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divestiture” was not meant to apply just to the banks’ portfolios: “He said that by ‘dumping’ he was referring to all notes that the banks sold to individuals in that six-month period in their capacity as underwriters of city securities.” The banks countered that Haddad and critics are stretching the English language beyond recognition. How can the banks be blamed when investors refuse to purchase securities that the banks, themselves, are underwriting? After all, didn’t the SEC produce evidence showing that the banks repeatedly warned city officials that the market was closing? Critics, say the banks, are trying to have it both ways: first charging them with “dumping” city paper on unsuspecting investors, then, when that doesn’t stick, charging the banks with failure to sell city paper to suspicious investors.

A Personal Verdict

The SEC staff report is both important and somewhat irrelevant. Important, because it tried to hold public figures accountable for their acts. Somewhat irrelevant, because it focused on a narrow oneyear period and, primarily, on the harm done investors. One needs no legal brief, no delineation of the securities laws, to understand the harm done taxpayers. It is worth remembering that the City Charter—passed by the voters—requires a balanced budget. Robert Wagner, John Lindsay and Abe Beame are guilty of knowingly failing to honestly balance city budgets. By not disclosing the truth, they burdened future taxpayers with costs they were never given an opportunity to reject—taxation without representation. But mayors were not alone. Also guilty were Governors Rockefeller and Wilson, state legislators, City Council members, comptrollers, City Council presidents, borough presidents and platoons of appointed and career civil servants.

They—the entire political system—failed. “The Mayor and the Comptroller—not just this Mayor and this Comptroller—were at fault for twenty years,” says Bernard Nussbaum. Since Mr. Nussbaum is a partner in one of the two law firms defending Beame and Goldin, his candid testimony is important. Over a long lunch early in 1978, Nussbaum reflected on what he learned preparing the defense: “Politicians see it as in their interest to make bad long-run decisions if they will look good in the short run. They’re competent at getting themselves elected, not in running the city.”

Incompetence was clearly a factor—the city’s books were a mess. Marty Lipton, Nussbaum’s senior partner at Wachtell, Lipton, Rosen & Katz, recalls: “They were all wrong on the size of the deficit. Not out of stupidity but out of an inability to cope with the technology. When we came in to act as bond counsel, there was this Czechoslovakian with a green eyeshade sitting on a ledger stand in the Municipal Building with his own ledger book. It was right out of Dickens! That ledger book was the only record we could find to justify the bonding.”

But there was also a reason for ignorance. It was safer. It allowed city officials to lie while believing, sometimes sincerely, that they might be telling the truth.

Which brings us to the question of disclosure. In their formal briefs to the SEC, Beame and Goldin say they made full public disclosure. As proof, they offer hundreds of press reports and warnings from organizations like the Citizens Budget Commission. Their definition of “disclosure” would please Orwell. One of the city’s defense briefs, for instance, quotes the Staten Island Advance of March 15, 1974. The Advance reported that Councilman Biondolillo voted against the 1974–75 capital budget “because of the inclusion of approximately $500 million in funds which he asserted belonged in the expense budget.” This constitutes disclosure, the city says, though it doesn’t say that the city and the Council approved the budget—with the gimmicks. Another example of “disclosure” is a 1974 Times editorial which warned, “This city is sliding into bankruptcy with dismaying speed.” What remains unsaid in the city’s brief is that this same editorial prompted an angry letter from Beame and Goldin, published on November