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By Root 1176 0

their own holdings in city notes.…” The word “dumping” implies a massive disinvestment. In fact, the SEC report revealed that: between September 30, 1974, and April 30, 1975, Bankers Trust reduced its city note holdings from $118.7 million to $58 million; Chase Manhattan, from $165 to $58 million; Manufacturers Hanover Trust, from $180 to $163 million. Citibank actually increased its “total position” in city notes from $24 to $30 million but purchased no new securities for its investment account. Figures for Morgan Guaranty were incomplete, but the SEC said it “made no additional purchases of City Notes for its investment account.” Chemical increased its investment account from $187 to $224 million. On the basis of this evidence, add and subtract and you’ll find that in the critical months leading up to the fiscal crisis the six large city banks “dumped” a total of just $141 million—a figure later confirmed by a series of phone calls to the SEC. Thus the six banks “dumped” not $2.3 billion but a relatively modest $141 million. Which suggests that the banks’ and financial community’s failure to make full disclosure to investors is a more serious charge.

The Defense

The 800-page SEC staff report was published thirteen days before the 1977 Democratic mayoral primary, striking Abe Beame with the force of a bazooka. The charges dominated the news. Stunned and shaking with rage, Beame counterattacked, denouncing the report as “a shameless, vicious political document” and claiming, “The record shows that I was leading, and not misleading, the City during this period.” In a vain attempt to rescue his candidacy, the Mayor took to the streets. An outside organization, he said, had “injected itself into the political campaign at the eleventh hour with malicious abandon.” Clearly, the SEC had, as Beame complained, “rushed to judgment.” An inquiry begun eighteen months before need not have been released days prior to an important primary.

But the report’s timing was the least of Beame’s complaints. Why pick on me? was the attitude adopted by Beame and Goldin, the two city officials singled out in the report. Didn’t the Governor and the state legislature approve most of these so-called “gimmicks”? Didn’t the City Council and Board of Estimate? And didn’t the banks make the loans? Hadn’t this practice been going on for some time, not just the brief period studied by the SEC? Everyone was guilty, not just them. This view was echoed in the city’s first legal brief, submitted nine months before the SEC staff report appeared, and was intended to refute the anticipated SEC judgment: “The staff’s criticism, therefore, cannot be leveled at the City or its officials. It must rather be aimed (if at all) at the very touchstones of our democratic political process.” The city’s second brief, following the SEC report, reminded the federal agency of the state’s role: “If, with the benefit of hindsight, the means adopted to finance these services appear to have been unwise, the fault does not lie with the City or with its officials alone.”

Why pick on Beame and Goldin and a narrow time period? “The answer is simple,” says William D. Moran, Administrator of the SEC’s New York Regional Office and the person who supervised the staff report. “We didn’t have unlimited manpower. We took what appeared to be the most critical period—November 1974 to March 1975. To go back to the Lindsay and Wagner period—we’d still be working on it!” Adds an important SEC official, “I’m confident that Wagner and Lindsay engaged in the same kind of shenanigans.”

The city’s defense (really Beame and Goldin’s) also pleaded that the staff report was unduly legalistic and narrow—ignoring not just the other actors but the larger social forces and responsibilities influencing public figures. Dripping with sarcasm, the city’s brief states:

From a reading of the Staff Report one would believe that the City operated in a social, economic and political vacuum. One would assume that its social welfare programs and the means for financing them were enacted by its own City Council;