The Streets Were Paved with Gold - Ken Auletta [68]
There was also a difference between the SEC and the city as to what constitutes disclosure. The SEC said the city failed to disclose all the material facts, including “gimmicks” used to balance the budget. Yet Beame’s testimony before the SEC reminded them that government operates in “a fishbowl,” and as his legal brief stated, “One cannot find any material facts about the city’s fiscal condition which were not fully disclosed.” As proof, the city submitted a “Disclosure Appendix,” consisting of sixteen volumes containing 2,000 separate documents—speeches, press releases, newspaper and magazine accounts—published between December 1973 and April 1975. The SEC chastised the city for omitting negative information from their bond prospectus. The city chastised the SEC for ignoring negative reports in the press. The SEC said investors were not warned. The city responded: “It is difficult to conceive how the staff of a financially sophisticated agency can look at the difference between an interest rate of 3.73% on a State BAN, and an interest rate on a City BAN at about the same time of 8.1–8.75%, and conclude that the market and investors were not aware of the City’s financial plight.” (A BAN, incidentally, is a bond anticipation note. That the city was permitted to borrow so excessively against borrowing—like a compulsive gambler borrowing in anticipation of a loan-shark loan—tells something about its finances.)
A similar perceptual chasm separated the SEC staff and Comptroller Goldin. The SEC charged that the Comptroller, like the Mayor, “misled public investors.” Yet Goldin—after waiting two days to let the dust from the SEC charges settle (and candidate Beame take all the heat)—summoned the press to his office in the Municipal Building to release 448 pages of his SEC testimony and a collection of press releases, newspaper reports and other items. “On more than 50 major occasions,” he declared, “in increasingly grave and urgent language, I warned the public about the city’s worsening fiscal condition and budget practices. To say I did not disclose the city’s fiscal condition is like saying Ralph Nader did not warn consumers about unsafe cars because people continued to get killed in auto crashes, or Gen. Billy Mitchell did not warn the Navy about air power.”
And, finally, city officials didn’t understand why the SEC berated them for failing to heed the admonitions of bankers that the credit market would close. To city officers, such warnings were not new. On March 23, 1975, as the crisis was nearing a climax, Beame told the public, “You have to realize that I’ve been dealing with some of these bankers for a long time, since I was Comptroller.” He told the press he was calm, despite harsh criticism and growing bankruptcy threats. As the SEC notes, the banks were demanding that Beame impose new austerity measures. But Beame was demanding that the banks and other underwriters do what they had always done: support the city. Beame, like most city officials, saw the banks as salesmen, not policemen. “I think the banks have to exercise the responsibility to let the public know that New York securities are good investments, to restore confidence in their investors,” he said then. Also, like many others, Beame assumed that the underwriters and “the market” were one and the same—a handful of individuals who talked to each other and treated David Rockefeller as if he were the Pope.
Besides, people hear what they want to hear, not always deliberately. Through March 1975, for instance, the Mayor and Comptroller met regularly with top bankers who served on the Financial Liaison Committee and with their staffs, who composed what was called the Working Group. “In a sense,” retorted the city’s brief, “the fact that these meetings were even taking place can be said to evidence the shared feeling of the City and the financial community that the securities markets had not yet