Benjamin Kabak

For the non-economists among us, variable-rate bonds are not very easy to understand. In sum, these stem from adjustable-rote loans in which the initial payments are low but can change over time. As we’ve recently learned, this change can be for the worse.

In Sunday’s New York Times, Charles Duhigg and Carter Dougherty explored how these adjustable-rate loans and variable-rate bonds from one bank in Ireland are impacting the MTA. The tale they weave is one of fiscal recklessness and global impact:

For years, municipal agencies like the M.T.A. had raised money by issuing plain-vanilla bonds with fixed interest rates. But then bankers began telling officials that there was a way to get cheaper financing…

The transportation authority, guided by Gary Dellaverson, a rumpled, cigarillo-smoking chief financial officer, had $3.75 billion of variable-rate debt outstanding. About $200 million of that debt was backed by Depfa. When the bank was downgraded, investors dumped those transportation bonds, because of worries they would get stuck with them if Depfa’s problems worsened. Depfa was forced to buy $150 million of them, and bonds worth billions of dollars issued by other municipalities.

Then came the twist: Depfa’s contracts said that if it bought back bonds, the municipalities had to pay a higher-than-average interest rate. The New York transportation authority’s repayment obligation could eventually balloon by about $12 million a year on the Depfa loans alone.

Basically, in a nutshell, the MTA got greedy. They could have plodded along with their regular bonds with fixed interest rates. These bonds, backed by the U.S. Government, could have served the MTA well even if they were not quite as efficiently sexy as the Depfa bonds. Now the risks are coming back to bite hard.

For their part, the MTA alleges that, for this year, it is within its debt-payment budget, but as we’ve seen time and again over the last six months, those debt payments could cripple the MTA over the next few years. While this year’s payments may be on pace, the subsequent years’ payments will be impacted by this financial crunch.

All of this economics mumbo-jumbo leads me to believe that perhaps the MTA needs some new fiscal leadership. Perhaps Dellaverson, the man who invested the MTA into this mess, needs to go. Perhaps he just needs new economic advisers who don’t play fast and loose with rather important public infrastructure funds. There is, after all, no such thing as a free lunch whether you’re a homeowner looking for a cut-rate mortgage or a cash-strapped public transit system beholden to millions of passengers each day.

Things did not look good for me when I arrived down on the platform at 7th Ave. in Brooklyn at around 8:40 a.m. yesterday morning. A Q train was pulling in, and I thought I’d hop it to DeKalb and switch to my W. 4th St-bound B.

There was but one catch. This Q train was far too crowded to board. When the B then pulled up, it too was far too crowded to board, and a subsequent Q suffered the same fate. When a second Q pulled up moments later, I was able to cram my way in for the short hop to DeKalb. Then, I had to wait nearly 15 minutes for a B train. As usual, at no point did the MTA announce a problem, and it wasn’t until I arrived late to class that I learned I suffered through some good old “residual delays.”

Except I hadn’t really. A steady stream of Q trains kept arriving, but they were too full. Simply put, the demands of the ridership could not, for a morning, keep up with the supply of the trains New York City Transit had to offer.

This overcrowding to an extreme isn’t a new phenomenon. The MTA’s ridership levels over the last few years have approached records set over fifty years ago, and overcrowded trains have become a major problem.

Perhaps, though, the end is in sight. With thousands of people losing their jobs due to the recent economic slowdown, the MTA expects ridership levels to end their climb. Marlene Naanes has the report:

Transit ridership is at a 40-year high, continuing a steady increase since 1996. However, this month City Comptroller Bill Thompson predicted more than 150,000 job losses in the next two years, which could affect the number of people taking trains and buses or being able to afford fares.

An MTA spokesman, however, said that it is unclear if the number of straphangers will decrease. “There will be some reduction in the pace of growth, not necessarily a drop in ridership,” MTA spokesman Jeremy Soffin said.

In all likelihood, actual ridership won’t decline, but it won’t increase either. The MTA will lose some revenue because they won’t have the projected money from increased ridership, and the agency will still have to deal with overcrowding.

But, to find a silver lining to this cloud — or perhaps it’s the other way around — the trains won’t be even more crowded. This morning, as I crammed myself into a Q train packed to the gills with people, I could barely move. I doubt it could actually get much worse.