The construction workers sat in front of the new building at 160 Water Street morosely regarding either the grayness of the day or of their souls.
A hand-lettered mimeographed sheet pasted to a hoarding nearby read: “Construction Workers. The peace movement is not your enemy. The war is your enemy. Let’s talk about it. Bella Abzug, Democratic Candidate for Congress, 19th C. D.”
Presently a mustard-colored Cougar drove up and disgorged Mrs. Abzug and a few supporters. Mrs. Abzug, fetching in French blue raincoat, rainhat, and stockings, wearing a large button — “Hello, I’m Bella Abzug” — squared her shoulders and strode with Churchillian firmness over to the loungers and said, “Hello, I’ve come to talk to you fellas about the war.”
The construction workers were civil and strange. One of them made a strangulated noise that might have been either derision or surprise.
Mrs. Abzug delivered a short appeal suggesting that 63 cents on the tax dollar was going to support the war, that the war was hurting the economy, and that there were fewer houses to build because of the war.
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The construction guys went on munching their sandwiches. But a guy in a sweatshirt looked up with the light of intellectual revelation in his eyes. “Nobody wants war,” said he, “of course not.”
One of Mrs. Abzug ‘s aides, a young girl shivering in a summer dress, broke in to defend the peace marchers. “At least they didn’t kill anyone. They were peaceful,” she said hotly.
“Ahhhh, they’re all peaceful,” said sweatshirt with large contempt.
Mrs. Abzug, in an attempt to keep dialogue up, walked around asking, “What do you think about it all?” A few of the workers giggled nervously, others examined the tops of their Dunhams.
Mrs. Abzug gazed around looking for takers. “Our tax dollars go for missiles and bombs,” she continued bravely.
“And to the moon,” the sweatshirt guy said brightly. “We went to the moon once,” he added, as if recalling some long ago but cherished exploit.
“War is needed to reduce population,” observed an unsuspected Malthusian.
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Mrs. Abzug was a trifle shocked. “You don’t believe that.”
The social thinker looked stubborn. “Sometimes it just works out that way.”
“C’mon,” persisted the candidate. “I don’t want to kill you and you don’t want to kill me, do you?”
The construction guy finally allowed as he didn’t — but it seemed to some that he took a distressingly long time to come up with the right answer, which just might have been disallowed if there were a 24-second rule in ethics.
Mrs. Abzug said, “You should join together to tell Washington to stop this nonsense and bring that money back home. You should invite me down to your next meeting. I’d love to come.”
The construction men did not actually blanch, but tended too shuffle. Who could blame them? The persuasive clout of the Jewish mother must by measured in the low megaton range. Besides, Mrs. Abzug was trying to reason with them, and anyone who has dealt with decal-flag patriots knows that reason has nothing to do with it. Perplexity, guilt, not a little envy, and a dull, inarticulate rage at the strange way the world turns in modern times have a great deal to do with the sudden outbursts of violence from the lower-middle-classes (the nomination of Procaccino for mayor was a sort of aesthetic violence).
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“This war is taking from the middle-class,” one of the construction guys agreed. “The $40,000-a-year guys can deduct their subway fare.”
Mrs. Abzug continued to try to keep the dialogue running. One of her aides had assembled a group of workers at one corner of the building. As the candidate went over to speak with them, the construction superintendent ordered them back onto the job. “It’s for your own protection,” he explained, “there could be trouble.”
That this was a palpable load of shit was suggested by the presence of a couple of blacks in the group. The silent contempt the black construction men feel for their union brothers on this spring binge was been widely reported. It was unlikely that they intended to lend a hand at the stomping of a bunch of peaceniks. Furthermore, the group looked interested, not angry, and the modest reluctance of the supervisor to give his name to reporters after such a benevolent and public-spirited act was suspicious-making.
A couple of the men tried to slide over and were ordered back on the job. Finally one broke away despite repeated commands to return. He was, he claims, against the war, but was incensed by the students who ripped the American flag off a building. He loved his country and his flag. A lot of these men, he said, pointing to the group filtering back to work, gave their lives for the flag.
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From where the reporters were standing the workers looked hearty enough, but one could understand the rage. Mrs. Abzug argued that being for peace was not being against the flag, but as usual the dialogue ended with both sides unconvinced.
When the workers were back on the job Mrs. Abzug left. Her car slid up Wall Street between triple police barriers and the most cavalry seen in these parts since Washington thrust at Long Island. In this troubled spring, reason seemed to be something of a late bloomer, but you had to admire the lady for trying.
“This happens to be my district and I feel it’s important to highlight certain questions. I think a lot more people should do this sort of thing.”
It seems we have under-rated Richard Nixon. Not only does he play the dummy admirably, but in the last week, he has shown a flair for ventriloquism by finding a voice for his silent majority. But it’s a shame that it was the working men who were wooden-headed or hard-hatted enough to climb upon his knee.
At first glance it seems incongruous that the working class would gravitate toward Nixon. His style is not theirs. Wallace, yes. A face in the crowd, a small lonesome road that runs through dirt farmers’ country and pauses in the early morning hours at truck stops. But Nixon’s odyssey isn’t even on a working man’s map. The class debater, benchwarmer for the football team at good old Whittier College, a man who sees Knott’s Berry as America’s happy farm, the master of the cheap shot (or a “shy rap artist” to use a laborer’s term), a whiner in defeat, and a paranoiac by profession.
Then why the recent alliance between Nixon and the workers? lt is a wedding of his pomposity and, sadly, their circumstances. The key word is “majority.”
If you came out of a working-class family, you always wanted to belong. Only aristocratic politicians long for “humble beginnings.” Anyone who was born there doesn’t want to go home again.
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It isn’t that this class has suffered the abject poverty of blacks that either deadens or ignites the soul. The working class always has lived financially, ethnically, and culturally from hand to mouth. There was sufficient, but not enough. Were you Irish or Irish-American? Italian or Italian-American? You’ve come a long way, baby, from a “harp” or a “wop,” but would you ever be honest-to-God American in your breast or in your brain?
The schools were as half-assed as everything else. You knew your catechism, could read all the books that didn’t mean anything, and had learned the one fundamental lesson. When you graduated, the odds were eight to five you would work for a smart Jew. Or perhaps a Protestant, if any of them except Henry Cabot Lodge could be identified.
So you wanted in. An identity, but more a non-identity to blend in with those who moved around without disturbance. Not the top. You knew better than that. “Just a small piece of change,” as Brando said in “On the Waterfront,” but surely a small piece of the pieces you’d never had. ”To be liked, well liked,” as Willy Loman said. “The majority,” as Nixon says. Or a “regular guy,” the canonization members of the working class themselves devoutly wish.
But one thought there was a limit on the dues they would pay to belong. It seems wreaking havoc at a memorial for four dead kids is a stiff tariff to pay for such limp company as Nixon and Agnew, though in retrospect it had been coming for a long time.
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The kids are scattering that “small piece of change” by demanding that blacks and Puerto Ricans receive equal employment in restricted unions. Worse, they are sacrilegious to such “regular” relics as the draft, the American Legion, and dying for someone else’s notion of their country. So the stomping, the skull-cracking with tools, the five on one beatings (whatever happened to the saloon society ethic of one on one?) were only a matter of time. And, of course, some of McLuhan’s Marauders (“I’m pissing on the flag up here, CBS”) and those purveyors of love who oink-oink behind their dailies have helped speed up the action, get the cameras rolling, and put out the lights in many peaceful demonstrations.
So now the more zealous workers, along with their exotic opposites, pose, parade, and pontificate for posterity nightly at 6. It’s a shame David Merrick doesn’t move in and take the stripe-and-star-struck on the right and the bombs-bursting-in-air-segments of the left and move them up to New Haven for the summer to get the kinks out of their act.
But the workers would have struck without provocation anyway. Their street smarts told them they finally had the credentials for the All-America Club that nobody else on the scene possessed — muscle and the nastiness to use it. It came as no surprise that the most rampant brutality happened on a Friday — payday, which means early boozing and 90-proof patriotism. And the Wall Street workers cheered them on, showering them with capitalism’s sperm, ticker tape.
The working class finally had made it — grimy John Glenns and Tom Seavers, not only being accepted but adored by those they viewed as their betters. In a fine article in the New York Post, Tim Lee quoted the feeling of one of the ironworkers: “… I was Jesus Christ walking among them, and people in the crowd shouted, ‘God bless you,’ and patted me on the back. That was the proudest day of my life.” The need and subservience in that quote stuck with me.
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I knew these men when they were better than that. Over the years I’ve admired their penchant for tough work and their strong sense of family, and on many bleak nights I’ve been warmed by their humor. Moreover, I have been the recipient of their kindness time and again. The working-class community has that generous quality of the early settlers’ barn-raisings. One helped his neighbor paint his new apartment or move his furniture. The stores had an intimacy and standards that the plastic Prussian supermarkets never can achieve. Then there are the moments of happiness and sadness. The men gathered around a formica table in the kitchen drinking a round to the new-born and the women in the living room offering condolences for the dead. It seems odd that these robust people (both in body and spirit) seek the approval of a bunch of white-collar lackeys.
The office workers and clerks who had any spirit quit the Street when their Republican masters told them to remove their FDR button or lose their jobs. The ones who remained now tell you how democratic their company is, because on their annual outing “the old man himself joined the softball game. Singled to right in the fifth, and when it was over sat right down with us and drank canned beer. The old so-and-so is a regular joe at heart.” Meanwhile, the regular joe’s wife was bitching at him for acting so common, until he told her to stop being a cunt, because all such bullshit counts a lot to these boobs when he has to negotiate salary.
And, of course, there is the new breed on the Street — with his first snap-brim hat, his attache case, and his tightly wound umbrella, trying like hell to forget his father cleaned out the holds of ships or emptied trash cans to put him through a course in business administration, so now he can walk into the Bull and Bear on Friday nights and order a Beefeaters up, instead of a beer or a rye and ginger. So he roots for the ghosts of his violent past to keep his new-found world secure. And who knows? If he gets lucky, he just might meet someone like Julie on “Dating Game.”
Then, too, there is the workers’ much-needed image of macho. I suppose the thinking goes Tough on the Job, Dynamite in the Sack. So the word most frequently heard during the demonstrations (excepting USA) was faggot — Lindsay was one; the protesters had no fear of being drafted, because they all were faggots; and bystanders who made peace signs also were included. The specter of homosexuality seems to haunt many of these men. It seems ludicrous and illogical to make these charges of a generation that probably has been with more women in 15 years than mine and the workers’ has seen in 30.
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The phenomenon of growing up in the ’50s was that when someone asked you how many times you had scored that week he was talking about masturbation, not fornication. Old men ought to admit their envy. As a class, we rubbed our groins up against more bars and shuffleboards than we ever did against women. And when you saw the hard-hats carrying a scantily dressed Miss Liberty on their shoulders, you knew she was the Flying None of their movement.
But the real sadness is that the working class has allowed their unions to rob them of their pride and manhood in their work. Like the socialist sob sisters of the telephone company, they have opted for “security” (a guarantee of pensions, medical care and 37 toasters and waffle irons when they become engaged), and the integrity of their work be damned. The only evil they’ve ever seen in automation is the loss of jobs, not the demeaning of their life blood-work.
As a class, they have reneged on their standard of acceptance — achievement in a decent job. When the blacks and Puerto Ricans took the same route out of oblivion they did (as laborers and civil servants) they still were looked on as “spades and spicks.” A class cannot discard the foundation of their lives without madness resulting.
But the most tragic placard in sight at these demonstrations was one proclaiming “God Bless the Establishment.” It’s pathetic to think that the workers really believe they’re a part of the power structure — the same structure that indiscriminately uses their sons as cannon fodder in a war they don’t really understand, a war that has driven up the unemployment rate among their own to the highest level in a decade. The same beloved establishment that rapes the quality of their daily lives by channeling their tax dollars into Terry and the Pirates adventures, building highways they’ll never use, and granting tax exemptions to fat cats who sneer at them. Whatever happened to their built-in shit detectors that told them the only way to win the Congressional Medal was to come home in a box. Last week, Nixon handed out a dozen at a White House ceremony as if they were crackerjack prizes to add some glitter to this gory war. To be shilled by the powerful is expected, but to join them in the dupe is disgusting.
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These men weren’t raised to hit boys and girls in the street and to spit on grown women who disagree with them. At their best, they are as generous a group as I have ever met. Easy terms like “neanderthal” or “fascist” should be left to the granite-tongued Maoists. Johnson and Nixon have sent their sons and relatives off to die, and it’s hard for any man to admit his issue died for a crock of shit. But it’s harder still when the message comes from draft-deferred college students who, in the workers’ minds, have it made. But understanding their exploitation goes only so far. They still are men with singular minds and souls who consciously are selling both for acceptance to a dismal dream of “respectability.”
Hamlet’s tragedy was “to be or not to be.” A choice of the cosmos — all or nothing at all. Most agree Willy Loman’s odyssey was less profound, since he conspired with forces that were destroying him. But was it less profound? Hamlet was; Loman populated that neuter terrain of the never-beens and the could-have-beens.
So the working class, like the country in which they labor, have to be relegated to an unfulfilled potential. Not quite failing, but also not adventurous enough to attempt real fulfillment. Their souls and the soul of their country reside neither in heaven nor in hell.
So the silent majority’s tragedy will come full circle. In the end no one weeps for the citizens of limbo.
The rule of thumb in the consensus industry is that it takes a week or so for the process of opinion formation to work its magic. But within hours after the sun set on Black Monday, pundits revealed their instant decoding of the market’s bleak message. They’re wrong, of course — dangerously wrong. But let’s inspect their consensus before skewering it.
The villains were quickly identified: the “twin tower” deficits — trade and budget — and program trading. All that is needed is a good dose of austerity. We’ve been living beyond our means for years, mortgaging our children’s future. Cosmopolitan types like Flora Lewis provide the international dimension: Japan and Germany, two countries who’ve profited nicely from our trade deficits, should renounce their stingy ways and stimulate their economies. Germany should forget its obsessive fear of inflation (born in the Weimar era, when it took a wheelbarrow full of marks to pay for a haircut) and embrace monetary ease. And Japan should get cracking with its frequently announced (and frequently deferred) public works program. Said stimuli will keep the world afloat while we tighten our own belts.
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There are differences of shading, of course. The Beltway consensus, shared by the Times editorial page and Sam Donaldson, says fiscal prudence demands spending cuts and tax increases. The ever-sharp presidential mind worries that increasing taxes might depress the economy — so spending cuts should do the entire job. All the markets require is a signal of Washington’s good intentions. Once we get our fiscal house in order, it’s years of smooth sailing ahead. After all, the economy is in fine shape; business conditions are “fundamentally sound,” as they said in Herbert Hoover’s day.
Let’s look at each of these points.
Program trading. Computer-driven strategies may have intensified the market collapse, but they didn’t cause it. Mechanized trading allows machines to do the same things humans do, only faster; the silicon traders were programmed to act on the same criteria as the flesh-and-blood variety.
Trade deficit. Everyone agrees that this is a major problem; how to solve it is another matter. Many Democrats feel their arguments in favor of a protectionist trade bill have been strengthened — never mind the disastrous consequences of the Smoot-Hawley tariff in the 1930s. Wall Street and orthodox Republicans are coy about admitting it, but their solutions involve a good dose of austerity, which would cut imports by slowing the U.S. economy, and more cost-cutting in industry, which would improve our competitiveness. But in all their talk about the balance of trade, mainstream pundits miss the real point — the volume of trade. As that old graybeard, Karl Marx, put it: “What appears in one country as excessive importing appears in the other as excessive exporting, and vice versa. But excessive importing and exporting has taken place in every country,… i.e. overproduction, fostered by credit.…”
Budget deficit. Without the U.S. budget deficit, Japan and Germany would not have those enviable surpluses. Indeed, the whole world economy might well have gone down the tubes in the early 1980s without Reagan’s massive deficits. In fact, the deficit declined from $220 billion in fiscal 1986 to about $150 billion in fiscal 1987, which, according to the conventional wisdom, should have cheered the markets. Further cuts in the deficit would be positively Hooverian. Using the crash as an excuse to cut Social Security and medicare — as banker Peter Peterson recently recommended — would be criminal.
The real time bomb in all this is the high level of corporate and personal debt, a problem to which the chorus of thumbsuckers has yet to address itself. (Third World debt is a whole untouched story in itself.) Even though the cumulative federal debt doubled in the Reagan era, when measured against GNP, it is still proportionally lower than the debt accumulated during the New Deal and World War II. Private debt, however, is at unprecedented levels. Instead of taking advantage of the bull market to sell wads of new stock, companies have bought back their stock, often on credit. In the 1920s, however, corporations sold tons of new stock to a gullible public — relieving the public of a good deal of its wealth, but cushioning corporate balance sheets against the shocks of the Depression. Now, corporate balance sheets have lost all their spring. A cascade of private debt defaults is the likely mechanism whereby Wall Street’s crisis will spread to Main Street — though it might take a year or two.
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Immediate silver linings are few — aside from the fact that Mort Zuckerman may never get his chance to deface Columbus Circle. While it’s tempting to celebrate exuberantly the demise of yuppie culture and all the other horrendous phenomena of the Reagan/Thatcher/Koch era, capitalism is not notable for its equitable division of pain.
Still, there are openings for the left here — practical ones, utopianism aside. The first casualty of Black Monday is the entire ideology of laissez-faire. The left should make this point in a pure and forceful way: unregulated markets tend toward crisis, not equilibrium. This isn’t an excess that needs to be controlled — it’s in the very nature of markets. Despite their populist disguise, most regulations have been devised largely to protect vested interests. Over the next few years, as the crisis unfolds, we must press for regulations that amplify social control over capital.
Second, we must resist all the calls for austerity. “We” as a nation may have been living beyond our means, but for every BMW-driving yuppie, there’s a host of folks for whom the ’80s have been no party — the homeless, factory workers, farmers, blacks and other minorities, not to mention the old American middle class. The great crime of the Reagan deficit is not its existence, but that it’s been wasted on weapons and tax cuts for the richest. Redirecting that spending to those most in need makes good economic sense and satisfies the demands of social justice. If and when the political spectrum shifts to the left, we can let our agenda get more ambitious. ❖
The Crack-Up: After Stock Market Gloom, Doom October 27, 1987
RECALL FOR A moment the balmy days of last August. The Dow was comfortably above 2700. The only thing on Wall Streeters’ minds was whether it would break 3000 by year-end; more cautious souls feared that might take until mid-1988. You (literally) couldn’t find a bearish ad from a tipsheetmonger in Barron’s. Economists said a recession was possible — in 1988 or 1989. Until then, the economy was in fine shape.
The market started drifting lower in late August. Analysts weren’t sure where it might end — a 5 or 10 per cent “correction” was likely — but it was all quite healthy. The market had gone three years without even a 10 per cent drop, the longest stretch in modern history. Stocks had gotten ahead of themselves, and the market had to squeeze out the weak hands. Once the market had corrected itself, a buying opportunity would be upon us. Prices stabilized around Labor Day and then rallied. Maybe the ride — to 3000, or was it 4000? — had begun.
On Wall Street, October is the cruelest month. It was the month of the 1929 crash, several mini-crashes in recent years, and now the month of the 1987 crash. Comparisons to the granddaddy of all financial disasters are not out of line. Black Monday 1987’s decline was the worst since World War I — almost twice as savage as that of Black Tuesday 1929.
Most of the time, the gyrations at the corner of Broad and Wall matter little to ordinary mortals. As the saying goes, the market has predicted 10 of the last 4 recessions. But not in 60 years has the real economy depended so much on the jugglers of fictitious capital. In New York City, a quarter of the new jobs in recent years were finance related. The local real estate market bucked the anemic national trend because brokers were willing to pay 23-year-olds $100,000 a year to hawk their products. Those salaries, and the booming stock market, made it seem rational to pay a quarter-of-a-mil for a studio apartment or $20,000 for a summer rental in the Hamptons. Nationally, about 40 per cent of this year’s gain in consumer spending— one of the few bright spots in the U.S. economy — depended on the boom. Countless corporations used their high stock prices as collateral to borrow insane sums at 14 per cent interest. Corporate and personal debt, usually forgotten in Calvinist homilies about the federal deficit, are at record levels, much of it secured by ephemeral paper value. And as stocks fall, lenders will demand real money, setting off a whole new wave of selling.
In many ways, the U.S. is in even worse long-term economic shape than it was in 1929. Then the U.S. was an international creditor; now it’s the world’s biggest debtor. In 1929, the U.S. was on the verge of world leadership in technology and manufacturing; now, with Rust Belt industries struggling to keep up with Japanese competition, America’s prosperity is built on the same financial services that were hurt worst on Monday.
This is very, very serious stuff. And it probably has a long way to run. Last Friday, after a 108-point drop in the market, I visited the bars at the South Street Seaport to see how the young gunslingers were taking it. Not a worried look on any face; not a worried word on any lip. Today, after a 500-point drop, small-fry investors interviewed on FNN were in a buying mood. These folks are almost always wrong.
Why did it happen now? The market actually lacked some of the classic signs of a major top. Interest rates had been rising, but not to fatal levels. (High interest rates are a stake in the heart of a speculator.) But the bubble had to burst sooner or later. However you counted, either by ratios of prices to earnings or by dividends, stocks were massively overvalued by historical standards — worse than in 1929 by both measures. Wall Street was an accident waiting to happen.
Here’s how the latest Diagnostic and Statistical Manual, the handbook of psychiatry, enumerates the phenomenology of mania: elevated, expansive, or irritable mood; increased activity; talkativeness; thoughts racing in a flight of ideas; inflated self-esteem, delusional grandiosity; distractibility, with attention too easily drawn to unimportant or irrelevant stimuli; excessive involvement in activities that have a high potential for painful consequences, like (debt-financed) buying sprees, foolish investments, reckless driving. Recall Grenada, standing tall, junk bonds, Reaganomics, Baby Jessica. Then recall what usually follows a manic binge: depression.
There’s nothing wrong with the economy. —Ronald Reagan, with some irritation
There’s a worldwide Las Vegas going on.
—anonymous financial consultant
MONDAY NIGHT was a beautiful night, cool and calm, a refreshing breeze to keep one alert. A perfect night for heavy drinking, and by coincidence many financial professionals seemed determined to do just that. South Street Seaport’s North Star bar, which specializes in obscure British beverages, was doing excellent business. The Dow Jones stock index had just dropped 508 points, or 22.6 per cent; the comparable drop on Black Tuesday in 1929 was only 12.8 per cent. The stock market, which had broken record after record since the ’82 depression, had just experienced the financial equivalent of nuclear war. It was a good excuse to drink.
A well-dressed young man from a prominent Wall Street firm felt part of the blame lay with computerization. All the brokers have sell programs on their computers, and, when the Dow or some other index hits a certain level, the programs take over. “It keeps feeding on itself. They have it set up for certain levels. What to sell, how much, and when it hits that level: Boom, press the button, sell! It just keeps feeding on itself.” The young man didn’t really seem that upset, or maybe he was just stunned. He laughed a lot. “We had people losing tens of thousands of dollars in 20 minutes. We knew last week the market was down at record levels, we knew it was going to go down. But nothing like this.”
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Behind the technical factors, he felt, was an attitude problem. “Investors’ confidence was really shaky,” he said. It was merely idle to guess about causes; “They’ll give ya a hundred reasons. If it’s oil yesterday, today it’s the dollar, tomorrow it’s what they did in Japan last night. There’s a million reasons: it all boils down to what the investor thinks. So long as investors believe in the stock market, the fuckin’ dollar could be worth a penny.”
As for what makes investors lack confidence, no one at the North Star seemed to have any idea. They did know that the smart money would go into gold or silver. And debt would be more popular than equity (stock); anyone could tell that stock wasn’t going to be popular. The young professional and his four peers, all drinking beer from big mugs, felt proud that the market’s mechanisms had been able to withstand the day’s shocks. “The system is still intact,” he said triumphantly, and there were congrats all around.
I wasn’t convinced; “You don’t think this is the crisis of capitalism?” I asked naively.
“Obviously it indicates that there was a correction in the economy,” the professional said.
“A necessary downside correction in the economy,” another added. “But if you look at the top 10 technical quantifiable indicators of the broader United States economy, it’s lookin’ strong.”
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The first man emphasized that what mustn’t happen is for people to “take their money out of the banks and put it in their fuckin’ mattresses. That’s when we’ll all be sellin’ pencils!” That would represent a crisis of confidence. And confidence is key. Two “freelance construction workers” had come to the North Star to celebrate the crash. They described themselves as “joyously pessimistic.” “We’re fucked anyway!” one said.
I went over to Harry’s at Hanover Square, the ultimate bankers’ bar, hoping to find older people. The yuppies at North Star had recognized that their perspective was limited. “We’ve never seen a fuckin’ bear market.”
A mature man with experience in the bond markets said of the crash, “There’s no reason for it. It’s basic psychology.” Fred Pisculli, a vice-president at Shearson Lehman Brothers, explained that once “the fit hit the shan — that’s an Iranian joke — the lemming instinct took over.” Both men thought the U.S. economy is basically very strong, that people just got carried away, like lemmings. Pisculli emphasized that the crash presents opportunities: “This is a bonanza. This is the time that people will make fortunes.” He also, however, said that now is a good time to buy gold, and that Lehman is very heavy into gold.
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Pisculli said “a calming influence is what’s needed.” He said I could be that calming influence. He said that if I reported that things are basically fine, then every broker would send my clip out. My byline would be “all over the world.” The stock market crash, twice as severe as in 1929, was essentially a question of attitude rather than information (as I had suggested to him). “No. Not information,” he said. “Perception. Perception is the main word here.”
I wanted to create good perceptions and help the country; but it was hard not to remember the story a young banker had told me earlier in the evening. The story was about what would happen if banks start losing their ability to guarantee deposits. (As the following day’s New York Times said, “Among the key differences between the economy of the 1920s and 1930s and today’s is the advent of Federal deposit insurance…”)
“Someone at the office was kidding around, saying there wouldn’t be any problem because FDIC or Federal Home Loan Bank Board will be able to bail out the different banks.” The young banker smiled at me in a dazed sort of way. “And someone just leaned over and goes, ‘Yeah, two trillion in deficit, yeah, like they have another six or seven laying around to give to everyone when they want their money.’ ” ❖
As we’ve noted before, there’s some measure of irony in the fact that State Street Global Advisors erected the Fearless Girl statue to garner publicity for its campaign to increase the number of women in corporate leadership. State Street Global Advisors is, after all, run by a leadership team that is 82 percent male. It’s also overwhelmingly, blindingly white. (I mean, seriously, get a load of these guys.)
But in fairness to State Street Global Advisors, progress isn’t about where you start, it’s about the steps you make from that place toward your goal. Every new hire, every new appointment to corporate leadership, is an opportunity to shift the balance of power.
We read with interest, then, a press release from Tuesday that SSGA had made two high-profile hires for head of global SPDR product and head of global SPDR marketing. (SPDRs are a type of exchange-traded investment fund.)
The new head of global SPDR product is named Noel Archard. He is a man.
The new head of global SPDR marketing is named Seth Morrison. He’s a man.
“We are delighted to welcome [Seth and Noel] to the team, and we look forward to their leadership as we evolve and grow our Global SPDR ETF business,” said SSGA co-head of global SPDR business Rory Tobin, a man.
According to the press release, Archard will report to Tobin and the head of SSGA’s global institutional group, Cyrus Taraporevala, a man.
Morrison, the release states, will report in to Nick Good, co-head of the global SPDR business, and Stephen Tisdalle, chief marketing officer of SSGA. Good and Tisdalle are men.
Andrew Hopkins, assistant vice president for public relations at SSGA’s corporate parent, State Street Corporation, and a man, told the Voice that State Street — not SSGA itself — has recently elevated a female employee. Hannah Grove, the company’s chief marketing officer, was appointed to State Street’s management committee earlier this month, bringing the number of women on the fifteen-member committee to three. Hopkins says the company has a three-year diversity plan, and has set a goal of having women as at least 28 percent of senior managers by the end of the year.
Congratulations to State Street Global Advisors, the global financial corporation leading the fight for gender equity in corporate leadership, on their new hires.
When the “Fearless Girl” statue first appeared in Bowling Green the day before International Women’s Day on March 8, staring down the “Charging Bull” statue on Wall Street, it did so through a city licensing program that issues temporary permits for commercial activity in public space. It’s the same program that regulates the blight of cookie-cutter “street fairs” and under which, last August, a giant walk-in Prego Pasta Sauce jar was erected in Chelsea to raise public awareness about the company’s new line of “Farmer’s Market Sauces.”
This makes lots of sense: “Fearless Girl” is its own exercise in corporate brand-burnishing, the product of a campaign conceived in the New York offices of an enormous multinational advertising conglomerate, McCann, working on behalf of a worldwide financial colossus, State Street Global Advisors, an arm of the 225-year-old State Street Corporation, which currently manages an estimated $2.5 trillion in assets.
As the investment management division of State Street Corporation, which also includes a custodial bank administering $28 trillion in assets, State Street Global Advisors devises customized investment strategies for institutions with a lot of money to deploy — pension funds, universities, major charitable foundations — and builds mutual funds and exchange-traded funds for ordinary investors.
State Street’s last appearance in the headlines, in January, was occasioned by the company’s settlement of a suit brought by the United States Department of Justice, which alleged that it had defrauded its own customers by charging them secret commissions. In exchange for a deferred-prosecution agreement, State Street agreed to pay a $32.3 million fine to resolve the charges and offered to pay the same amount as a civil penalty to the Securities and Exchange Commission.
Fearless Girl’s carefully choreographed debut coincided with SSGA’s announcement that it would begin pressuring the 3,500-odd companies in which it invests to install more women on their boards of directors. State Street’s public statement couched its argument in narrowly economic terms, noting that “companies with strong female leadership generated a return on equity of 10.1 percent per year versus 7.4 percent for those without a critical mass of women at the top, which is a 36.4 percent increase of average return on equity.”
In the weeks since Fearless Girl was rolled out, a growing parade of ordinary citizens and politicians have celebrated the installation as a powerful work of public art and a symbol of a critical issue of our day. Pilgrims come to Bowling Green to take selfies with the statue, among them Senator Elizabeth Warren, who paused in her crusade against the unregulated excesses of the financial industry to caption her own tweeted statue-selfie with the slogan “Fight like a girl.”
Misty Allen, a 47-year-old from Portland who works in tech, was so moved by the Fearless Girl that she had it and the bull tattooed on her arm. The sculpture feels like a testament to the sexism Allen has encountered in her own career: “It’s a reminder to myself to put my hands on my hips and open my mouth and stand up for myself,” she told the Voice.
For some, Fearless Girl carries extra significance in the age of Trump, the perfect embodiment of the overlap of financial avarice and violent sexism. “Right after [the election], this miraculous girl appears and created such a powerful sensation because she spoke to the moment,” said Mayor Bill de Blasio last month, announcing that he had interceded to allow the statue to remain in place beyond the limits of its commercial permit. “Sometimes, a symbol helps us become whole, and I think the Fearless Girl is having that same effect.”
The statue’s fans thrill to her apparent gesture of challenge and resistance to the Charging Bull, Arturo Di Modica’s 1989 love letter to the wild, surging energy of Wall Street and finance capitalism, installed as the market worked to recover in the wake of the “Black Monday” financial collapse of October 1987. In its conception of the newer statue, McCann brilliantly appropriates the iconic image of the ballerina dancing atop the bull, created by the Vancouver-based magazine Adbusters, that became a foundational symbol of Occupy Wall Street in 2011. The notion that Fearless Girl is positioned in opposition to the bull has been reinforced by Di Modica himself, who is driven to distraction by this recontextualization of his statue, spitting out a steady fusillade of angry press releases and threatening to sue State Street for what he considers a profound alteration of his work. “I put it there for art,” Di Modica told the New York Post and MarketWatch last month. “My bull is a symbol for America. My bull is a symbol of prosperity and for strength.” The spectacle of an old man raging against an upstart girl for adulterating his celebration of capitalism has only helped cement the perception that the girl and the bull are in conflict. “The sculptor is annoying & the combined image is refreshing & complex,” Emily Nussbaum, a TV critic for the New Yorker, tweeted recently.
But if the dyad of girl and bull has been cleverly staged to evoke a thrilling frisson of opposition and dissent, that is emphatically not what the company that commissioned it is actually selling. Fearless Girl is intended “as a complement to the charging bull, which represents economic strength,” said Lynn Blake, an executive vice president at State Street Global Advisors, at a press conference at City Hall last month. “She’s not even defiant. She’s not raising her fist against the bull. She’s there to represent her role as a leader, to stand on equal footing and to play a powerful role in expanding economic prosperity for the world.”
Kristen Visbal, the sculptor who created Fearless Girl, also emphasized the statue’s conciliatory ambitions. “She is strong, but not belligerent,” Visbal said at the press conference. “She is proud, but not confrontational.” Visbal echoed an argument at the center of State Street’s campaign: that companies with more women on their boards of directors make more money for shareholders. “Together we make this wonderful contribution,” Visbal said, “these better decisions that result in increased profits.”
The genius of Fearless Girl, then, is that it siphons the growing groundswell of resistance to worship of the golden bull and all it signifies, and redirects that enthusiasm back into a channel of assent. The bull and the girl are not in opposition. They are, in fact, on the same side, two faces of the same thing: capitalism, presented both in its raging, china-shop-obliterating aspect and in its approachable guise, the one that promises that anyone — even a girl! — can aspire to preside over this energy from the Olympian heights of a boardroom.
Let’s leave aside State Street’s own recurring trouble with the law, which includes not only this year’s episode but the great Magnetar pit-trap of the pre-crash bubble, a famous scam in which State Street sold more than $1.5 billion in mortgage derivatives without telling its customers that the product had been designed by a hedge fund poised to profit if the product failed. When the dodgy mortgages underlying the product inevitably went belly-up, State Street’s customers took a bath, and the hedge fund, Magnetar Capital, cashed in its short bets.
Let’s leave aside as well the question, itself the subject of much debate, of whether or not the best application of feminist energy is the Lean-In project of helping already wealthy women ascend the final rung of the ladder to sit on the boards of multinationals, or whether that effort is better spent pursuing economic and labor reforms, like equal pay or maternity leave, that would benefit a wider circle of more vulnerable women, but which might not mesh as seamlessly with corporate profit-seeking.
Let’s table, too, the fact that State Street’s commitment to its stated corporate-feminist goal is transparently thin, considering its own corporate leadership is a catastrophically unreconstructed sausage-fest in which 82 percent of its senior executives and all but three of its eleven directors are men.
With its Fearless Girl, State Street seeks credit for intervening in the amoral logic of the market to pressure companies it invests in to install more women in corporate leadership. But seeking plaudits for pursuing a moral agenda invites ethical scrutiny of the rest of State Street’s behavior, which will lead to some dark and destructive places.
State Street invests its clients’ trillions across virtually every sector of the investment universe and offers them innumerable investment products, most of which are passive funds constructed to meet some investment goal — regional diversification, say, or tracking the overall performance of given market sectors. In this respect, it’s no different from other investment giants like BlackRock or Vanguard. The grand Wall Street tradition is chasing profits wherever they may be found, a pursuit outside of moral distinctions. (Exchange-traded funds, by definition, mirror the activity of the stock exchange itself.) What these companies also have in common is that, with the exception of a handful of small funds designed to eschew particularly ethically unsavory industries, their financial products are all generally designed to fulfill a single purpose: make money.
Through its funds, State Street is deeply committed to an industry whose entire business model is taking as much carbon as possible out of the ground and putting it into the atmosphere. As of the end of last year, State Street owned $18 billion worth of ExxonMobil, $14 billion worth of Chevron, $1.8 billion of Valero, $2 billion of Kinder Morgan, $2 billion of Anadarko, $2.8 billion of Occidental Petroleum, and $3.2 billion of ConocoPhillips.
And if there is money to be made from tools of war, State Street will make it that way as well. The company owns $12 billion of Lockheed Martin and $5 billion of Northrop Grumman, $4 billion of Boeing and $2 billion of General Dynamics, so it makes money from Tomahawk missiles, Paveway bombs, ICBMs and submarine-launched nuclear missiles, and all sorts of attack helicopters and warplanes, including the one that dropped the “mother of all bombs” on Afghanistan this month. Through Northrop Grumman, State Street makes money keeping America’s nuclear missiles ready to rain hellfire anywhere our president may direct them. It owns $1.7 billion of Raytheon, which makes missiles, depleted-uranium weapons, and a microwave gun — for use against crowds — that makes its targets’ skin feel like it’s boiling. A recent Interceptreport spotlighted three major defense contractors poised to profit from Trump’s push to fortify the border with Mexico. State Street has a stake in all of them, to the tune of more than a third of a billion dollars.
State Street owns $5 billion each of Philip Morris and Altria, and $1.8 billion of Reynolds American, which means it makes money from an addictive drug that kills nearly half a million people a year in this country alone. State Street looks at an industry with a six-figure body count and sees a revenue stream, a valuable component of a diversified fund.
This is not to say that State Street’s executives take actual pleasure in the cancer wards full of smokers, in the slow-rolling annihilation of climate disaster. More likely they view those things as incidental, dissociated through the gray calculus of exchange-traded funds and well-balanced portfolios. It’s a safe bet they view the Fearless Girl in the same way: not as a virtuous cause, but as just another means to the one and only end.
It’s possible that popular resonance of the Fearless Girl can somehow wrest the master’s tools from his hand and re-inscribe the statue with a more hopeful and promising meaning than its creators intended, one that stands outside the closed loop of passive complicity in the status quo. For that matter, it’s conceivably possible that the recently controversial Pepsi commercial — which enlisted a denatured simulacrum of street protest as the backdrop against which Kendall Jenner demonstrated the power of carbonated high-fructose corn syrup to soothe a glowering riot cop — could yet be repurposed in the service of a global movement for social justice. But that sort of jiujitsu is no easy thing. Works born of cynicism have a way of staying stickily cynical. We are better off making our own art, seeking out symbols unburdened by the entanglements that perpetuate the suffering we wish to overcome.
Last night, on the eve of International Women’s Day, news outlets and social media seized on the mysterious appearance of a statue of a defiant young girl staring down the famous Charging Bull statue. As it turns out, the statue of the little girl symbolically defying Wall Street was installed by… Wall Street itself. And not just any financial company, but State Street Global Advisors, the world’s third-largest asset manager, with $2.4 trillion under management.
It’s a compelling visual, cribbing in no small part from the famous ballerina-on-bull image from the call for action that helped spark Occupy Wall Street. That gloss on the image resonated deeply in a year when organizers of an international women’s strike are striving to return International Women’s Day to its radical roots, and the boardroom feminism of Sheryl Sandberg’s Lean In movement is finding itself supplanted by an intersectional feminism that prioritizes the struggles of women who have more pressing challenges than achieving the top rung of the corporate ladder.
The statue was accompanied by a strikingly thorough press barrage, with write-ups in the Wall Street Journal, DNAInfo, Mashable, Business Insider, and other outlets. The sculptor of the piece, Kristen Visbal, told the Journal she considers the sculpture “a piece that every woman can and should relate to,” but the accompanying plaque sent a somewhat narrower message, praising the power of “women in leadership.”
The stunt was executed on behalf of SSGA by New York advertising giant McCann New York, according to a warm write-up from Adweek, which cites “the guerrilla aspect of the placement” while noting that “McCann did get a permit for the girl statue.”
This is an historic day: the Wall Street bull statue has been joined by a little girl symbolizing gender disparity and women leadership. pic.twitter.com/K6HyvLTAVq
The statue is meant to draw attention to a larger initiative by SSGA, which announced today that it will be encouraging companies it invests in to have more women on their boards of directors. A quick perusal of SSGA’s own leadership turns up five women out 28 top executives, making its leadership 82 percent male (and 96.5 percent white). SSGA is a division of the State Street Corporation, which includes a banking division overseeing $28 trillion dollars. Of the corporation’s 11 directors, eight, or 72 percent, are men.
A spokesperson for State Street told the Voice that since 2012 the company has increased the percentage for female executive vice presidents from 20 to 23 percent and the percentage of senior vice presidents from 22 percent to 28 percent. “Creating an environment of inclusion takes time and includes commitments from senior leaders to drive diversity and inclusion efforts,” she said. “I can’t speculate if we’ll add more females to our board this year.”
However much State Street may profess to care about women in positions of corporate executive power, its track record doesn’t suggest that it cares much about the sort of women who rely on pensions to survive their later years.
In 2007, State Street was at the center of a mortgage-backed collateral debt obligation scandal. The company managed a portfolio of shaky mortgage derivatives that had been structured to make money for a hedge fund when the underlying mortgages went belly-up and the derivatives cratered. But State Street didn’t tell the clients who were actually buying the product that was the plan, and as a result pension funds and other investors lost nearly half a billion dollars. In 2012, State Street paid a $5 million penalty for its part on the scam.
As recently as last month, State Street agreed to pay $32 million to settle federal charges that it was screwing its own banking clients. “State Street cheated its customers by agreeing to charge one price for its services and then secretly charging them something else,” said Acting U.S. Attorney for Massachusetts William Weinreb in announcing the settlement. Harold Shaw, the FBI agent in charge of the case added “State Street engaged in an elaborate overcharge scheme which resulted in millions of ill-gotten profits and violated the trust of their clients.”
Anne McNally, State Street’s head of public relations, said the push to diversify board rooms is only part of the company’s gender-equity efforts. McNally noted that last year State Street launched a Gender Diversity Index and fund “for investors to put their money in companies that have stronger senior representation of women on their boards, in their leadership, and throughout their ranks.” State Street has also recently announced a $50,000 contribution to Girls Who Invest, which McNally described as “an awesome charity that inspires young women to pursue careers in investing.”
We asked McNally why State Street decided to push companies on boardroom diversity rather than, say, maternity leave or living wage policies, which might have a more direct effect on a larger number of women. “We think that boards have an important role to play in driving better outcomes for investors and in building those better cultures at these organizations,” she said. “Boards set expectations to senior management to enhance gender diversity in their ranks. Also there’s a bevy of research out there that shows that companies with strong female leadership generate better returns. When you look at the global economy, there’s an interesting 2015 McKinsey Global Institute report that noted that moving to a scenario where women participate in the economy identically to men would add up to $28 trillion dollars, or an additional 26 percent annual GDP by 2025.”
So Happy International Women’s Day to one and all. May we soon live in a world where the financial giants that steal from customers and gut the pension funds of working women are themselves led by more female directors.
The intricacies of pension fund malfeasance are not always the stuff that tabloid writers dream about, but the unveiling of the indictment of a director of New York’s largest public retirement fund just before Christmas was an exception. Navnoor Kang, a former tennis pro turned portfolio manager for the New York State Common Retirement Fund, is charged with accepting bribes in exchange for directing billions of dollars of the fund’s trading business to two broker-dealers, FTN Financial and Sterne Agee. Coordinating payments through the smartphone app WhatsApp, Kang received luxury watches, travel, bottle-service, cocaine, strippers, prostitutes, and — wait for it — tickets to a Paul McCartney concert. “Drug-fueled pay-to-play scheme,” shouted a New York Post headline.
When Kang allegedly started taking the bribes from Gregg Schonhorn, an employee of FTN Financial, and Deborah Kelley, an employee of Sterne Agee, neither company was doing any business with the pension fund at all. They weren’t even on the fund’s list of approved broker dealers, so Kang had to launder their business through other companies, meaning New York’s public employees were paying double commissions on every one of those trades. Kang eventually managed to get the companies on the fund’s whitelist, however, and by last year, Sterne Agee and FTN Financial had gone from $0 in annual business with the fund to $179 million and $2.4 billion, respectively. FTN Financial alone was making $1 million per month in commissions on its trades for the fund.
The episode is hardly unique. With billions and billions under management, and in many instances spotty oversight, public pension funds can look like the juiciest wildebeests on the veldt to financial predators. Last June, Norman Seabrook, the president of the New York Correction Officers’ Benevolent Association, the group’s union, was charged with accepting a Ferragamo bag full of $60,000 in cash in exchange for steering $20 million from the New York City Correction Officers’ pension fund to Platinum Partners, a spectacularly dodgy hedge fund with ties to both a Florida Ponzi scheme and a plan to illegally profit off the deaths of terminally ill patients.
In this instance, it makes sense that the focus of the outrage in the wake of the indictment is on Kang, the man who allegedly sold off his duty to elderly pensioners and hard-working public employees. It also makes sense that Tom DiNapoli — who as state comptroller oversees the New York State Common Retirement Fund, and who came into office pledging to purge this kind of corruption — is taking heat. His predecessor, Alan Hevesi, pleaded guilty in 2010 to steering a quarter billion dollars in investments from the same fund toward one company in return for nearly $1 million in travel, fake consulting fees, and campaign donations.
But there is an asymmetry here. The only parties so far to emerge from the scandal unscathed are the companies themselves.
“The firms weren’t necessarily bad actors,” Dawn Dearden, a spokesperson for the U.S. Attorney’s Office of the Southern District of New York, told the Voice when asked why the companies weren’t facing any repercussions. “It was individuals.” True, both Schonhorn and Kelley were indicted, as individuals, alongside Kang; and true, both FTN Financial and Sterne Agee had in-house policies against bribery. But both of their Wall Street firms will walk away from this smoldering trainwreck intact, carrying the millions they made with them.
“If the bribery scheme is not just to personally profit a number of brokers, but they’re doing it in a way that their employer is gaining from the business, it’s logical to think about whether the entity ought to be liable,” said Brandon Garrett, a professor at the University of Virginia School of Law and the author of Too Big to Jail: How Prosecutors Compromise with Corporations. “A company shouldn’t be allowed to profit from an illegal scheme.”
And though the companies may have had internal rules on the books against employees engaging in bribery, that isn’t necessarily enough to get them off the hook, says John Coffee, a professor at Columbia Law School who specializes in securities regulation and white-collar crime. “These bribes were paid to get business for the corporations,” he said. “There is at least legal liability here. You could have a bylaw that says you may not pay a bribe — it has no legal effect.”
The Securities and Exchange Commission, which generally files parallel civil suits alongside Justice Department prosecutions of financial crimes, has the power to compel companies — even without blaming them for what happened — to “disgorge” any money made wrongfully, returning it to its rightful owners. “That doesn’t punish the company, but it should be a bare minimum,” Garrett said. “The company should have to give up its illegal gains.”
The SEC has indeed filed its own civil suit, and is seeking disgorgement of “ill-gotten gains,” but its only targets are Kang, Schonhorn, and Kelley. The companies could always return their illegally procured profits to New Yorkers voluntarily, of course, but they don’t seem to be leaping at the opportunity. “No comment,” was the reply from an FTN Financial spokesperson to the Voicewhen asked about it. “I’ll get back to you,” said a spokesman for Kelley’s former employer.
It’s possible that the senior management of FTN Financial and Sterne Agee had no idea that their employees were paying bribes. It’s possible that they believed that the billions of dollars in pension fund business was simply the reward for honest hustle. The white faces of managerial rectitude smiling out from these companies’ “About Us” pages may have committed no crimes at all. And New York’s public employees can reasonably hope that their pension funds will take steps to tighten their anticorruption protocols and strengthen oversight.
But as it stands, the two enterprises have profited from crimes, and in a culture ruled above all by the iron law of rational self-interest, there seems to be little disincentive for them or their fellows to continue profiting from the corruption of public officials charged with safeguarding the retirements of firefighters, civil servants, and school cafeteria workers. From the mortgage crisis and financial collapse to Wells Fargo’s scheme to fraudulently open accounts for its unwitting customers, the last decade has been a bonanza of financial malfeasance, but when it comes to accountability, and the kind of penalties that might provide meaningful deterrence, prosecutors and regulators have left Americans in the lurch. With a new federal administration packed with Goldman Sachs alumni and an SEC nominee who’s spent a career representing such Wall Street giants, it hardly looks like that’s going to change.
Two financial firms raked in billions of dollars of business from the New York State Common Retirement Fund, the $184-billion retirement fund serving many state employees, after their agents bribed one of the pension fund’s employees with cash, watches, travel, bottle-service, cocaine, strippers, prostitutes, and Paul McCartney tickets, according to indictments announced today by Preet Bharara, United States Attorney for the Southern District of New York.
The twoindictments announced today only cover three people: Navnoor Kang, 38, the director of fixed income and security for the $185 billion New York State Common Retirement Fund; Gregg Schonhorn, 45, the vice president of fixed income sales at FTN Financial Corp; and Deborah Kelley, 58, at the time the managing director of institutional fixed income sales at Sterne Agee. Kang, who worked for the fund, was considered a public officer under the law.
In exchange for plying Kang with drugs, women, jewelry and vacations, the indictments allege, Kang directed more than $2 billion in business to FTN Financial and Sterne Agee. Initially, Kang did this through front companies, since FTN Financial and Sterne Agee were not approved brokers for the fund. Since both the front brokers and the actual brokers took commissions, the fund got soaked.
Later, in 2014, as the agents of FTN Financial and Sterne Agee continued to bribe him, Kang added the companies to the list of approved brokers, allowing them to do business with the fund directly.
A spokesman for the Southern District said no charges were brought against FTN Financial or Sterne Agee. Sterne Agee is now owned by INTL FCStone, but an employee of the company said today that what had been Kelley’s unit is now part of Stifel, which owned the company until this year.
“They were bad actors,” said US Attorney spokesperson Dawn Dearden said of Schonhorn and Kelley. The firms weren’t necessarily bad actors. It was individuals.” According to the indictments, both FTN Financial and Sterne Agee had in-house policies prohibiting bribes or kickbacks.
But while Schonhorn and Kelley allegedly made plenty of money through their commissions on the business they brought in for their companies, it’s the companies themselves that made the most out of the arrangement.
Neither company was getting any business from the pension fund in 2013, before the alleged bribery began, according to the indictments. But by the 2016 fiscal year, Sterne Agee was doing bond transactions valued at $179 million. The figures are even more dramatic for FTN Financial, which by FY 2016 was making bond transactions valued at $2.4 billion for the fund, rising to become it’s third largest broker of domestic bonds and brokering eight percent of the total value of the fund’s domestic bond transactions.
At the height of the bonanza, FTN Financial was making more than $1 million a month in commissions from the pension fund. If either company had any concern that all that money might have come illegally and at the expense of New York’s pensioners, there’s nothing in the indictments to show it.
A spokesperson for FTN Financial told the Voice today that the company only learned of the bribery “at the same time everyone else did,” and that as of today, Schonhorn was no longer employed by the company. Asked if FTN Financial had any intention of returning the money it had made off of the business brought in illegally by Schonhorn, the spokesperson answered, “No comment.”
Asked the same question, a spokesman for Stifel, which bought Sterne Agee last year, said he’d look into the question, but stressed that in so doing he was not conceding Stifel had any financial responsibility for the profits Kelley generated.
So far neither the US Attorney’s office nor the Securities and Exchange Commission, which today announced its own civil suits against Kang, Schonhorn, and Kelley, are going after the companies that employed the bribers and benefited the most from the bribery.
But there’s more blame to go around yet. According to the indictment, Kang had been taking bribes from Schonhorn even before he started working at the pension fund, back when he was in the private sector.
In 2012, Kang allegedly accepted an $8,000 Rolex in exchange for Kang directing some of his private investment firm’s business towards FTN. The firm fired Kang for failing to report gifts he’d received. Kang lied about the episode when was seeking a job with the pension fund, and evidently no one was sufficiently concerned about the guy to whom they were entrusting $50 billion in New Yorkers’ retirements to throughly check his references.
State Comptroller Tom di Napoli acts as the fund’s trustee, according to the NSCRF website, and “has the responsibility to protect the interests of the Fund.”
The Voice asked the Comptroller’s office if had any accounting for how much money from New York employee’s retirements were lost as a result of these alleged crimes, how Kang came to be hired in the first place, whether there were any plans to try to recoup the money from FTN Financial and Sterne Agee, and if anyone at the Fund or the Comptroller’s office was expected to lose their job over what has happened. The comptroller’s office did not immediately respond, we’ll update the post when we do.
In the meantime, the Comptroller issued a statement today, stating in part, “We are outraged by Mr. Kang’s shocking betrayal of his responsibilities.”
UPDATE: A spokesperson for the Comptroller’s office answered several of our questions: “Mr. Kang lied about his past history,” the spokesperson wrote, in response to questions about how Kang came to be hired by the Fund even after a professional history of accepting bribes. “We are currently doing a thorough review of his hiring process. In this case, the SEC’s filing requirements flagged this wrongdoing and action was immediately taken. Clearly we are evaluating our processes and working with federal officials to see what could prevent this behavior.
As to how much business FTN Financial and Sterne Agee brought in as a result of the bribery, how much they made in commissions, how much the Fund lost as a result, and whether any effort would be made to claw that money back from the companies, the spokesperson said that these questions are “currently under review.”
Asked whether anyone at the Fund or the Comptroller’s Office was going to lose their jobs over this incident, the spokesperson responded that “We cannot answer this question at this time.”