State capitalism, Jersey-style, goes bust.
Politicians often are very shrewd investors — with their own money. If Al Gore wanted to move his money around in cash, he’d need a fleet of forklifts. But they’re rotten investors with your money. President Barack Obama had his Solyndra, and New Jersey governor Chris Christie has his casino, Revel, the multibillion-dollar Atlantic City boondoggle that, having declared bankruptcy — twice — just announced that it will be closing its doors and putting its 3,100 employees out of work.
Thanks to Governor Christie and the New Jersey Economic Development Authority, the taxpayers of New Jersey are quasi-partners in this venture, having swapped a few hundred million dollars in tax credits for 20 percent of the profits in a venture that never had, and never has, shown a profit. Governor Christie was not reading the market: Morgan Stanley took a $1.2 billion loss on Revel and pulled out. The Export-Import Bank of China sniffed around but ultimately turned up its snout. After Governor Christie put taxpayers on the hook, Revel was able to put together another $1.5 billion in financing. Canyon Capital, a hedge fund holding $200 million in New Jersey public-pension money, took a piece, and the state pension board approved a $300 million bet on Chatham Investments, a hedge fund with a 28 percent stake in the troubled casino. (That money has not yet changed hands.) Apparently, even the Chi-Coms don’t have so much money sloshing around that they want to toss it into a despair-ridden New Jersey sinkhole organized around a moribund industry with a criminal past and a bleak future.
On top of the tax credits, there were millions of dollars in training grants, tens of millions in support from the Casino Reinvestment Development Authority, millions from Atlantic City in road improvements, the seizure of private homes through eminent domain — an unprecedented level of government involvement in a gambling operation.
But it wasn’t enough. Revel has been searching for a buyer, but nobody is buying.
Morgan Stanley may have some dents in its reputation these days, but it is looking like the smartest imbecile in this parade.
To be fair, New Jersey taxpayers have not suffered any direct losses on those tax credits: Revel has never generated enough money to owe any taxes, so no rebates have been claimed. They’ve lost a few million on training and infrastructure support for a soon-to-be-nonexistent business. But the damage from this sort of economic adventuring is rarely visible on the surface. A great deal of money that might have gone to more productive investments was lured into the casino by the prospect of state backing. No doubt many smaller businesses made investment decisions based on the theory that state backing would keep Revel afloat. Millions of dollars and untold man-hours were invested training people for jobs that will not exist in the near future. Frédéric Bastiat wrote about “that which is seen, and that which is unseen” in economic matters. New Jersey can see that the tallest building in Atlantic City is soon to be a white elephant, but what they cannot see is the misallocation of capital that happened as a result of Governor Christie’s trying to prop up the ailing venture.
I’ll bet the people who were tossed out of their houses through eminent domain are receiving this news in the proper spirit.
This is not New Jersey’s only adventure in state capitalism. The state has a $200 million involvement in a shopping mall called American Dream Meadowlands, formerly known as Xanadu, a building just outside New York that Governor Christie himself once declared the ugliest in New Jersey, and possibly the country. In this matter, his judgment is correct: It is spectacularly hideous.
So why buy in? Masochism?
As the New Jersey gambling industry implodes, in no small part because its cartel faces new competition from Pennsylvania and New York, which have recently legalized casinos, some think they have come upon a clever answer: More casinos!
Paul Fireman, a former Reebok executive, proposes to build a 95-story casino/condominium/107,000-seat racetrack/giant Ferris wheel (not kidding), not in Atlantic City but in Jersey City, directly across the Hudson from the World Trade Center, a convenient location for all those Manhattanites and Brooklyn hipsters aching to spend an evening playing “Sex and the City” video slots next to a seafood buffet in Jersey City. I’d love to see the market research profiling the sort of people who want to buy what are presumably going to be pricey condominiums atop a New Jersey casino encircled by a NASCAR track and complemented by what is promised to be the world’s largest Ferris wheel.
I wish those investors the very best of luck, but I hope that Governor Christie can resist the urge to buy in one more time. But that’s the thing about problem gamblers: They always believe it’s going to be different this time.
— Kevin D. Williamson is roving correspondent at National Review.