The Streets Were Paved with Gold - Ken Auletta [72]
The logic is comical. It asks us to assume that an attack on Beame equals a disclosure by Beame, that a press disclosure—usually buried in paragraph 20 and refuted at the time—constitutes full public disclosure by the mayor of New York. Here, the city’s defense is as narrowly legalistic as it claims the SEC’s charge to be. Even if one concludes that investors who could read had reason to worry about the city’s finances, that is not the same as saying taxpayers were told the truth by their elected officials. Thus the city pleads innocent to a lesser charge (failure to disclose) while, implicitly, pleading guilty to a far more serious one (fraud).
The financial community’s disclosure defense parrots the city’s. Investors, they are saying, should have known. But banks did not disclose to investors the devastating information contained in their own memorandums, which were published by the SEC. They kept this information private. The same can be said for the rating services and bank bond counsels. If they had done their job, White & Case’s tardy but courageous refusal to sign off on a note offering would have occurred sooner. A Wall Street Journal editorial the day after the SEC report sliced through the pretense: “Surely the prescription for rose-colored glasses does not extend to underwriters, bond counsel or the like. These gentlemen knew their duty well enough back in 1975. If they had done it, if they had found the courage to voice the truth, a lot of small investors would have been spared their savings, and New York would be a lot further on the road to recovery today.” Because the investment community is more aware of the rules and securities laws, their culpability is greater. For many years these people eagerly placed the city’s bonds, in effect printing the city’s money and collecting huge profits. When the bubble—which they helped puff—burst, investors were not the only victims.
The lies come at you like machine-gun bullets. Beame, for instance, blamed his budget difficulties on the $1.5 billion deficit he said he “inherited” from Lindsay. Yet as comptroller, he approved each of Lindsay’s last four budgets. Lindsay says it wouldn’t have happened if he had been mayor. Yet it was happening while he was mayor. Sometimes the lies came under oath. Testifying before the SEC on September 1, 1976, the official transcript contains the following exchange with Beame:
Q. Mr. Mayor, in addition to the one shot revenues, it has been stated that the City would from time to time overestimate its revenues at the commencement of a fiscal year for purposes of producing a balanced budget.
A. Not in my time. I certainly wouldn’t permit it. I know of no such instance where anything like that occurred.
Asked by the SEC attorney whether he agreed that state and federal aid was sometimes overestimated, Mayor Beame responded: “Based on the information given to me by my staff, I disagree with the statement.… You have to remember, of course, that—as I want to stress—that I don’t get into that estimating area. I am sure you understand the Mayor has got enough things to do besides sitting down with a pencil and estimating revenues for the city.”
After Beame, unbelievably, released this testimony in August 1977, the Daily News socked him good: “To hear His Honor tell it, he was nothing but an innocent bystander, a detached observer.…” Candidate Ed Koch was no less direct: “In taking great pains to avoid any implication of wrongdoing, Mr. Beame has made a lie out of his campaign for re-election, in which he is telling us that ‘he made the tough decisions,’ and of his campaign for election in 1973 when he assured us