Betsey Johnson

Almost a week after we learned designer Betsey Johnson would be featured in a new reality show, Betsey And Lulu, comes the announcement that the spritely 69-year-old's fashion line has filed for bankruptcy. As a result, over 300 Betsey Johnson employees will probably lose their jobs. To top that off, most of Betsey Johnson's 63 stores will close.

All is not lost, however. Ms. Johnson still has the eponymous show in the works (as far as we know) and according to Forbes, this certainly isn't the end of the brand name:

Steve Madden, who has owned the brand’s intellectual property rights since 2010, said in an email that the group will continue to support the Betsey Johnson brand and ensure existing orders will be produced and ship on time. Betsey Johnson clothing will still be sold at Saks Fifth Avenue, Bloomingdales and Nordstrom.

Brand Chief Financial Officer Jonathan Friedman issued a statement regarding the action that indicated the move is intended to "address Betsey Johnson LLC’s cash flow problems."

But every now and again, politicians and policymakers are confronted with a dilemma so profound and so frightening that the usual methods of operations can no longer apply.

Such a moment is here. State and local governments are on the verge of bankruptcy because of the spiraling cost of public employee pensions. The time for reform is now. Governor Cuomo and the State Legislature no longer have a choice. It doesn’t matter that lawmakers are up for re-election this year and so are reluctant to make hard decisions.

Mr. Cuomo, to his credit, has made it clear that reform is his top priority for 2012. Cheering him on are mayors and county executives from across the state who have had to deal with the pension sweeteners that the Legislature regularly grants the politically potent public employee unions. Local government pension costs are shredding vital services and creating unsustainable gaps in their budgets. The finances of Nassau and Suffolk counties are in disarray—officials there have had to borrow nearly $90 million this year to cover pension costs. In New York City, annual pension costs have risen from $1.5 billion a decade ago to $8 billion this year. That is a staggering sum.

It should be noted that the pension crisis is not unique to New York. State and local governments around the nation are trying to come to grips with unsustainable pension costs, and they are doing so by borrowing or cutting vital services. Pension costs in Pennsylvania have gone up by 600 percent in six years. In San Jose, Calif., libraries have been shut and 2,000 city workers have been laid off because of skyrocketing pension costs, which have risen from $73 million in 2001 to $245 million this year. City taxpayers can thank California’s political leaders for their troubles—back in the 1990s, politicians cut a deal with public safety unions that allowed members to retire at 90 percent of their pay. Workers now retire at the age of 50 with a lifetime pension of $90,000 a year.

In New York, many public employees routinely load up on overtime in their last three years of service so they can boost their annual lifetime pensions. That’s because pensions for firefighters, police officers and other workers are calculated on actual earnings rather than base salaries. That abuse is condoned by superior officers who do nothing to crack down on graying eager beavers who work 50, 60 or 70 hours a week in their final years of service.

This has to stop, and Mr. Cuomo knows it. Legislators must know it, too, but as a group, they will have to be forced to take action, because public employee unions are their friends, regardless of party affiliation.

The future of New York is not an abstraction. The future of New York is being written now, in places like San Jose and other localities where pension costs are driving local governments into actual bankruptcy. The city and state can be grateful that they are not yet in a situation similar to that of Harrisburg, Pa., which filed for Chapter 9 bankruptcy last fall. But that dire scenario is not far off for some on New York’s local governments—Suffolk County declared a financial emergency in early March. The struggling Great Lake cities upstate are not far from the abyss. Indeed, Buffalo already has a financial control board to oversee its deteriorating treasury.

Mr. Cuomo is pushing for reforms that would save up to $100 billion over the next three decades. His plan would create a new tier of pensions for future workers that would increase employee contributions to the retirement fund, raise the retirement age, lower payouts and crack down on those who game the system through inflated overtime earnings at the end of their careers.

Publicly, the leaders of New York’s public employee unions are vowing to fight the governor’s plan. Privately, however, there are indications that they know the game is up—although they would hardly put it in those terms. But they certainly do know that the system is unsustainable, and that they will suffer grievous damage to their reputations if they continue to defend the status quo.

Nobody who supports drastic pension reform would, in any way, denigrate or dismiss the service of hard-working public employees, especially those in public safety jobs. Public employees, from clerks to firefighters, are the lifeblood of government. Without them, we are less safe and poorly served.

Current workers were made promises that should not have been made. Future workers cannot be made the same kinds of promises. Pension reform for new workers must reflect 21^st-century realities, including the absolute reality that the Empire State will go bankrupt if radical pension reform is not achieved.

And so it must be. And now is the time.

Justin Ross Lee at the Emmy's while Gwynth Paltrow looks on adoringly

"I'm living the American dream," socialite and self-proclaimed "Super Jew" Justin Ross Lee tells us after the New York Post ran a story about his bankruptcy filing yesterday. "You can't be anyone in America until you've filed for bankruptcy. Trump, Lorenzo Lamas, Baldwin..they've all filed."

The Post had claimed that Mr. Lee -- who was recently the subject of a Guest of a Guest contest where the winning "shiksa" would accompany him to the Emmys -- was $160,000 in debt and only had $100 in his bank account, despite posing as one of New York's social elites. But Mr. Lee says the story about his bankruptcy has only helped his fledgling business, PretensiousPocket.com. "I've had more orders today than any other day. I never made any claims about how much money I make...but I live a comped lifestyle. I fly first-class around the world."

"I'm happy the Post ran the story," said Mr. Lee, who claims he will be staying in his $$2,700-a-month Murray Hill apartment despite the paper claiming he only had $100 in his bank account and was currently being sued by Citibank for $80,000.

"Oh, and that $100...it's gone. I had to tip my driver on the way home from Emmy after-parties. The only part I was pissed about is that the Post said I was 30-years-old. I'm 28!"

Come and get him, ladies.

View from the frontier.

A couple of weeks ago, The Observer peered at a single light burning at failed condo project One Madison Park and speculated that it must be quite lonely at the top. Today The Journal reports that it's a veritable frontier up there.

The dozen buyers (nine of whom The Observer has been told have moved in) are roughin' it, with no pool, no spa and (heavens!) an unfinished marble lobby. Add to that the indignity of looking out at the Empire State Building from a maintenance-free $1.5 million condo with a one-to-one staff-to-resident ratio and life must indeed be hard.

Ziel Feldman is set to present a rescue plan to bankruptcy court any day n0w. According to today's story, units could then hit the market later this year. While the new buyers will have to pay a great deal more than current residents did if Mr. Feldman and his partners are to recoup their investment, at least they'll get some amenities thrown in.

• Goldman Sachs' investment in Facebook may help the social-networking site escape the added regulatory scrutiny that comes with an IPO. [NYT]
• On the other hand, the Securities and Exchange Commission is already conducting an inquiry into Goldman's plan to give its clients access to Facebook shares. Regulatory scrutiny may come one way or another. [Bloomberg]
• Many -- as in 1.53 million -- U.S. consumers filed for bankruptcy in 2010. That's 9 percent more than the year before and also a five-year high. [Reuters]
• President Barack Obama's nightmarish moratorium on deepwater drilling is set to end in several weeks, in a move that will hopefully return the Gulf of Mexico to the carefree days of April 2010. [WSJ]
• Wondering how to invest in the bond market in 2011? U.S. News & World Report has a few tips to help, including: don't just buy bonds; buy stocks too. Also: the economy may grow, but it also may shrink. [USNWR]

mtaylor [at] observer.com | @mbrookstaylor

Yesterday, the bankruptcy judge handling the case gave St. Vincent's the necessary approvals to bring CBRE in as its broker and adviser. Such approvals are standard procedure for bankruptcy proceedings, but it also shows that no deal with the Rudins has yet been reached.

Just because St. Vincent's is putting its property on the open market does not mean a deal cannot still be struck with Rudin Management. Indeed, the hard-won approvals the developer received from the city's Landmarks Preservation Commission would make them the front runner in the bidding, presumably, because the task other buyers would face, of getting their own designs approved, would be costly, time-consuming and politically fraught.

Also, any new approvals would likely be smaller than what the Rudins received because their proposal was granted in partnership with the hospital. Convincing the commission to approve a 21-story apartment building in the generally low-rise neighborhood without the backing of a hospital or other community-focused instituion would be almost impossible. The community outcry before was deafening enough, even with the desire to keep St. Vincent's open. Take that away, and all that is left is the outcry.

So it seems the Rudins still hold many of the cards. And yet, they have been negotiating for a lower price, which was originally set at $300 million. This runs contrary to the interests of the creditors who want top dollar for the hospital's assets. This is prime West Village real estate, after all.

Even with the difficult approval process, and the difficult development climate at the moment, it seems hard to believe there will not be at least some interest in these properties. After all, one has already been sold on 15th Street, a staff residence that has been called one of the ugliest buildings in the city. It is being converted into rentals.

Maybe outside interest is exactly what St. Vincent's is after, though. Not so much to find a new suitor as to create a bargaining chip in its ongoing discussions with Rudin Management.

We are awaiting responses to our calls to St. Vincent's and Rudin Management.

UPDATE: It turns out the parties are still very much in conversation, according to both sides, and the property is not yet officially on the market -- though that by no means prevents others from making an offer, either.

In an email, Rudin COO John Gilbert writes: "The Rudin family is in negotiations with Saint Vincent's to develop a solution that benefits creditors and the community, while ensuring the delivery of health care to the people of Greenwich Village."

And St. Vincent's emailed over its own statement about the hiring of CBRE, which also noted the ongoing negotiations:

"Saint Vincent's is exploring all options available regarding the Manhattan campus to maximize value for all of its stakeholders." said Mark Toney, chief restructuring officer of Saint Vincent's.

St. Vincent's appreciates the creditor's support of our process and the court's approval of CBRE.

"The property, which occupies eight buildings on the Lower West Side of Manhattan, represents a significant source of value for Saint Vincent's bankruptcy estate," Toney said.

In exploring viable options, St. Vincent's continues to negotiate with Rudin Management for acceptable terms of the previous agreement.

mchaban[at]observer.com

Ambac said it was unable to raise new capital and failed to "agree to terms with an ad-hoc committee of certain senior debt holders in order to restructure its outstanding debt through a prepackaged bankruptcy proceeding." The company had said last week that reaching an agreement with its creditors was the only path it saw that would keep it out of bankruptcy.

"As of June 30, 2010, the Company had debt outstanding amounting to $1,622 million," Ambac said.

The company's long-term viability had long been questioned, notably by Pershing Square Capital's Bill Ackman, who said Ambac and other bond insurers might go bankrupt thanks to their exposure to collateralized debt obligations.

mtaylor [at] observer.com | @mbrookstaylor

Ambac has been getting positively beat up since suffering credit ratings downgrades that started in early 2008. Once downgraded, the firm found itself unable to write bond insurance -- which made for rough sailing, since insurance was its main business.

Bankruptcy talk for Ambac has been swirling for some time -- Ambac is one of the stocks Bill Ackman famously shorted, and Ackman said as early as 2008 that the bond insurers may go bankrupt as a result of their dealings in collateralized debt obligations.

As the foreclosure crisis continues to hinder the major financial institutions, it looks like one of the initial casualties of the financial crisis may soon be going busto.

mtaylor [at] observer.com | @mbrookstaylor

There has not only been cost-cutting and declining quality at the company's newspapers (at The Chicago Tribune and The Los Angeles Times' circulation is down in 9.8 and 14.7 percent respectively in the first half of 2010), there has also been a culture of bar-room unprofessionalism institued across the company by former executives from the radio business installed by Mr. Zell. Randy Michaels, a former shock jock who Mr. Zell named CEO, amended the company's employee handbook, as far as we can tell, to loosen the definition of harassment in the company's offices.

Here are some anecdotes from Mr. Carr's 4,000-word piece.

Meet Mr. Michaels:

After Mr. Michaels arrived, according to two people at the bar that night, he sat down and said, "watch this," and offered the waitress $100 to show him her breasts. The group sat dumbfounded.

Poker party in the Tribune "shrine":

In June 2009, a party for management was held in the former office of Col. Robert R. McCormick, the newspaper baron and grandson of the founder, on the 24th floor of the Tribune Tower. Smoke detectors were covered up and poker tables were brought in.

Sex talk in the workplace:

A woman who used to work at the Tribune Company in a senior position, but did not want to be identified because she now worked at another media company in Chicago, said that Mr. Michaels and Marc Chase, who was brought in to run Tribune Interactive, had a loud conversation on an open balcony above a work area about the sexual suitability of various employees.

“The conversation just wafted down on all of the people who were sitting there.” She also said that she was present at a meeting where a female executive jovially offered to bring in her assistant to perform a sexual act on someone in a meeting who seemed to be in a bad mood.

Executives who have no idea about the newspaper business:

Mr. Abrams, who describes himself as an “economic dunce,” was made Tribune’s chief innovation officer in March 2008. In his new role, he peppered the staff with stream-of-consciousness memos, some of which went on for 5,000 typo-ridden, idiosyncratic words that left some amused and many bewildered.

“Rock n Roll musically is behind us. NEWS & INFORMATION IS THE NEW ROCK N ROLL,” he wrote in one memo, sent in 2008. He expressed surprise that The Los Angeles Times reporters covering the war in Iraq were actually there.

To get ahead of The Times article, late last night Mr. Michaels sent out an email to the company's staff saying that Mr. Carr's story was predicated on two-year-old rumors spread by an "ex-Chicago Tribune employee who is now a contributing writer to the New York Times." Mr. Michaels also accused Mr. Carr of trying to influence decisions about Tribune Company's managment that are emerging at the end of its Chapter 11 bankruptcy filing.

"Mr. Carr has made clear that he is digging up these old allegations because he believes that decisions about the company’s management are about to be made, and he wants to influence those decisions," Mr. Michaels wrote. He also defended the company's "fun, non-linear creative environment."

"Ignore the noise," he added. "Treat each other with respect. Have fun, and let’s go create the future."

At Flagging Tribune, Tales of a Bankrupt Culture [NYT]

The company said that it has reduced the dollar amount of creditors' claims to $464 billion from $1.2 trillion, but that claims by big banks would be harder to resolve. Also on the bad-news side: Lehman plans to lay off 6 percent of staff by April.

Once out of bankruptcy, Lehman would rechristen itself "Lamco," and the resulting firm would handle Lehman's old commercial real-estate portfolio, among other things.

Related: Faces of Fuld -- The Ex-Lehman CEO In Pictures

mtaylor@observer.com

Twitter: @mbrookstaylor