that student loan borrowers should have known what they were getting into when they took out their loans were able to overlook that Silicon Valley Bank depositors should have known that deposits beyond $250,000 are uninsured and therefore not guaranteed to be paid back.
(Miles’ law was coined by then-federal budget official Rufus E. Miles Jr. in the 1940s, after he noticed that after his most hard-nosed budget examiner took a job at one of the agencies he had criticized, the examiner became that agency’s most devoted defender against the unwarranted critiques from the budget office.)
Libertarian-minded Silicon Valley types have been trying to blame the bank’s collapse on the Fed. Cryptocurrency promoter Balaji Srinivasan, for example, complained that “Powell said that he wouldn’t raise rates in April, June, July, and Oct 2021 … People trusted him … And that’s how the Fed caused the crisis.”
That’s absurd, of course. The Fed began its sequence of interest rate increases in March 2022 and brought them higher by 4.75 percentage points from then through January this year. At every step the central bank made its intentions crystal clear. By early 2022, people “trusted” that the Fed was on a long-term rate tightening campaign. Absolutely no one had a right to be surprised.
Two key factors in the SVB disaster can’t be overlooked: The incompetence of the bank’s management and the improvidence of its customers.
The value destruction taking place in the bank’s holdings of long-term securities was written in bright red on its ledger books. With the prospect of interest rate increases continuing through 2022 and into this year, its management had no excuse for failing to unwind its holdings well before now instead of waiting.
Under regulations implemented in accordance with the Dodd-Frank banking reform law of 2010 safety-and-soundness standards were tightened for banks with more than $50 billion in assets.
Those larger banks were required to submit annual disclosures to the Fed, meet stricter liquidity and risk management requirements, and undergo “stress testing” that would reveal how they would fare under extreme financial scenarios.
Mid-sized banks launched a vigorous lobbying campaign to raise that threshold. In testimony submitted to the Senate Banking Committee in 2015, Greg Becker, the chief executive of Silicon Valley Bank, called for raising the threshold as high as $250 billion.
Becker’s statement bristled with the buzzwords and catchphrases beloved of Silicon Valley entrepreneurs. He asserted that without the change, the regulations would be so burdensome that “SVB will likely need to divert significant resources from providing financing to job-creating companies in the innovation economy.”
Becker referred to “SVB’s deep understanding of the markets it serves, our strong risk management practices, and the fundamental strength of the innovation economy.”
As it happens, SVB plainly didn’t understand how the markets it serves were vulnerable to lock-step flight from its deposit accounts, had weak or paltry risk-management practices, and failed to recognize that the innovation economy has its ups and downs.
The industry’s lobbying yielded fruit. President Trump raised the Dodd-Frank threshold in 2018. At the signing ceremony, Trump labeled the regulations “crushing.” He said, “Those rules just don’t work.”
Actually, they would have worked well for Silicon Valley Bank, which exceeded the $50-billion asset threshold in 2017 and never reached the $250-billion level, having topped out last year at $211.7 billion in assets. Had the old rules remained in place, it would have become subject to stricter oversight no later than 2018. Regulators might have noticed its rapid growth and the shortcomings of its risk profile. But they never had the chance.
Finally, the customers. SVB evidently required some of its Silicon Valley borrowers to do all their banking through the bank as a condition of their loans. According to its annual disclosures, the bank paid an average of 2.2% on savings and checking accounts last year; that’s higher than most commercial banks, but not high enough to compensate for the risk of uninsured cash deposits.
Some companies have reported uninsured balances of hundreds of millions of dollars sitting at SVB. It’s not unusual for businesses to have sizable balances in bank accounts exceeding the insurance cap. But prudent companies spread their deposits around, so they’re not mortally exposed to the failure of any one depository institution.
Multiple options exist for parking cash, such as investing in short-term government securities, money market instruments and corporate commercial paper. None of these is government-insured, but they offer diversification and a cushion against a single bank’s implosion.
With the debacle apparently resolved, the bank’s clients and their employees can enjoy the peace of mind that comes with a well-regulated banking system. Even at the businesses whose leaders lobbied to make banking less safe for everyone.
Michael Hiltzik is a columnist for the Los Angeles Times.
Fifteen Years After 2008, Why Do Banks Keep Failing?
Peter Coy – March 13, 2023
Credit…Illustration by The New York Times; images by CSA Images/Getty Images
The weekend rescue of uninsured depositors in Silicon Valley Bank and Signature Bank was absolutely essential and absolutely frustrating. We have to stop getting ourselves into these messes, people.
If the federal government hadn’t given a blanket of protection to all deposits, companies that had deposits in either of the banks above $250,000, the maximum that’s insured by the Federal Deposit Insurance Corp., would not have been able to pay their workers. Start-ups that bank with Silicon Valley Bank would have been imperiled. “It could have destroyed early-stage biomedical research in this country for a decade,” said Karen Petrou, the managing partner of the consulting firm Federal Financial Analytics, who sits on the board of a biomedical research foundation.
The damage could have been far greater. Depositors at other banks were beginning to panic, worrying that their banks would be next to fail and looking for safer places to stash their cash. We were looking at the early stages of a generalized bank run that would have done serious damage to the U.S. economy. Even a healthy bank can be destroyed overnight if all its depositors demand all their money at once. The only way to arrest the panic was for the government to assure all depositors that there was no need to yank from the bank.
Even after the emergency intervention, markets remained unsettled on Monday. Bank stocks were down. Economists at Capital Economics reported “worrying signs of incipient strains in core money markets.” Interest rates fell as investors speculated that the Federal Reserve might curb its rate-raising campaign to relieve pressure on banks (a concern I wrote about on Friday). A scare such as this one has lasting consequences.
True, the government didn’t bail out everyone involved. Shareholders in the banks are wiped out and members of senior management were fired. That’s fair — and contrasts with what happened during the 2008 global financial crisis, when the government propped up shaky banks while leaving management and shareholders in place.
Whether taxpayers helped pay for the rescue is a matter of semantics. On Monday, President Biden told reporters, “No losses, and this is an important point, no losses will be borne by the taxpayers.” Still, the government — and by extension, taxpayers — is providing a valuable guarantee to the banking system. The fact that any government expenditures will eventually be recouped through higher insurance premiums doesn’t take away from that. Also, the Federal Reserve is promising to support troubled banks by buying bonds from them at face value rather than their current depressed market price. Not a bailout, exactly, but certainly a good deal.
The real question is why this keeps happening. After the global financial crisis, Congress passed and President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The Federal Reserve raised safety standards for banks, especially ones that are deemed “systemically important.” There’s a Financial Stability Oversight Council that’s supposed to take a broad view of risks in the system.
It clearly wasn’t enough. It didn’t help matters that bank lobbyists got Congress and regulators to roll back some measures that they regarded as onerous. For example, a 2018 law signed by President Trump — which was passed by Congress with bipartisan support — spared banks with $100 billion to $250 billion in assets from the highest level of scrutiny. Hard to say, but Silicon Valley Bank — which lobbied for the law — might still be with us if it weren’t for that law.
There are lots of things that could be done to improve banking supervision, require thicker capital cushions and so on, but for now I’d like to focus on the question of the day, which is what to do about uninsured deposits.
The theory in banking is that big depositors have the financial sophistication and the incentive to make sure that the banks where they keep their money are safe. Keeping deposits uninsured above a certain threshold is thus supposed to be a kind of market discipline, supplementing the supervision by state and federal regulators. But that was never a realistic expectation for most depositors, who have other things on their minds. Plus, because big depositors know that they’ll be protected when push comes to shove, they have no incentive to seek out safe banks.
This is hardly a new problem. In 1991, Jerome Powell, now the chair of the Federal Reserve, was a senior official in the Treasury Department who was assigned to deal with the collapse of the Bank of New England Corp. As he recounted in a 2013 speech: “We came to understand that either the F.D.I.C. would protect all of the bank’s depositors, without regard to deposit insurance limits, or there would likely be a run on all the money center banks the next morning — the first such run since 1933. We chose the first option, without dissent.”
Under the Federal Deposit Insurance Corporation Improvement Act of 1991, the F.D.I.C. is required to resolve bank failures in the way that incurs the least cost to the deposit insurance fund, even if that means wiping out uninsured depositors. But in practice, uninsured depositors almost never get wiped out because the F.D.I.C. arranges for a stronger bank to acquire the failed one, assuming all of its deposits. The Dodd-Frank Act of 2010 made an explicit exception to the least-cost test for cases of “systemic risk” — that is, if complying with the least-cost test “would have serious adverse effects on economic conditions or financial stability.” That’s the exception that the government invoked for Silicon Valley Bank and Signature Bank.
If market discipline works in theory but not in practice, one alternative is to bow to reality and explicitly insure all bank deposits. It would certainly lessen the number of panics such as the one that killed Silicon Valley Bank and Signature Bank, without giving banks carte blanche to behave irresponsibly. One person who favors that solution is Robert Hockett, a professor at Cornell Law School, who has written twopieces about the idea for Forbes recently. The F.D.I.C. premiums are higher for riskier banks, which makes sense. Given that the F.D.I.C. already takes risk into account, Hockett told me, the $250,000 limit is “vestigial, like the human tailbone.”
Insuring all bank deposits would make banks look more like public utilities, Petrou told me. She said she’d prefer relying more on market discipline, as originally intended. But that ship may already have sailed.
One of Anna Maria Island’s last trailer parks is for sale in Florida. ‘It’s a family.’
James A. Jones Jr. – March 12, 2023
Along with the bright colors, quirky personal touches and flowering plants at the Pines Trailer Park, there is sadness and uncertainty among residents.
Dating back to 1935, the park was first used by members of a traveling circus, some say, and baseball great Babe Ruth once owned a home at 402 Church Ave., that later burned down, the Bradenton Herald reported in 1990.
It’s a tight-knit group of residents, some full-time, but many seasonal. The park bumps up against Sarasota Bay. Bridge Street and Bay Drive both run through it. Visitors often walk through, taking in the local color of one of Anna Maria Island’s last two trailer parks.
It’s a throwback to the Florida of yore.
Bradenton Beach City Hall sits a few blocks to the west.
“It’s sad. We are extremely hopeful residents will be able to work out a deal with the property owner,” Mayor John Chappie said. “The Pines is really a community within a community.”
Trailer park residents respond
Pines Trailer Park and Sandpiper Mobile Resort, 2601 Gulf Drive N., also in Bradenton Beach, are the last remaining trailer parks on Anna Maria Island.
For some of the residents of Pines Trailer Park, it is the only home they have, said Linda Maerker, president of the tenant’s association.
She worries for them.
“You know the price of real estate. It’s sad,” she said.
Maerker and her husband have wintered in Pines Trailer Park for 15 years.
“This place is so important to so many people,” she said. “It’s a family. We have become very close.”
Maerker calls the park her healing place after some tragedies in her life.
Ranae Ratajczak has lived in the park for 13 years, spending six months a year there.
“It’s our happy place, our piece of paradise,” Ratajczak said.
The owners of Pines Trailer Park in Bradenton Beach want to sell the property and have offered residents the option to purchase the park for $16 million.
“Our hope is to become owners of the park. There is a lot of history here. We want to keep it as it is, as a mobile home park,” she said.
History of Pines Trailer Park
This is not the first time that park owners have offered to sell the park to residents.
In 2002, the owners also offered residents a chance to buy the park, according to records filed with the Manatee County Clerk of Court’s Office.
George and Grace Bagley started Pines Mobile Home Park — named after the Australian pine trees in the area — in 1935 and the park has had many owners over the years, according to Jonathan Torkos, historical resources librarian for the clerk’s office.
At its opening in 1935, the Bradenton Herald reported that it was a “new and strictly modern tourist camp” with a community hall, dance hall, restaurant and laundry. Budweiser was offered on draft, according to a newspaper advertisement.
In 1936, thieves entered the washroom of the park and stole all the plumbing, the Bradenton Herald reported.
In 1948, Mr. and Mrs. Harry Hively sold the park to Mr. and Mrs. James Ashby for $25,400.
This aerial depicts the southern-most portion of Bradenton Beach. To the right of the image is the Anna Maria Sound and to the left of the image is the Gulf of Mexico in this historic postcard from 1945.
One of the subsequent owners, Mr. and Mrs. Glen Fifer, sold the park in 1956 for $55,000 to Mr. and Mrs. Charles Bisbee.
In 1962, Bradenton Beach’s then-mayor Victor Reinel sold the park to Mildred Henri and Forrest J. and Elizabeth Lincoln for $150,000, the Bradenton Herald reported.
Jackson Partnership has been the owner of the trailer park since 1976.
Challenging housing market
The housing market has never been so challenging in the Bradenton area, with rental prices becoming some of the least affordable in the United States and the price paid to buy a house at record levels.
In the early 1970s, Bradenton Beach had very affordable housing that service workers on the island could afford, Chappie said this week.
That is a concern not only for Pines Trailer Park residents who want to remain in their homes but for many who are looking to rent or buy elsewhere in the Bradenton area.
The owners of Pines Trailer Park in Bradenton Beach want to sell the property and have offered residents the option to purchase the park for $16 million.
The availability of affordable housing and workforce housing has become a major concern not only for consumers but for business interests and public service providers.
The owners of Pines Trailer Park in Bradenton Beach want to sell the property and have offered residents the option to purchase the park for $16 million.The owners of Pines Trailer Park in Bradenton Beach want to sell the property and have offered residents the option to purchase the park for $16 million.The owners of Pines Trailer Park in Bradenton Beach want to sell the property and have offered residents the option to purchase the park for $16 million.The owners of Pines Trailer Park in Bradenton Beach want to sell the property and have offered residents the option to purchase the park for $16 million.
They bought their dream homes from the ‘King of Coconut Grove.’ They still can’t move in
Linda Robertson – March 12, 2023
Twelve new townhouses line a block of Coconut Avenue. Lushly landscaped, outfitted with high-end appliances and spacious closets, they’re in move-in condition. Yet the Coconut City Villas are empty, as empty as their backyard swimming pools and unsullied trash bins sitting in unoccupied driveways.
Instead of “For Sale” signs, house hunters see “No Trespassing” notices posted along the street and “Do Not Enter” decals stuck to the front doors, a curious contrast in Coconut Grove, one of the most hotly desired neighborhoods in the country, where housing prices have nearly doubled over the past three years.
The lack of residents can’t be explained by lack of demand. The 4,000-square-foot townhouses, originally priced from $1.2 million to $1.8 million, are under contract to buyers who put down as much as $500,000 starting as far back as 2018. They were told by developer Doug Cox their homes would be ready in 45 to 90 days, or at the latest six months.
They’ve been waiting ever since. Their plans have been perpetually postponed by Cox, owner of Drive Development, who has not closed a house sale in four years despite a booming market. His completion dates teased buyers as the houses beckoned. But their dreams of a dream home have gone bust.
They have been locked out and led into a dead end darkened by threats, lawsuits, non-disclosure agreements and unsavory lenders, buyers say.
The delays have turned buyers and their families into nomads — moving from one expensive rental to another, cramming in with relatives while living out of suitcases — draining their finances and testing their marriages. When they go past their houses they are tantalized by memories not made — cooking in the kitchen, playing in the pool, celebrating birthdays, hosting block parties.
“We’ve spent three Christmases in limbo,” said Alan Lombardi, who signed a contract three years ago with the assurance that he, his husband and their newborn twin daughters would move in by summer 2020. The twins are now age 3. “The developer has kept us hanging on his hook, ruining people’s lives by deceiving us with false promises, just like Bernie Madoff.”
Lombardi has asked the FBI to investigate Cox for running a Ponzi scheme.
The buyers can’t move in because Cox has failed to complete inspections and get certificates of occupancy from city of Miami building department officials, whose lack of oversight enabled Cox to ignore expired permits and a Stop Work order and avoid applying finishing touches on houses for years. The city, which has ceased responding to buyers’ calls and emails, says it can’t intervene in a private dispute.
The buyers got caught in the fallout from Miami’s COVID-driven housing gold rush. Some are transplants from New York, Chicago and California who were eager to sign purchase agreements for new homes that looked — outside and inside — like they were ready to sleep in, missing only a mirror, some paint, a fence. They want their plight to serve as a warning: Don’t make one-sided deals with developers.
A Coconut Avenue townhouse built by Drive Development. Buyers who have paid hundreds of thousands in deposits for these houses have been waiting to move in for two, three and more than four years. They’ve been stymied by the Coconut developer, Doug Cox, who has continually stalled the closings on the properties.
Cox is deliberately stalling to frustrate them into canceling their contracts so he can flip each house for an additional $1 million or more, buyers allege. They feel trapped: As time passed, the market skyrocketed, and in 2023 they will never find comparable homes in the neighborhood for the price they planned to pay and the mortgage rate they had secured.
On Wednesday, Drive Realty listed 2986 Coconut Ave. for $2.495 million. Original sales price in July 2020 was $1.385 million, a difference of $1.11 million. One catch: It doesn’t have a certificate of occupancy so anyone who buys it can’t move in.
“Seems like a shell game,” said Andy Parrish, a longtime Miami developer who lives in Coconut Grove. “He’s put these people through hell by stonewalling them with excuses.”
One weary buyer confided in Parrish, cried on his shoulder.
“She said, ‘I can’t believe people lie to other people like this,’ ” Parrish said. “I told her, ‘Welcome to Miami! A sunny place for shady people.’ ”
Cox, 52, initially agreed to an interview with the Miami Herald, then changed his mind and asked for emailed questions. He didn’t respond to questions sent twice or attempts to talk to him over the past two weeks.
Nicole Pearl, 37, who is Cox’s business partner and mother of their three children, declined to talk to the Herald. Her law firm, Pearl & Associates, is the registered agent of companies connected to the properties, Florida corporate records show. She is a licensed real estate agent who lists homes for Drive Realty.
The Herald spoke to 16 buyers — many did not want their names published, fearing retaliation by Cox — and examined lawsuits, mortgages, purchase agreements, property records and Miami building department reports, which substantiated buyers’ chorus of complaints.
Several of the 12 townhouses in the 2900 block of Coconut Avenue in Coconut Grove on Wednesday, Feb. 15, 2023. Buyers who have put down deposits as much as $500,000 dating back to 2018 say they haven’t been able to move into the homes due to perpetual delays by their developer, Doug Cox of Drive Development.
No sales closed since 2019
Cox calls himself the “King of Coconut Grove.” His clients call him less flattering nicknames. What his gambit is no one can say for certain because he has not sold a home since August 2019 when he and Pearl closed on a Bridgeport Avenue townhouse for $1.15 million. Closing on the new homes should be a mutual goal but there are no signs of progress. He offers clients refunds of their deposits and says he’s got a line of backup buyers.
“It’s a strange way to run a real estate development company,” Lombardi said. “It’s really an anti-development company. Why doesn’t he want to deliver? How can he afford to operate?”
Cox has told buyers he wants to get them into their special houses, but he’s been delayed by factors beyond his control: the pandemic, supply-chain problems, manpower shortages, rising construction costs, subcontractor snafus and now bureaucratic red tape in the building department tangling his efforts to finish inspections.
A padlock and chain link fence greet passersby at 3159 Virginia St. in Coconut Grove on Thursday, Feb. 9, 2023. The property is owned by Send Enterprises LLC, one of the limited liability companies connected to Doug Cox and Nicole Pearl.
Double contracts on homes
Is Cox playing musical chairs? At least three of the townhouses have double contracts on them. The legal descriptions correspond to 2955, 2960 and 2990 Coconut Ave.
Some buyers discovered through Miami-Dade Clerk of Court records that near the end of 2022 Cox signed a “memorandum of contract” on their houses with Chris Paciello, the former South Beach nightclub impresario, and his business partner, Mio Danilovic. Before he became famous for hosting parties at Liquid and dating Madonna, Sofia Vergara and Jennifer Lopez, Paciello was a Mafia henchman and thief in New York City.
Once Paciello’s past caught up with him in 2000, he became an FBI informant, pleaded guilty to racketeering and served six years in prison for robbing $300,000 from a New York bank and driving the getaway car in a home invasion during which a Staten Island housewife was shot in the face and killed.
Paciello, the owner of four Anatomy Fitness deluxe gyms in South Florida, has ventured into real estate investment since the pandemic and flipped houses for $9 million and $14 million in Miami Beach. It’s unclear how much of a deposit Paciello and Danilovic put down in their backup contract deal with Cox. Backup contracts are not illegal.
When contacted by the Herald, Paciello, 51, declined to comment.
Ingrid Casares and Chris Paciello at Liquid, the South Beach nightclub, on Nov. 16, 1995. Casares and Madonna were lovers; Casares and Paciello were partners in Liquid. Paciello and his business partner have backup contracts on three of the Coconut Avenue townhouses.
In another complication that has alarmed buyers, Cox took out a $350,000 loan in December from DC Fund based in Sunny Isles Beach, whose associates include men who were sued for racketeering in an alleged loansharking scheme that disguised “criminally usurious loans” as cash advances that had to be repaid with 430 percent interest, according to a lawsuit filed in Brooklyn. Cox put up eight properties as collateral. If he defaults on the loan, he could lose them.
Buyers have observed Cox showing their houses to prospective buyers on multiple occasions. He says he is merely displaying his handiwork, and not offering those particular houses for sale. But contract holders have heard from acquaintances whose names are on a list of backup buyers Cox has compiled. One is upset he’s only No. 3 on the list.
A finished kitchen in one of the Coconut Avenue townhouses built by Doug Cox of Drive Development.
If Cox is flipping the townhouses, for how much? Miami real estate agent Randi Connell, who identifies herself as a Drive Development sales associate, recently texted a prospective buyer about two off-market Coconut Avenue houses available for $2.7 million and $3 million, which is $1.5 million and $1.2 million more than the original sales prices.
Homebuyers who signed purchase agreements and put down deposits on townhouses along Coconut Avenue in Coconut Grove have been waiting for several years to move into their dream home. The developer, Doug Cox of Drive Development, keeps stalling, the buyers allege. Photo was taken in 2021 by a buyer.
Pearl listed 2986 Coconut Ave. for sale for $2.495 million on Wednesday morning. The house first went under contract for $1.385 million on July 8, 2020, to Jonathan Schonfeld and Aviva Auslander, with a completion date of Sept. 1, 2020, or at the latest, March 1, 2021. They waited two years. Disgusted, they gave up.
If Cox and Pearl land a buyer for 2986, they could collect at least a $500,000 deposit and “utilize” it as they please, according to two Send Enterprises contracts the Herald reviewed. Contrary to realty ethics rules, Pearl did not disclose in the listing that the house doesn’t have a certificate of occupancy, and its building permit expired Feb. 15.
“If the delays are indeed outside their control, how can they list a property if they don’t know when or if they can close?” Lombardi asked.
South Florida real estate lawyer Dennis Eisinger said home buyers can get “boxed in” by contracts that typically favor the developer and waive buyers’ rights.
“It appears this developer is bullying the buyers to get the financial advantage,” he said. “We saw this situation before the recession in 2003-2006 when defiant and unscrupulous developers tried to get buyers to rescind contracts so they could resell at higher prices.”
Lawsuits, ‘worst decision of my life’
At least three buyers, including Schonfeld and Auslander, sued Send Enterprises, alleging fraud and breach of contract. The cases were assigned to mediation, as required in the contracts; buyers cannot seek a jury trial. They had to sign non-disclosure agreements. At least four others have taken Cox up on his offer to refund their deposits and walk away; they also signed NDAs.
Catherine and Andrew Prescott of Miami Beach signed a $1.82 million purchase agreement on May 25, 2021, and paid a $455,000 deposit for 2960 Coconut Ave. The contract stipulated a completion date of Aug. 1, 2021, and an “outside” closing date within six months.
The Prescotts sued Send Enterprises in January 2022 for its alleged failure to achieve specific performance of its obligations, fraudulent inducement, unfair trade practices, negligent misrepresentation and unjust enrichment.
In their lawsuit, which also named Cox, Schonfeld and Auslander asserted that Cox “repeatedly lied” about “fabricated dates.” The Prescotts said the developer made promises “without any intention of performing, or with the positive intention to not perform” to entice them to sign and pay a deposit. The cases went to mediation and everyone signed NDAs.
Three months after the Prescotts sued, a real estate agent who works with Cox offered the house for $2.4 million, about $600,000 more than the original sales price.
Other buyers are determined to stick it out. They can’t afford to hire a lawyer. They’re not ready to abandon the houses they’ve invested in, emotionally and financially. And they don’t want to let Cox win.
“If I could rewind time — this was the worst decision of my life,” said Kevin Ware, who owns an insurance brokerage firm. He moved his family from Chicago in March of 2021, walked through a Coconut Avenue townhouse that was weeks from completion and fell in love with it. They’ve lived in three rentals since. “We cannot let Doug keep scamming more people. We don’t want anyone else to get caught in this predicament. Buyer beware.”
Strung along by Cox, buyers acquired mortgages with 2 percent rates that have since tripled.
“It must be exhausting to be Doug Cox. He lives in 15-minute increments. Think of all the lies he has to keep track of,” Ware said. “We have paid a high price for dealing with him. From the sheer expense of living in short-term housing to the financial damage of losing our mortgage rate locks to the strain on our relationships and mental health, Doug has constantly and cruelly put his greed above our well-being.”
Kevin Ware moved his family from Chicago in March of 2021, walked through a Coconut Avenue townhouse that was weeks from completion and fell in love with it. They’ve lived in three rentals since, unable to move into their home.
‘Cautionary tale for other home buyers’
For Lombardi and his family, it’s been a three-year ordeal, first sharing his mother’s small Hollywood condo with his partner and infant twins, now in a $5,000-per-month Midtown apartment.
“We thought it would be a three-month wait because the house was 80 percent done, so we sold our Brickell condo, put everything, including baby equipment, in a sealed storage pod, packed four suitcases and moved in with my mom — for two years,” said Lombardi, a real estate agent.
The twins never had the nursery Lombardi envisioned.
One buyer described himself and his wife as “40-year-old couch surfers.” They’ve lived in seven different places.
New York transplants Michael Coyne and his wife, Oksana, have 1-year-old twin daughters and a 3-year-old son, and expected to share 2978 Coconut Ave. with her parents, who fled Ukraine after Russia attacked. Among the six places they have lived since their closing date evaporated was a one-bedroom apartment.
Coyne said they moved to a rental in Rhode Island to wait it out because they couldn’t afford “insane” rents in Miami. Fueled by inflation that’s made housing unaffordable for many and the influx of remote workers and newcomers moving to a no-income tax state, Miami has become the most competitive rental market in the country with prices 76 percent higher than the national median, a Zillow study showed.
Coyne, an investment banker, wanted to open an office with two of his business associates in Miami but he’s told them not to come. Oksana, a registered nurse, was scheduled to do her clinical work to become a nurse practitioner; she’s postponed her career plans. The chaos has been difficult for the children and Oksana’s Ukrainian parents, who speak limited English.
“Doug and Nicole either lie to you or ignore you,” Coyne said. “You work really hard for your family to buy the most important asset of your life and you get caught in a calculated, malicious, exploitative scheme by a flimflam developer.
“I’m not letting him get away with it. Let this be a cautionary tale for other homebuyers.”
New York transplants Michael Coyne and his wife, Oksana, have 1-year-old twin daughters and a 3-year-old son, and expected to share 2978 Coconut Ave. with her parents, who fled Ukraine after Russia attacked.
One family has suffered the longest. They chose a four-bedroom model four and a half years ago so their 12-year-old daughter would have her own room and so her grandmother, recovering from cancer, could live with them. Now, the daughter is a high school senior heading to college in the fall. The grandmother never got to move in with her family.
City of Miami should be ‘embarrassed’
Cox brags about his chummy connections to the city’s building department and Miami Mayor Francis Suarez.
Cox’s customers recount the exact same comments he’s made to all of them — that he can remove any obstacle by “having a cafecito” with officials. Drive Development contributed $50,000 to Suarez’s re-election campaign in 2020 and $100,000 to Suarez’s 2018 initiative to create a strong mayor position (voters rejected it), campaign finance records show.
Buyers who have sought relief from the city have gotten nowhere: Emails, phone calls and meetings have prompted no corrective action.
Buyers acknowledge they signed contracts that gave lots of leeway to the developer but decided to sign because they were shown nearly completed houses by a persuasive seller who had previously built fine houses. What could go wrong?
The Herald asked to speak to three City of Miami building department officials about inspection delays and an audit of Drive Development plans. The city’s reply: “The Building Department takes this matter seriously and is tasked with enforcement of the building code and other technical standards, as well as City ordinances. The Building Department has no authority over the pace of construction, nor any contractual matters between the buyers and the developer.”
The city does have authority over permitting and inspections, but wouldn’t explain why it has taken years for Cox to receive city approvals and certificates of occupancy. Nor would officials answer questions about penalties for permit violations or prolonging the inspection process.
“The city should be embarrassed,” Lombardi said.
A walk-in closet at one of the 12 luxury townhouses on Coconut Avenue in Coconut Grove that developer Doug Cox of Drive Development built. The photo was taken in 2021 by a buyer.
When the Coynes asked Pearl for an update three weeks ago, she told them inspectors can’t work during an audit. The city said that’s not true; inspectors are allowed to carry on.
Developers like Cox can hire “private providers” to conduct inspections and submit the results to the city. Cox hired MEP Consulting Engineers of Coral Gables. He’s told buyers he blames MEP for bungling reports. MEP blames Cox for not giving inspectors the information they need to finish the job.
MEP President Katrina Meneses said that the city’s audit is done and in the hands of Cox.
“What we’re waiting on is paperwork from the owner, our client,” she said. “We love to finish projects so we can move on to the next one. Anything that takes over a year, it’s difficult to continue and slows us down. Yes, if I was a customer, I’d feel upset.”
The city is notorious for its lack of transparency and accountability, said Parrish, the Miami developer who lives in the Grove.
“We’re in a pro-development city, county and state where everything is driven by developers and their money. Florida is a creation of developers,” he said. “Developers control elections, elections control politicians and politicians control building and zoning. The city of Miami is one of the worst examples of how the gravy train works. It’s an absolute mess.”
Buyers have asked for help from the city, ex-Miami commissioner Ken Russell, Mayor Suarez, the Miami-Dade State Attorney’s Office, the state’s Department of Business and Professional Regulation and the FBI. The response: If Cox isn’t doing anything illegal, we can’t get involved.
Ware’s experiences illustrate the relationship between Cox and the city.
Cox was allowed to work through a Stop Work order for more than a year. The city issued the order because Cox failed to submit plans for the five three-story townhouses he was building on Coconut Avenue; he only submitted plans for the two-story units. His reason: Plans were proprietary and he didn’t want his design stolen.
Ware discovered there was a Stop Work order and expired permit on his house when he checked the city website iBuild in summer 2021.
Kevin Ware moved his family from Chicago in 2021 and has been waiting to move into their Coconut Avenue home in Coconut Grove.
According to Ware, Cox told him not to worry, the order wasn’t being enforced and he’d have a cafecito with officials to smooth things over. Five months later, after repeated requests for an update, Cox told Ware he had submitted a substantial number of reports to the city after giving MEP engineers a $50,000 bonus each to expedite inspections, and promised Ware “we’re almost there.”
A month later, Ware met with city inspector Perla Mutter. She told him Cox had submitted nothing, and that because of the expired permit, nothing could be submitted until Cox and his contractor Eric Myers met with the building department.
A month after that, on April 26, 2022, Ware went to the meeting at city offices expecting to talk to Cox, Myers and Miami building department assistant director Luis Torres. But Cox met with Torres privately first. And there was no sign of Myers.
“Doug comes out of the office and admits he met with Torres early so that, ‘Everything would be taken care of,’ ” Ware said. ”The following week Doug paid a $100 fine and reopened his permit.
“The city can try to cleanse its hands but it is enabling this developer to abuse the system,’’ Ware said.
The permits for 2984 and 2986 Coconut Ave. expired last month. Cox must sign onto iBuild and pay $100 to re-activate the permits for six months. It’s part of a years-long pattern: His permits expire, he reactivates them months later, then doesn’t enter documentation in time for the city to complete reviews before they expire again, records show.
Permits for the other townhouses on Coconut Avenue are scheduled to expire March 12, April 30 and July 4. Buyers check iBuild and see a vicious cycle: Submit, Pending, Review, Deny, repeat.
To fix the slow and complicated permitting process that has stranded buyers, they advocate new laws with strict 120-day deadlines for the review and approval of applications and harsh penalties for breaking them.
There’s a cost to the city as well. Cox has been paying property taxes of $10,000 per lot, or $60,000 per year on the Coconut Avenue townhouses. Homeowners would pay about $20,000 per unit, or a total of $240,000 per year.
‘House of Rumors’
Then there’s the seven-year saga of 4010 Park Ave.
The two-story South Grove house still has plywood for a front door and a Porta Potty in the front yard.
On realtor.com, it’s listed as a 5-bedroom, 6-bathroom home “active with contract” for $2.95 million.
In 2019, Steven Salm bought the home for $2.55 million. He sued Send Enterprises in November 2020; the lawsuit went to mediation and NDAs were signed. The house was re-listed in February 2021 for $2.95 million.
Marcos Junges has lived next door for 27 years. He said the building of 4010 Park began back in 2016.
“Goes in fits and starts, with long hiatus periods,” he said.
A home under construction at 4010 Park Ave. in Coconut Grove on Feb 15, 2023. A neighbor who lives next door said the home has been under construction since 2016. Neighbors call it the ‘House of Rumors.’ The property is owned by Send Enterprises LLC.
He and his neighbors — who paused to chat during one of their evening walks — call it the “House of Rumors.” They’ve heard it’s been under contract for five years with a succession of buyers. Junges said Cox bought the modest house that used to be there from his elderly neighbor’s family when she died.
At 2050 Secoffee St., majestic oak trees shade a vacant lot. Secoffee is a quintessential Grove street in the rapidly transforming North Grove, where developers capitalize on the neighborhood’s expansive lots by tearing down old houses and the jungle that surrounds them and building new ones with much larger footprints. Price-per-square-foot in the Grove’s 33133 ZIP code rose to a record $874 last year.
Drive Development’s website shows a gorgeous rendering of a 5,302-square-foot house with atrium, listed for $4.85 million in July 2021, then removed in January 2022. A description currently on movoto.com includes three different wishful details: Under construction! Expected completion Q3 2022 and Year built 2021.
No ground has been broken.
The image on the real estate website movoto.com shows a rendering of a house at 2050 Secoffee St. in Coconut Grove, on Feb. 25, 2023. The description includes three different wishful details: Under construction! expected completion Q3 2022 and Year built 2021.Drive Development advertises a luxury designer home along a fence in front of a lot at 2050 Secoffee St. in Coconut Grove. The lot is vacant.
Cox tells buyers he’s finishing his own dream townhouse at 3167 Shipping Ave. in central Coconut Grove. The adjacent one is under contract with a buyer from New York City who is growing more impatient. Both look ready for move in. Around the corner on Gifford Lane, a buyer from southern California awaits a townhouse that was supposed to be done in November. Other than grass growing, nothing’s happening on the lot.
Newly constructed homes along the 3100 block of Shipping Avenue in Coconut Grove on Wednesday, Feb. 15, 2023. Cox tells buyers he’s finishing his own dream townhouse at 3167 Shipping Ave. in central Coconut Grove. The adjacent one is under contract with a buyer from New York City who is getting impatient.
The loans
Cox’s companies have taken out at least $59 million in loans, for which he put up 20 properties as collateral, according to public records.
But it’s his most recent loan that has buyers concerned about the fate of their houses. Cox borrowed $350,000 from DC Fund on Dec. 30, 2022, soon after three buyers decided to cancel and get their deposits back. Around the same time, Pearl signed the double contracts with Paciello and Danilovic. And now Cox and Pearl have listed a house for which they could pocket $500,000 or more in deposit money.
Cox put up eight properties as collateral on the DC Fund loan. If he defaults, lenders get first dibs.
DC Fund’s registered agent is Ariel Peretz, principal of Diverse Capital, a lender that advertises “we say yes when others say no” and urges customers to get in touch “if you’re in search of desperately-needed money.”
Peretz and DC Fund members run firms in the merchant cash advance business, mostly based in Brooklyn, which attempt to skirt state usury laws by saying they are not lending quick money at exorbitant rates but are buying the future earnings of their borrowers.
Peretz and DC Fund associates Yoel Getter and Jonathan Allayev and their companies were sued in 2021 by a Texas businessman who accused them of collaborating in a “criminal enterprise that profits by making and collecting on illegal loans.”
The businessman took out a $150,000 loan for which he agreed to repay $224,850 at 215 percent interest via $3,748 daily debits from his bank account. Two weeks later, the businessman borrowed $350,000 — in part to repay the first one — at 430 percent interest, for which he owed $524,650 via $17,488 daily debits.
The businessman dropped the case.
Peretz didn’t return messages left by the Herald.
“We are very worried,” Coyne said. “If Doug gets in trouble with these high-risk loans and debts, we may be left with nothing.”
Cox boasts to buyers that he and Pearl are independently wealthy with $70 million in savings, but if his cash flow has dried up, they fear he can’t pay off mortgages, can’t obtain the clean title necessary to close and could declare bankruptcy.
“He may have thought, ‘I sold these too cheap and I can make more money if I resell,’ but that makes less sense every day because the market is cooling,” Parrish said. “Maybe he got in too deep and has problems paying lenders. He can’t close so he’s kicking the can down the road.”
The two sides of Doug Cox
Cox can be a charming salesman.
Or a belligerent bully.
Michael Coyne has seen both sides. But as a U.S. Army combat veteran, he is not intimidated.
“The last time I saw him he ran up to my car, leans in and says he’s hired a former CIA operative to tail me because my wife made disparaging comments on social media,” Coyne said. “Another time he told me, ‘Bring it!’ I deal with plenty of nasty lawyers on Wall Street and none of them have ever challenged me to a street fight.”
Lombardi has felt Cox’s wrath. Cox terminated Lombardi’s 3-year-old contract last month, accusing him of trespassing at his house at 2984 Coconut Ave. and making derogatory comments. Cox prohibits buyers from going on their properties and has installed surveillance cameras. But he allowed Lombardi to go inside last May with his family.
Eight months later, when Cox heard Lombardi called the FBI, Lombardi said, Cox canceled his contract. They are in mediation. Lombardi wants his deposit back, and believes Cox wants him out so he can list 2984 at a higher price and collect another $500,000 deposit.
Buyers are also wary of Cox because they’ve read a graphic police report from Sept. 6, 2020, when Cox and Pearl got into an argument.
Pearl, who describes Cox in the report as her “live-in boyfriend,” told police Cox began texting her with insulting names from the master bedroom where he was with their daughter as she put their 3-year-old son to bed in his room. Cox stormed in and hit her, choked her, pulled her hair and spit on her as their son watched, “terrified and screaming.” She wrote this description for police:
“He has a pattern of domestic violence and extreme childhood abuse and trauma which has left him with deep unresolved issues and anger problems. This has culminated into a cycle of violence with me since 2014. … He has repeatedly threatened that if I report it, it will destroy his life and in turn he will destroy mine and that of my family.”
Pearl also checked boxes asserting he has “threatened to conceal, kidnap or harm” their children and “intentionally injured or killed a family pet.”
Cox was charged with battery and domestic violence by strangulation and spent the night in jail, Miami-Dade Corrections records show. He was given a restraining order. Pearl dropped the charges.
Booking mug when Doug Cox was arrested and charged with battery and domestic violence by strangulation in 2020.
Cox has perfected the art of evasion.
“I call it the Doug Cox two-step,” Coyne said.
When buyers are able to chase him down on the phone — he avoids putting anything in writing — he swears he’s pushing against the forces obstructing him. He wants them living in their dream homes as ardently as they do.
A vacant lot on Woodridge, a sweet little street in the South Grove next to Merrie Christmas Park and its towering banyan trees, has been overtaken by vegetation. As people in Miami clamor for more housing, this spot where a cottage once stood has grown wild. Vines climb the trees instead of children. The scraping racket of a bulldozer echoes down the block.
On this patch, owned by the King of Coconut Grove, all is still. The ripe land, taking revenge, has reclaimed itself.
A ‘Do Not Enter’ sign is affixed to the front door of one of the 12 luxury townhouses on Coconut Avenue in Coconut Grove that have been built by Doug Cox of Drive Development. Buyers of the homes have been waiting years to move in.
Miami Herald Director of Research Monika Leal contributed to this report.
A Virginia bakery gave BLM activists free coffee. Then came the backlash.
Tim Carman, The Washington Post – March 10, 2023
Brian Noyes and Josephine Gilbert agreed to sit down on March 1 and talk it out. Noyes, founder of the celebrated Red Truck Bakery, and Gilbert, the leader of a loose coalition that demonstrates under the banner of All Lives Matter, wanted to reach an accord before events spun out of control in the usually restful town of Warrenton, Va.
The issue was coffee – and the weekly demonstrations on Courthouse Square in downtown Warrenton, where two groups have been trying to poke and prod the conscience of the city.
Since June 2020, not long after George Floyd was murdered in Minneapolis, a handful of organizations have hosted a Black Lives Matter Vigil For Action on Saturday mornings when, for 45 minutes, dozens of people quietly hold up signs to remind locals about racial injustice and institutional racism. The demonstrations eventually led to counterprotests across the street, aimed at shutting down the vigils that All Lives Matter activists see as destructive to this conservative community in Fauquier County, a traditional Republican stronghold.
Red Truck got dragged into this drama on the last Saturday in February when a relatively new member of the ALM group entered the bakery, camera phone in hand. Jennifer Blevins Ragle asked a young employee why the shop was giving out free coffee to participants at the BLM vigil, but not others on the square. She implied Red Truck was discriminating against ALM.
“I just don’t understand giving free coffee to some people, but not others. I mean, that makes your store very political,” Ragle said to the 17-year-old employee behind the counter. “I’ll make sure it gets to the paper and everything else.”
Ragle’s video was posted on a YouTube channel called Singing Patriot, where it gained little traction. But it was also posted on a TikTok account, named crossstitch1954, where it has racked up more than 21,000 views and generated more than 800 comments, many of them calling for boycotts of Red Truck. Or worse.
“Hope this place burns to the ground,” wrote one commenter. “Close the place down! Let those black lives keep the place open. All the other lives don’t matter,” wrote another. “Someone please put a pallet of bricks in front of that store so we can protest against Red Truck Bakery,” added a third.
Negative reviews started appearing on Red Truck’s Yelp and Google pages, sometimes from people far from the streets of Warrenton. The bakery began receiving harassing phone calls, too. “Threats of damage and injury,” Noyes told The Washington Post.
One caller said, simply, “we are watching you,” Noyes said. “Picture a young girl answering the phone at a small bakery and hearing that.”
On Feb. 27, Noyes issued an apology and an explanation to try to defuse the situation. The owner wrote that he is not in the Warrenton store often – Red Truck’s headquarters are in Marshall, Va. – and that when he first encountered the BLM vigil in 2021, he saw no counterprotesters on the square. He treated the vigil participants to water and cranberry muffins. Noyes then told his staff that BLM members might occasionally wander in for water or coffee, which would be on the house.
“It started as an innocent and spur-of-the-moment neighborly gesture, but no good deed goes unpunished, I guess,” Noyes wrote. “I don’t remember an All Lives Matter group being there back then, but if they had ever asked me about this, I certainly would have given them the same consideration.”
Before Noyes posted the statement on his social channels, he sent it to Gilbert, as a courtesy. She acknowledged that she received it ahead of time and “thought it was fine,” she told The Washington Post. They then agreed to meet for coffee at Red Truck. They had a favor to ask of each other.
After exchanging pleasantries, Gilbert asked Noyes if he would talk to the BLM demonstrators. She hoped Noyes would use his influence in the community – earned by hosting fundraisers and events, garnering national acclaim for his baked goods, even getting a shout-out from President Barack Obama – to convince the BLM group to stop their weekly gatherings.
Gilbert had already petitioned others to stop the vigils. She had addressed the Warrenton Town Council. She had expressed her concerns to the Fauquier County Board of Supervisors. She had even talked to the city’s chief of police and mayor. “I appreciate you figuring out a way to stop this indoctrination,” Gilbert told the town council on Sept. 14, 2021.
Gilbert clarified her “indoctrination” comment for The Post.
“When I say ‘indoctrination,’ what I mean by that is, normalizing this type of protest for kids that come by every Saturday morning with their parents to the farmers market,” she said. “They’re not going to change my mind or any of the people who are standing with me. They are normalizing behavior that is not right. Warrenton is not racist.”
Like the public officials in Warrenton, Noyes rejected Gilbert’s proposal. Noyes told her that he has no control over BLM demonstrators. “That’s their right to be out there, just like it’s your right,” he said to her.
Once rebuffed, Gilbert started to raise her voice. Noyes called her loud and animated. Gilbert said she’s from Sicily. “As I get passionate about this and get excited, my voice automatically goes up,” she told The Post. She said she apologized to Noyes on the spot after raising her voice.
The meeting did the exact opposite of what Noyes had hoped. He left it feeling “discouraged and realizing that there’s no way to work with these people.” His employees were worried, too, after hearing the conversation turn intense.
Noyes decided right then he would shut down Red Truck in Warrenton for the weekend, including the Saturday when demonstrators would gather again on Courthouse Square. He said he would pay the staff for those two days. (The closure would stretch into Monday and not just in Warrenton; he also closed the Marshall shop that day as he worked to hire security to ease his staff’s fears.) Noyes even moved his signature red truck, a 1954 Ford F-100 that he bought from Tommy Hilfiger, out of an abundance of caution.
Noyes thought the closures would calm things down – and demonstrators were calm that weekend – but Gilbert thought the closings were “ridiculous.”
“Why didn’t he just shut down for the two hours that we were going to be there” on the square, Gilbert said. “This is just a game that Mr. Noyes is playing. He’s a smart man, but like I told him when I left, I’m smart too. I’m not stupid. I’m not rolling over.”
Even as the conversation turned noisy, Noyes reminded Gilbert that he still had a request. He wanted her to ask Ragle to take down the video. Not only was it stirring things up, it was putting a minor in the public eye, which was troubling to the girl’s parents and to Red Truck’s staff. Gilbert said she wouldn’t contact Ragle, that Noyes would have to do it. She said she didn’t believe in taking down the video. She wanted people to see it, as further evidence of how BLM demonstrators have divided the town, she said.
What’s more, Gilbert didn’t think Red Truck’s free coffee policy was an honest mistake or a misunderstanding, as Noyes alleges. “He got caught,” she said. “He told me he didn’t want to take sides, but he did take sides and now he got busted. And he doesn’t want the community to know he took sides.” (Noyes, incidentally, has halted the free coffee program.)
Both Red Truck employees and the minor’s mother attempted to track down Ragle, but Noyes wasn’t sure they ever made contact. Ragle’s video remains up on both YouTube and TikTok.
Ragle’s behavior has given Red Truck staff cause for concern, Noyes said. She refused to turn off her video camera, as requested by an employee, and as she exited the bakery, she bumped into a man at the front door. Ragle later contacted police and said the man, apparently a BLM demonstrator, was blocking her exit. “Our investigation revealed that that did not happen,” said Timothy Carter, Warrenton’s police chief. “It was probably just a big misunderstanding.”
Ragle has also posted more videos, including one where she appears to be on the opposite side of the street, yelling at BLM demonstrators. Another video scrolls through a recent article in the Fauquier Times, with added captions that suggest it was Noyes, not Gilbert, who raised his voice during their meeting. (Noyes denied the charge.) “Bryan [sic] Noyes,” the caption continues, “backs BLM period!!!” Cage the Elephant’s song, “Hypocrite,” plays in the background.
According to public records and one newspaper story, Ragle has had criminal charges filed against her. She was charged with violating a restraining order in 2013 and trespassing in 2014. The charges in both cases were dismissed. In 2016, the Culpeper County Sheriff’s Office arrested Ragle for assault and battery, according to the Culpeper Times. The Post could not immediately find out how the case was resolved.
The Post left a pair of voice mails to a number connected with Ragle in public records. A woman who called back did not identify herself and hung up after learning she was talking to a Post reporter. A short time later, Ragle posted another video featuring a screenshot of a 2014 news story about Red Truck. Ragle superimposed a caption over the story: “Prior Washington Post writer, sending out his goons to cover his backing of BLM.” (Noyes is a former art director for The Post.)
Ragle’s TikTok video has changed the dynamic in Warrenton, said Noyes and Carter, the police chief. It has taken an issue that was rooted in the community and spread it beyond the city’s borders. “This video on TikTok is just living a life of its own,” Noyes said. “It’s just bringing in so much… anger from people who don’t even know the store. It’s just reason for them to rally.”
The police chief harbors similar concerns: that someone from outside might “take action kind of in the fog of what’s going on,” Carter said. “I’m not really concerned about either one of our groups, but what I’m concerned about – what we’re always concerned about – is someone coming in and just using it as a platform to do something else.”
This weekend will be the first one, post TikTok video, when Red Truck is open and the demonstrators are back on the square. No one in Warrenton – not Noyes, not Carter, not BLM organizer Scott Christian – is sure what to expect. The dueling demonstrations have been generally peaceful, especially in recent weeks, said Carter and Christian, though the BLM leader has lately seen signs among ALM protesters about freeing the prisoners who were convicted of their actions during the Jan. 6 riots.
Gilbert said ALM has “no intention” of singling out Red Truck this weekend. “Our beef is actually with the town for not stopping what’s going on across the street,” she said.
Del. Michael J. Webert (R-Fauquier) released a statement on Thursday that said it was time for the community to put this incident behind them. The coffee, he noted, was given out in good faith. “We are a close-knit community that has no need to be angry or mistrust one another,” Webert said. “Let’s remember that we all have a stake in making our community the best it can be, and act like the neighbors we are.”
For his part, Noyes is debating just how neighborly to be on Saturday. He’s contemplating whether to bring muffins to people on both sides of the square, a kind of Red Truck peace offering. But he also wants to see how things unfold. He doesn’t want to make a wrong move. He’s already paid a price, both emotionally and financially. He figures he has lost between $15,000 to $20,000 because of the bakery closures. He’s paying out another $1,000 a day for security.
No one hates ordinary people like the Republicans and their media enablers do.
By Tom Nichols – March 9, 2023
A political display is posted on the outside of the Fox News headquarters in New York in July 2020. (Timothy A. Clary / AFP via Getty)
Fox News will likely never face any real consequences for the biggest scandal in the history of American media. But will Republican voters finally understand who really looks down on them?
Loathing and Indifference
It’s time to talk about elitism.
Last month, I wrote that the revelations about Fox News in the Dominion Voting Systems lawsuit showed that Fox personalities, for all their populist bloviation, are actually titanic elitists. This is not the elitism of those who think they are smarter or more capable than others—I’ll get to that in a moment—but a new and gruesome elitism of the American right, a kind of hatred and disgust on the part of right-wing media and political leaders for the people they claim to love and defend. Greed and cynicism and moral poverty can explain only so much of what we’ve learned about Fox; what the Dominion filings show is a staggering, dehumanizing version of elitism among people who have made a living by presenting themselves as the only truth-tellers who can be trusted by ordinary Americans.
I am, to say the least, no stranger to the charge of elitism. When I wrote a book in 2018 titled The Death of Expertise, a study of how people have become so narcissistic and so addled by cable and the internet that they believe themselves to be smarter than doctors and diplomats, I was regularly tagged as an “elitist.” And the truth is: I am an elitist, insofar as I believe that some people are better at things than others.
But even beyond talent and ability, I do in fact firmly believe that some opinions, political views, personal actions, and life choices are better than others. As I wrote in my book at the time:
Americans now believe that having equal rights in a political system also means that each person’s opinion about anything must be accepted as equal to anyone else’s. This is the credo of a fair number of people despite being obvious nonsense. It is a flat assertion of actual equality that is always illogical, sometimes funny, and often dangerous.
If that makes me an elitist, so be it.
In this, elitism is the opposite of populism, whose adherents believe that virtue and competence reside in the common wisdom of a nebulous coalition called “the people.” This pernicious and romantic myth is often a danger to liberal democracies and constitutional orders that are founded, first and foremost, on the inherent rights of individuals rather than whatever raw majorities think is right at any given time.
The American right, however, now uses elitist to mean “people who think they’re better than me because they live and work and play differently than I do.”They rage that people—myself included—look down upon them. And again, truth be told, I do look down on Trump voters, not because I am an elitist but because I am an American citizen and I believe that they, as my fellow citizens, have made political choices that have inflicted the greatest harm on our system of government since the Civil War. I refuse to treat their views as just part of the normal left-right axis of American politics.
(As an aside, note that the insecure whining about being “looked down upon” is wildly asymmetrical: Trump voters have no trouble looking down on their opponents as traitors, perverts, and, as Donald Trump himself once put it, “human scum.” But they react to criticism with a kind of deep hurt, as if others must accommodate their emotional well-being. Many of these same people gleefully adopted “Fuck your feelings” as a rallying cry but never expected that it was a slogan that worked both ways.)
In 2016, I believed that good people were making a mistake. In 2023, I cannot dismiss their choices as mere mistakes. Instead, I accept and respect the human agency that has led Trump supporters to their current choices. Indeed, I insist on recognizing that agency: I have never agreed with the people who dismiss Trump voters as robotic simpletons who were mesmerized by Russian memes. I believe that today’s Trump supporters are people who are making a conscious, knowing, and morally flawed choice to continue supporting a sociopath and a party chock-full of seditionists.
I have argued with some of these people. Sometimes, I have mocked them. Mostly, I have refused to engage them. But whatever my feelings are about the abominable choices of Trump supporters, here is the one thing I have never done that Fox’s hosts did for years: I have never patronized any of the people I disagree with.
Unlike people such as Tucker Carlson or Sean Hannity or Laura Ingraham, I have never told anyone—including you, readers of The Atlantic—anything I don’t believe. What we’re seeing at Fox, however, is lying on a grand scale, done with a snide loathing for the audience and a cool indifference to the damage being done to the nation. Fox, and the Republican Party it serves, for years has relentlessly patronized its audience, cooing to viewers about how right they are not to trust anyone else, banging the desk about the corruption of American institutions, and shouting into the camera about how the liars and betrayers must pay.
Fox’s stars did all of this while privately communicating with one another and rolling their eyes with contempt, admitting without a shred of shame that they were lying through their teeth. From Rupert Murdoch on down, top Fox personalities have admitted that they fed the rubes all of this red, rotting meat to keep them out of the way of the Fox limos headed to Long Island and Connecticut.
You can see this same kind of contemptuous elitism in Republicans such as Ted Cruz, Josh Hawley, and Elise Stefanik. They couldn’t care less about the voters—those hoopleheads back home who have to be placated with idiotic speeches against trans people and “critical race theory.” These politicians were bred to be leaders, you see, and having to gouge some votes out of the hayseeds back home requires a bit of performance art now and then, a small price to pay so that the sons and daughters of Harvard and Yale, Princeton and Stanford, can live in the imperial capital and rule as is their due and their right.
Some years ago, I was at a meeting of one of the committees of the National Academy of Sciences. The conferees asked me how scientists—there were Nobel Laureates in the room—could defend the cause of knowledge. Stand your ground, I told them. Never hesitate to tell people they’re wrong. One panel member shook his head: “Tom, people don’t like to be condescended to.” I said, “I agree, but what they hate even more is to be patronized.”
I believed it then, but we’re now testing that hypothesis on a national scale. I hope I wasn’t wrong.
Thousands of pro-Trump bots are attacking DeSantis, Haley
Avid Klepper – March 6, 2023
WASHINGTON (AP) — Over the past 11 months, someone created thousands of fake, automated Twitter accounts — perhaps hundreds of thousands of them — to offer a stream of praise for Donald Trump.
Besides posting adoring words about the former president, the fake accounts ridiculed Trump’s critics from both parties and attacked Nikki Haley, the former South Carolina governor and U.N. ambassador who is challenging her onetime boss for the 2024 Republican presidential nomination.
When it came to Ron DeSantis, the bots aggressively suggested that the Florida governor couldn’t beat Trump, but would be a great running mate.
As Republican voters size up their candidates for 2024, whoever created the bot network is seeking to put a thumb on the scale, using online manipulation techniques pioneered by the Kremlin to sway the digital platform conversation about candidates while exploiting Twitter’s algorithms to maximize their reach.
The sprawling bot network was uncovered by researchers at Cyabra, an Israeli tech firm that shared its findings with The Associated Press. While the identity of those behind the network of fake accounts is unknown, Cyabra’s analysts determined that it was likely created within the U.S.
To identify a bot, researchers will look for patterns in an account’s profile, its follower list and the content it posts. Human users typically post about a variety of subjects, with a mix of original and reposted material, but bots often post repetitive content about the same topics.
That was true of many of the bots identified by Cyabra.
“One account will say, ‘Biden is trying to take our guns; Trump was the best,’ and another will say, ‘Jan. 6 was a lie and Trump was innocent,'” said Jules Gross, the Cyabra engineer who first discovered the network. “Those voices are not people. For the sake of democracy I want people to know this is happening.”
Bots, as they are commonly called, are fake, automated accounts that became notoriously well-known after Russia employed them in an effort to meddle in the 2016 election. While big tech companies have improved their detection of fake accounts, the network identified by Cyabra shows they remain a potent force in shaping online political discussion.
The new pro-Trump network is actually three different networks of Twitter accounts, all created in huge batches in April, October and November 2022. In all, researchers believe hundreds of thousands of accounts could be involved.
The accounts all feature personal photos of the alleged account holder as well as a name. Some of the accounts posted their own content, often in reply to real users, while others reposted content from real users, helping to amplify it further.
“McConnell… Traitor!” wrote one of the accounts, in response to an article in a conservative publication about GOP Senate leader Mitch McConnell, one of several Republican critics of Trump targeted by the network.
One way of gauging the impact of bots is to measure the percentage of posts about any given topic generated by accounts that appear to be fake. The percentage for typical online debates is often in the low single digits. Twitter itself has said that less than 5% of its active daily users are fake or spam accounts.
When Cyabra researchers examined negative posts about specific Trump critics, however, they found far higher levels of inauthenticity. Nearly three-fourths of the negative posts about Haley, for example, were traced back to fake accounts.
The network also helped popularize a call for DeSantis to join Trump as his vice presidential running mate — an outcome that would serve Trump well and allow him to avoid a potentially bitter matchup if DeSantis enters the race.
The same network of accounts shared overwhelmingly positive content about Trump and contributed to an overall false picture of his support online, researchers found.
“Our understanding of what is mainstream Republican sentiment for 2024 is being manipulated by the prevalence of bots online,” the Cyabra researchers concluded.
The triple network was discovered after Gross analyzed Tweets about different national political figures and noticed that many of the accounts posting the content were created on the same day. Most of the accounts remain active, though they have relatively modest numbers of followers.
A message left with a spokesman for Trump’s campaign was not immediately returned.
Most bots aren’t designed to persuade people, but to amplify certain content so more people see it, according to Samuel Woolley, a professor and misinformation researcher at the University of Texas whose most recent book focuses on automated propaganda.
When a human user sees a hashtag or piece of content from a bot and reposts it, they’re doing the network’s job for it, and also sending a signal to Twitter’s algorithms to boost the spread of the content further.
Bots can also succeed in convincing people that a candidate or idea is more or less popular than the reality, he said. More pro-Trump bots can lead to people overstating his popularity overall, for example.
“Bots absolutely do impact the flow of information,” Woolley said. “They’re built to manufacture the illusion of popularity. Repetition is the core weapon of propaganda and bots are really good at repetition. They’re really good at getting information in front of people’s eyeballs.”
Until recently, most bots were easily identified thanks to their clumsy writing or account names that included nonsensical words or long strings of random numbers. As social media platforms got better at detecting these accounts, the bots became more sophisticated.
So-called cyborg accounts are one example: a bot that is periodically taken over by a human user who can post original content and respond to users in human-like ways, making them much harder to sniff out.
Bots could soon get much sneakier thanks to advances in artificial intelligence. New AI programs can create lifelike profile photos and posts that sound much more authentic. Bots that sound like a real person and deploy deepfake video technology may challenge platforms and users alike in new ways, according to Katie Harbath, a fellow at the Bipartisan Policy Center and a former Facebook public policy director.
“The platforms have gotten so much better at combating bots since 2016,” Harbath said. “But the types that we’re starting to see now, with AI, they can create fake people. Fake videos.”
These technological advances likely ensure that bots have a long future in American politics — as digital foot soldiers in online campaigns, and as potential problems for both voters and candidates trying to defend themselves against anonymous online attacks.
“There’s never been more noise online,” said Tyler Brown, a political consultant and former digital director for the Republican National Committee. “How much of it is malicious or even unintentionally unfactual? It’s easy to imagine people being able to manipulate that.”
The North Idaho College Campus in Coeur d’Alene, Idaho, on Feb. 22, 2023. (Margaret Albaugh/The New York Times)
COEUR D’ALENE, Idaho — The February meeting of the North Idaho College board of trustees was, by recent standards, civilized.
There were no shoving matches or speeches from far-right podcasters. Nobody pulled the fire alarm. The parade of community members who, under the wary eye of campus security officers, took turns at the microphone mostly kept their voices below shouting volume, until an hour or so before midnight, when a woman cried “Shame on you!” and stormed out of the room.
Mostly, people seemed stunned that it had actually come to this.
For most of the past two years, the college’s governing board has been a volatile experiment in turning grievances into governance. Trustees backed by the county Republican Party hold a majority on the board. They have denounced liberal “indoctrination” by the college faculty and vowed to bring the school administration’s “deep state” to heel and “Make NIC Great Again.”
The injection of such sweeping political aims into the routine administration of a community college of 4,600 students, one better known locally for its technical training programs than the politics of its faculty, has devolved into a full-blown crisis. The school has faced lawsuits from two of the five presidents it has had since the start of the previous school year. A district court judge ordered one of those presidents reinstated Friday in a ruling that castigated the trustees for “steering NIC toward an iceberg.” The college has lost professors and staff and had its debt downgraded by Moody’s, which cited the school’s “significant governance and management dysfunction.”
The troubles culminated last month in a letter from the regional higher education commission, which warned that the 90-year-old college could be stripped of its accreditation if changes were not made in a matter of weeks — an effective threat of closure and a potential catastrophe for Coeur d’Alene, a town of 56,000 in the Idaho Panhandle. The college is the sixth-largest employer in Kootenai County and a source of skilled labor for much of the local economy.
“As a businessperson here, it’s heartbreaking to me to be standing on the brink of the loss of this institution,” said Eve Knudtsen, owner of a Chevrolet dealership in the neighboring town of Post Falls. Knudtsen, a Republican, attended NIC, as have both of her daughters, and she said one-third of the technicians hired by her dealership came out of the school.
“It’s pretty much a dystopian farce,” said Kathleen Miller Green, an assistant professor of child development who attended the nearly six-hour, capacity-crowd meeting at the school’s student union building Feb. 22. “It’s laughable if you don’t have to live it.”
Rick MacLennan, a former president of the college who was ousted by the trustees in 2021, describes the school as “a canary in the coal mine” — a warning of what awaits local institutions across the country as fiercely partisan and disruptive cultural battles spread into new corners of public life. He and other critics of the trustees see parallels with Gov. Ron DeSantis’ efforts to remake New College, a state-run liberal arts school in Sarasota, Florida, as a conservative bastion.
What’s different about North Idaho College, however, is that local voters have more directly driven the change — and the results have been less ideological overhaul than organizational chaos.
In Kootenai County, a magnet for conservative retirees from other states where Donald Trump won 70% of the vote in 2020, most public institutions and services are overseen by directly elected trustees. That means that Republican activists and voters, who increasingly see even once-benign institutional authorities as a threat to their values, are in a position to do something about it.
The clash over the college began in 2020 when, after the killing of George Floyd by police in Minneapolis, the school’s diversity council issued a statement expressing support for social justice demonstrations, including Black Lives Matter protests. The statement caught the attention of the Kootenai County Republican Central Committee.
That year, the committee began vetting and endorsing candidates for county board positions in what are technically nonpartisan elections. In the Coeur d’Alene Press, a committee precinct-person accused the school of supporting a “radical, racist and Marxist organization” and “guilting white male students,” and urged county residents to vote for two candidates endorsed by the committee “to balance the NIC Board” in the November election.
Brent Regan, the committee’s chair, argues the endorsements are no different from those of the local Rotary Club or newspaper.
“The mission of the Republican Party in Kootenai County is to try to find people who will run for office — any office, from sewer districts to school boards to trustee boards — who embrace the policies of the Republican Party as outlined in our platform,” Regan said.
In the matter of the college’s imperiled accreditation, he said, “We’re a convenient scapegoat.”
The committee’s college trustee candidates both won. They formed an informal majority on the five-member board with a like-minded incumbent trustee, Todd Banducci, who had clashed on occasion with other trustees and the school’s administrators and staff.
In an email to a conservative student, Banducci wrote that he was “battling the NIC ‘deep state’ on an almost daily basis,” and complained that “the liberal progressives are quite deeply entrenched.”
In a conversation after the election, Banducci chided MacLennan, then the college president, for his wife’s support for Hillary Rodham Clinton and told him that he would give him “marching orders,” according to MacLennan.
“My perspective was, you can’t do that,” MacLennan recalled. “It’s not going to work like that.”
In January, he wrote a letter to the trustees expressing his concern over what he described as a pattern of behavior by Banducci, who had been privately censured by the board the year before following a report that a college staff member had felt “threatened and intimidated” by him. (Banducci did not respond to a request for comment regarding the incident.) In March, local human rights organizations filed a complaint with the Northwest Commission on Colleges and Universities, the accreditation body, arguing that Banducci’s conduct had “severely violated” several criteria for accreditation.
“They were in the process of dismantling the institution,” said Tony Stewart, secretary of the Kootenai County Task Force on Human Relations, which drafted the complaint.
Regan argued that Stewart’s organization, which formed in the 1980s to combat white supremacists who were active in Kootenai County, had strayed far from its mission.
“Were there human rights violations going on?” he said. “No.” He called the accreditation review a “political” process, “started by people who didn’t like the results of the election.”
Banducci’s bloc of trustees eventually fired MacLennan without cause, installing the school’s wrestling coach as interim president. A power struggle ensued, with the state education board at one point appointing several interim trustees who hired a new president. In the November 2022 election, candidates backed by the GOP committee once again claimed a majority and replaced him, too.
The turnover has been cited by the accreditation body, along with several votes of no confidence in the trustees from the college faculty and student government, as a source of its concern. Sonny Ramaswamy, the commission president, declined to discuss the accreditation review, citing discussions with the school.
In November, Greg McKenzie, the current board chair, dismissed the prospect of losing accreditation as “Fake News” in a letter to constituents.
But at the February meeting, as that loss suddenly seemed like a very real possibility, the trustees appeared somewhat chastened. McKenzie reminded the crowd that members of the accrediting commission were watching via livestream and asked attendees to help avoid the circuslike atmosphere of recent meetings.
In December, Vincent James Foxx, a far-right antisemitic podcaster who lives in Kootenai County, took the microphone to offer the bloc of trustees his “100% support.” That meeting was interrupted twice by fire alarms.
The threat of losing accreditation — which would leave the school ineligible for federal financial aid and students’ credits worthless if they transfer — has drawn local business leaders off the sidelines.
At the meeting, Greg Green, a telecom entrepreneur and philanthropist, vowed to fund challenges to the committee-backed bloc of trustees in the next election, in particular Banducci. “I had no clue how bad things were,” said Green, a Republican.
But the bloc has withstood one such challenge already. In November, the local chamber of commerce and a new political action committee called Friends of NIC endorsed a slate of rival candidates for three open trustee seats. But a Republican committee-backed candidate won one of the three races, enough to recapture a majority.
In interviews, students said the imminent threat of losing accreditation had caught the attention of a student body that had mostly tuned out the years of confusing power struggles.
“It’s really sad,” said Madeleine Morgan, a second-year English and chemistry double major from California. Morgan said she had come to Idaho from California hoping for more political diversity. “It’s not like I really disagreed with the ideas down there,” she said. “It’s just that I wanted a place where, conservative or liberal, you could speak your mind.”
Still, she found herself siding with the faculty. “They have families to feed and bills to pay,” she said. “They’re not the problem here. The trustees are.”
You’re Now a ‘Manager.’ Forget About Overtime Pay.
Noam Scheiber – March 6, 2023
The Jack in the Box where Gonzalo Espinosa used to work in Roseville, Calif. on Feb. 23, 2023. (Max Whittaker/The New York Times)
For four years beginning in 2014, Tiffany Palliser worked at Panera Bread in South Florida, making salads and operating the register for shifts that began at 5 a.m. and often ran late into the afternoon.
Palliser estimates that she worked at least 50 hours a week on average. But she says she did not receive overtime pay.
The reason? Panera officially considered her a manager and paid her an annual salary rather than on an hourly basis. Palliser said she was often told that “this is what you signed up for” by becoming an assistant manager.
Federal law requires employers to pay time-and-a-half overtime to hourly workers after 40 hours, and to most salaried workers whose salary is below a certain amount, currently about $35,500 a year. Companies need not pay overtime to salaried employees who make above that amount if they are bona fide managers.
Many employers say managers who earn relatively modest salaries have genuine responsibility and opportunities to advance. The National Retail Federation, a trade group, has written that such management positions are “key steps on the ladder of professional success, especially for many individuals who do not have college degrees.”
But according to a recent paper by three academics, Lauren Cohen, Umit Gurun and N. Bugra Ozel, many companies provide salaries just above the federal cutoff to frontline workers and mislabel them as managers to deny them overtime.
Because the legal definition of a manager is vague and little known — the employee’s “primary” job must be management, and the employee must have real authority — the mislabeled managers find it hard to push back, even if they mostly do grunt work.
The paper found that from 2010 to 2018, manager titles in a large database of job postings were nearly five times as common among workers who were at the federal salary cutoff for mandatory overtime or just above it as they were among workers just below the cutoff.
“To believe this would happen without this kind of gaming going on is ridiculous,” Cohen, a Harvard Business School professor, said in an interview.
Cohen and his co-authors estimate that the practice of mislabeling workers as managers to deny them overtime, which often relies on dubious-sounding titles like “lead reservationist” and “food cart manager,” cost workers about $4 billion per year, or more than $3,000 per mislabeled employee.
And the practice appears to be on the rise: Cohen said the number of jobs with dubious-sounding managerial titles grew over the period he and his co-authors studied.
Federal data appear to underscore the trend, showing that the number of managers in the labor force increased more than 25% from 2010 to 2019, while the overall number of workers grew roughly half that percentage.
From 2019 to 2021, the workforce shrank by millions while the number of managers did not budge. Lawyers representing workers said they suspected that businesses mislabeled employees as managers even more often during the pandemic to save on overtime while they were short-handed.
“There were shortages of people who had kids at home,” said Catherine Ruckelshaus, general counsel of the National Employment Law Project, a worker advocacy group. “I’m sure that elevated the stakes.”
But Ed Egee, a vice president at the National Retail Federation, argued that labor shortages most likely cut the other way, giving low-level managers the leverage to negotiate more favorable pay, benefits and schedules. “I would almost say there’s never been a time when those workers are more empowered,” he said. (Pay for all workers grew much faster than pay for managers from 2019 to 2021, though pay for managers grew slightly faster last year.)
Experts say the denial of overtime pay is part of a broader strategy to drive down labor costs in recent decades by staffing stores with as few workers as possible. If a worker calls in sick, or more customers turn up than expected, the misclassified manager is often asked to perform the duties of a rank-and-file worker without additional cost to the employer.
“This allows them to make sure they’re not staffing any more than they need to,” said Deirdre Aaron, a former Labor Department lawyer who has litigated numerous overtime cases in private practice. “They have assistant managers there who can pick up the slack.”
Palliser said that her normal shift at Panera ran from 5 a.m. to 2 p.m., but that she was often called in to help close the store when it was short-staffed. If an employee did not show up for an afternoon shift, she typically had to stay late to cover.
“I would say, ‘My kids get out of school at 2. I have to go pick them up, I can’t keep doing this,’” said Palliser, who made from about $32,000 to $40,000 a year as an assistant manager. She said her husband later quit his job to help with their child care responsibilities.
She won a portion of a multimillion-dollar settlement under a lawsuit accusing a Panera franchisee, Covelli Enterprises, of failing to pay overtime to hundreds of assistant managers. Panera and representatives of the franchise did not respond to requests for comment.
Gassan Marzuq, who earned a salary of around $40,000 a year as the manager of a Dunkin’ Donuts for several years until 2012, said in a lawsuit that he had worked roughly 70 hours or more in a typical week. He testified that he had spent 90% of his time on tasks such as serving customers and cleaning, and that he could not delegate this work “because you’re always short on staff.”
Marzuq eventually won a settlement worth $50,000. A lawyer for T.J. Donuts, owner of the Dunkin’ Donuts franchise, said the company disputed Marzuq’s claims and maintained “that he was properly classified as a manager.”
Workers and their lawyers said employers exploited their desire to move up the ranks in order to hold down labor costs.
“Some of us want a better opportunity, a better life for our families,” said Gonzalo Espinosa, who said that in 2019 he often worked 80 hours a week as the manager of a Jack in the Box in California but that he did not receive overtime pay. “They use our weakness for their advantage.”
Espinosa said his salary of just over $30,000 was based on an hourly wage of about $16 for a 40-hour workweek, implying that his true hourly wage was closer to half that amount — and well below the state’s minimum wage. The franchise did not respond to requests for comment.
The paper by Cohen and his co-authors includes evidence that companies that are financially strapped are more likely to misclassify regular workers as managers, and that this tactic is especially common in low-wage industries such as retail, dining and janitorial services.
Still, lawyers who bring such cases say the practice also occurs regularly in white-collar industries such as tech and banking.
“They have a job title like relationship manager or personal banker, and they greet you, try to get you to open account,” said Justin Swartz, a partner at the firm Outten & Golden. “They’re not managers at all.”
Swartz, who estimated that he had helped bring more than two dozen overtime cases against banks, said some involved a so-called branch manager inside a big-box store who was the only bank employee onsite and largely performed the duties of a teller.
The practice appears to have become more difficult to root out in recent years, as more employers have required workers to sign contracts with mandatory arbitration clauses that preclude lawsuits.
Many of the cases “are not economically viable anymore,” said Swartz, citing the increased difficulty of bringing them individually through arbitration.
Some lawyers said only an increase in the limit below which workers automatically receive overtime pay is likely to meaningfully rein in misclassification. With a higher cutoff, simply paying workers overtime is often cheaper than avoiding overtime costs by substantially increasing their pay and labeling them managers.
“That’s why companies fought it so hard under Obama,” said Aaron, a partner at Winebrake & Santillo, alluding to a 2016 Labor Department rule raising the overtime limit to about $47,500 from about $23,500. A federal judge suspended the rule, arguing that the Obama administration lacked the authority to raise the salary limit by such a large amount.
The Trump administration later adopted the current cutoff of about $35,500, and the Biden administration has indicated that it will propose raising the cutoff substantially this year. Business groups say such a change will not help many workers because employers are likely to lower base wages to offset overtime pay.
DeSantis, GOP lawmakers ready for Culture Wars 2.0 as Florida Legislature convenes
Lawrence Mower – March 5, 2023
Daniel A. Varela/dvarela@miamiherald.com
When Florida lawmakers met for their annual legislative session last year, they championed bills that led to months of headlines for Gov. Ron DeSantis about sexual orientation,abortion, immigration, voting and the teaching of the nation’s racial history.
For this year’s legislative session, which begins Tuesday, DeSantis has a preview: “You ain’t seen nothing yet.”
Emboldened by an overwhelming reelection victory margin and the most compliant Legislature in recent memory, DeSantis is pushing lawmakers to pass the legislation conservatives have been wanting for years.
Lawmakers are preparing to advance bills sought by DeSantis that would require private companies to check their employees’ immigration status. They’re eyeing sweeping changes to limit lawsuits against businesses. They could do away with requiring permits to carry a concealed weapon. More abortion restrictions might be on tap, too, when the 60-day legislative session officially kicks off.
It’s an agenda that’s expected to give DeSantis months of headlines — and springboard his anticipated 2024 presidential run. Some of the bills could help shore up his conservative bona fides against fellow Floridian Donald Trump, who has already announced he’s running to take back the White House, and to further endear him to deep-pocketed donors.
“I’ve never seen a governor in my lifetime with this much absolute control of the agenda in Tallahassee as Ron DeSantis,” said lobbyist Brian Ballard, who has been involved in Florida’s legislative sessions since 1986 and supports the governor.
DeSantis is coy about his presidential ambitions, but legislative leaders are prepared to pass a bill allowing him to run without having to resign. Political observers believe he’ll enter the race after the session ends in May.
Already, DeSantis is promising “the most productive session we’ve had,” aided by his 19-point reelection victory.
And the Republican super-majority Legislature has signaled that it’s along for the ride. Lawmakers in his own party have appeared reluctant to challenge him.
The goal over the next two months, according to House and Senate leaders: Get DeSantis’ priorities “across the finish line.”
The legislation — which included the Parental Rights in Education bill that critics called “don’t say gay” — led to months of headlines in conservative and mainstream media that helped cast DeSantis as the most viable alternative to Trump in a presidential GOP primary.
This year, DeSantis and lawmakers are looking to continue the trend — and check off several bills that failed to get traction in previous years.
The governor and lawmakers are also looking to limit liberal influences in schools and state government. A bill has been filed to end university diversity programs and courses, and lawmakers are preparing bills to prevent state pension investments that are “woke.” Legislators are also considering laws governing gender-affirming care for minors.
And when lawmakers craft their budget for the next fiscal year, it’s likely to include DeSantis’ requests for $12 million more to continue the program that sent migrants from Texas to Martha’s Vineyard in Massachusetts. DeSantis also wants a tripling of the size of his Office of Election Crimes and Security, from 15 to 42 positions. And in a dig at President Joe Biden after an official in his administration suggested a ban on gas stoves, DeSantis wants to adopt a permanent tax break for anyone who buys one.
Perhaps his most ambitious proposal is another attempt to make good on his 2018 campaign promise requiring private employers to use the federal online system E-Verify to check that employees have entered the country legally.
In 2020, DeSantis caved after resistance from the business community and legislative leaders; he quietly signed a watered-down version of the bill into law. Late last month, he announced he would try again.
That’s one of several items on some Florida Republicans’ wish lists. Others include:
▪ An expansion of school vouchers to all school-aged children in the state, the culmination of two decades of education reforms;
▪ A measure allowing Floridians to carry concealed weapons without first seeking a permit and receiving training;
▪ Tort reform legislation long sought by the state’s business associations;
▪ A bill making it easier to sue media outlets for defamation, an idea DeSantis’ office pitched last year but that no lawmakers sponsored.
“Now we have super majorities in the Legislature,” DeSantis said. “We have, I think, a strong mandate to be able to implement the policies that we ran on.”
A changed Legislature under DeSantis
If DeSantis has a chance to pass those bills, it’s during this legislative session.
The culture in Tallahassee is far different than it was when Republicans took control more than 20 years ago. Gone are the days when Republicans publicly debated ideas. Today, floor debate among House members is time-limited, and bills are often released in their finished form following backroom deals with Republican leaders. Committee chairpersons could block leadership bills they didn’t like. Today, they’re expected to play along.
In years past, lawmakers would push back hard against the governor, such as in 2013, when they refused to carry out then-Gov. Rick Scott’s plan to expand Medicaid coverage to more than 1 million Floridians.
Today is a different story.
Much as DeSantis has exerted control over schools, school boards, Disney, high school athletics, universities and the state police, DeSantis has thrown his weight around with the Legislature over the last four years.
He’s called them into special legislative sessions six times in 20 months. Once was to pass DeSantis’ new congressional redistricting maps after he vetoed maps proposed by legislators. It was the first time in recent memory that a governor proposed his own maps.
He endorsed Republican Senate candidates during contested primary races last year, something past governors considered an intrusion into the business of legislative leaders. In one race, he supported the opponent of incoming Senate President Kathleen Passidomo, R-Naples. The move was considered to undermine only the third woman to be Senate president in the state’s history.
He’s also shown little regard for the priorities of past House speakers and Senate presidents. In June, he vetoed the top priorities of the then-House speaker and Senate president, joking about the cuts while both men flanked him on stage.
DeSantis is aware of his influence over state lawmakers, according to his book “The Courage to be Free,” released last week. In one part, he writes that his ability to veto specific projects in the state budget gave him “a source of leverage … to wield against the Legislature.”
Legislative leaders say they’re aligned
The state’s legislative leaders in 2023, Passidomo and House Speaker Paul Renner, R-Palm Coast, consider themselves ideologically aligned with the governor.
“We have a very, very similar philosophical view of things on really every issue,” Renner said in November.
Republicans have two-thirds super-majorities in the Legislature, an advantage that allows them to further limit Democratic opposition on bills. The last two Republican legislators willing to publicly criticize their leaders’ agendas left office last year. Multiple moderate House Republicans decided not to run again last year.
DeSantis’ sway over the Legislature has not gone unnoticed.
When Luis Valdes, the Florida director for Gun Owners of America, spoke to lawmakers last month, he was upset that legislators weren’t allowing gun owners to openly carry firearms. He concluded that it must be because DeSantis didn’t want it.
“If he tells the Legislature to jump, they ask, ‘How high?’ ” he said.
Former lawmakers and observers have noticed the shift in Tallahassee.
Former Republican lawmaker Mike Fasano laments that legislators don’t exercise the power they used to have. But Fasano, who supports DeSantis, said the governor’s popularity makes it risky to go against him.
“A Republican in the Legislature, I’m sure, is aware of that,” Fasano said.
The Democrats’ lament
Senate Minority Leader Lauren Book, D-Plantation, who grew up in the legislative process thanks to her father, a big-time Tallahassee lobbyist, said the changes in the Legislature are obvious.
“This is not the same Florida Senate, Florida House, as it was when the titans were here,” Book said.
DeSantis’ culture wars have overshadowed more practical problems in Florida, such as the high costs of rent and auto and homeowners insurance, said House Minority Leader Fentrice Driskell, D-Tampa.
Passidomo has proposed broad legislation to create more affordable housing, but the governor has not endorsed the bill.
Driskell said Floridians want a pragmatist, not a populist, as governor.
“This governor has never seemed to care to know the difference.”
Tampa Bay Times political editor Emily L. Mahoney contributed to this report.
