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John Paulson's Smart (New) Bet

February 25, 2013

By Howard Husock

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The hedge fund investor John Paulson, made famous in Michael Lewis’ The Big Short, has come under fire again—this time not for his investment returns (which have headed sharply south after the success of his prescient 2006 $25 billion bet against the housing market.) The New York Times has raised questions, rather, about his philanthropy—in particular December gift of $100 million to the Central Park Conservancy, the private, non-profit which manages what might be the world’s best-known green space. It’s said to be the largest gift ever given for an American park.

For the Times, however, Paulson’s gift raises questions about "the unequal distribution of philanthropy." Why, it asks, did Paulson not direct his gift to the dilapidated parkland of his native Queens, rather than the famous—and already well-maintained—park near his own current home on the super-affluent Upper East Side?

It’s not wrong to be concerned that parks in poorer neighborhoods are not in good shape; those who can’t afford summer homes, expensive vacations or even their own back yards need well-maintained public parks. But John Paulson’s decision is nonetheless both defensible and understandable—and not the reason the parks of New York’s less famous parks are, as the Times points out, places where "bicycle and walking paths are cracked and pitted" and "natural areas are overgrown with invasive species."

Paulson’s gift to the Central Park conservancy reflects the same insight that guides, for instance, New York Mayor Michael Bloomberg’s billion-dollar-plus giving (through his private foundation) to his alma mater Johns Hopkins for stem cell research and an array of other purposes: he has good reason to think that the funds will be well spent by an organization that will remain in place for years to come, thanks to the Conservancy’s $144 million endowment. This is the same reason Harvard, Princeton, Yale and Stanford boast such large endowments; they have proven, over centuries, in fact, that they will put philanthropic gifts to good use. This is simply not something that any philanthropist can afford to take for granted—and something with which such groups as the Flushing Meadows-Corona Park Conservancy—which had hoped for Mr. Paulson’s support—cannot compete, notwithstanding the dedication of its own membership. It can be argued, of course, that this shows that the rich can buy amenities the poor cannot—and, indeed, Paulson is only one of many wealthy members of the Conservancy board (which includes Henry Kravis of Kohlberg Kravis Roberts, Thomas Kempner of Davidson Kempner Capital Management and Michael Steinberg of Steinberg Asset Management). But it is also the case that one cannot take for granted that even parks in the best neighborhoods will be well-maintained. Indeed, prior to Central Park Conservancy assuming responsibility for its maintenance, Central Park was itself barren and notoriously crime-ridden. Today, of course, it is open to all New Yorkers—including the low-income residents of relatively nearby central and East Harlem, thus belying the increasingly-common canard the charitable giving of the wealthy provides no benefit to the poor unless it directly supports services in low-income neighborhoods. Nor do all parks have the landmark status of Central Park–and the same call on philanthropic dollars.

That still leaves the question, however, of why those concerned about parks which lack a Conservancy with a large endowment do not meet at least basic maintenance standards–and either discourage use or force users to tolerate substandard conditions. The problem is not that they lack for philanthropy but that city government has itself disinvested in such bread-and-butter matters as park maintenance. New York’s parks department operating budget has declined from $367 million in 2008 to $338 million currently, and represents a miniscule percentage of the city’s $68 billion current fiscal year budget. Parks spending, moreover, is falling even as the city’s budget has steadily increased, by $19.1 billion in inflation-adjusted dollars, since 2001, when Mayor Bloomberg took office. What’s increasing, as Bloomberg himself has observed, is the cost of fringe benefits—the cost of public employee pensions and health care, which reflect contracts based on far more generous terms than those of most private sector employment.

The risk posed by such rising benefits is the same as that which uncontrolled entitlement spending poses for national parks—retirement costs crowding out current services. The problem will certainly arise, as well, in cities which lack New York’s resources. Philanthropy can do great things—but it shouldn’t be asked to provide the basic public goods for which citizens rightly look to government. Parks in the Bronx may be in bad shape—but that’s not John Paulson’s fault. Indeed, his philanthropy allows New York City to direct funds to parks other than Central Park, the city’s largest–maintained by virtue of private funding, including his. Paulson’s investment record of late has not been great but he has, as when he made his big bet against housing price increases, once again put his money where it’s most likely to get the best return.

Original Source: http://www.forbes.com/sites/howardhusock/2013/02/25/john-paulsons-smart-new-bet/

 

 
 
 

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