The Streets Were Paved with Gold - Ken Auletta [67]
Their earlier brief made the point a different way: “To the extent that this investigation has been directed to the City and its officials, it is not truly a securities investigation. It is an inquiry into the political, social and economic forces which have shaped the City of New York. It is an inquiry into the nature and operations of the governmental process. As such, it is beyond the competence and authority of the SEC.…”
“Hell, five years ago all the so-called ‘budgetary gimmicks’ were being called genius,” Lindsay’s former chief of staff, Jay Kriegel, told writer Harry Stein. “It wasn’t Lindsay, it was the times.” And the times were optimistic. John Kennedy kicked off the decade of the sixties promising to “get this country moving again.” Lyndon Johnson’s first State of the Union message, in 1964, announced “a national war on poverty. Our objective: total victory.” Vietnam was to preserve the world for democracy. When John Lindsay captured the mayoralty in 1965, Newsweek’s cover story rhapsodized that his campaign was “the most important political operation in America today.…”
In addition to optimism, the sixties featured social upheaval. A new wave of immigrants—from Puerto Rico and the South—came to New York seeking opportunity. The anti-poverty effort spawned new community-based organizations. There were civil rights, welfare rights, and antiwar demonstrations. There were near-riots in New York streets, and city officials lived in constant dread of racial polarization and even warfare. The peaceable techniques of the civil rights movement were adopted by community groups demanding greater government services. Thus, the city’s brief argued, “Mayors, Comptrollers, City Councilmen, Governors, and State Legislators were constantly called upon to make what was in essence the same choice—whether to provide services or exercise draconian fiscal restraint.”
It would not have been easy to cut city spending. When cuts were proposed in the projected 1972 budget, City Council Finance Chairman Mario Merola, reflecting the consensus of the time, said, “I don’t believe that the City of New York could close hospitals, libraries or schools.…” Mayor Lindsay used to prepare annual scare scenarios, outlining the cuts and “payless furloughs” that would be necessary if no new aid or taxes were granted. They were usually not taken seriously—probably even by the Mayor himself—as they were not taken seriously when Beame repeated them in 1974 and 1975.
The SEC staff’s parochial concerns, in the city’s view, led them to confuse political rhetoric with a bond prospectus. The staff report charges, for instance, that Beame and Goldin’s press releases and public statements “did not provide investors with accurate and balanced information as to the City’s finances and its securities.” In their defense, city leaders replied that in the critical months before the shutoff of credit, these reassurances were
no different from President Roosevelt’s assurances, during the depths of the Depression in 1933, that “the only thing we have to fear is fear itself.” Under the standards by which the staff seeks to judge the City this statement would be deemed to be misleading and an “unwarranted reassurance.” Was President Roosevelt faulted for seeking to reassure the nation? The answer, of course, is no—he was praised for his leadership. A President—or a Mayor—in making a speech to his constituency has far greater leadership obligations than does a corporate officer discussing a corporate balance sheet. The responsibility