A Born Bureaucrat Shifts the Blame

— Do you wonder why Mayor Jerry Sanders wants to spend millions of dollars annually to hire a high-priced monitor to oversee city finances? Or why he wants to study setting up a joint city/county authority to find a way to build a stadium for the Chargers?

The obvious answer, of course, is that the money will come from taxpayers. It won't be his money. But there is a deeper answer, and you can reach it by sticking the letter k into the word "money" to make it "monkey." If Sanders hires a big-name monitor as fleecemaster Kroll, Inc., recommended, then he can do what bureaucrats always do: move the monkey from his own back to somebody else's -- in this case, the monitor's. If something goes wrong, Sanders can point his finger at the fellow raking in millions of taxpayer dollars a year.

It's the same way with the Chargers. The city is broke. Long ago, Sanders said the city didn't have the time or the money to pursue a Chargers subsidy. The county is also broke, but it doesn't know it yet. Setting up a joint powers authority with the county is a clever move by Sanders. If the money can't be found, the mayor can point the finger at Supervisors Ron Roberts and Dianne Jacob. The Chargers really want to bolt to Los Angeles or Anaheim and will go in an instant if the National Football League agrees. In that case, Sanders again can point the finger at somebody else: it was the county that let the team slip out of town. Or he will try to blame those folks who think a penniless government should spend its money on streets, roads, sewers, libraries, and schools instead of on subsidies for billionaires.

Avoidance of responsibility is the key to bureaucratic survival. It's called the bureaucratic shuffle. And in his career at the police department, Sanders was a bureaucrat's bureaucrat. He is no different as mayor.

The Los Angeles office of the Securities and Exchange Commission has been willing to permit San Diego to hire a consultant for four to six months to oversee its financial reform effort. Such a move would not cost much. But Kroll wants a three-year monitor with sweeping powers -- to investigate and run up the tab, as Kroll did in its $20.3 million scissors-and-library-paste job. The Washington office of the Securities and Exchange Commission may go along with Kroll, instead of with its own Los Angeles office, possibly because Arthur Levitt, a former chairman of the agency, spearheaded the Kroll report.

You have to understand the Securities and Exchange Commission. It is set up to protect Wall Street, not investors or taxpayers. Its main punishment tool is called a consent decree, in which a wrongdoer, without admitting or denying the agency's allegations, says he won't break any securities laws. Hence the joke: "I didn't do it, but I promise not to do it again." Gary R. Weiss, author of Wall Street Versus America, explains that whether the chairman is somebody like Levitt, who talked big but delivered zilch, or Harvey Pitt, who was overtly pro-industry, the result is the same: Wall Street wins.

Now Sanders is scouting Wall Street for a monitor. He says that the monitor plus Kroll's other suggested initiatives will cost $45 million over several years. Don't be surprised if the bill is $45 million a year. After all, Kroll started out saying its report would cost $250,000. Then it was $2 million. The final bill was more than ten times $2 million. Bait and switch is an old Wall Street ruse.

Nonetheless, Sanders's office has interviewed two former chairmen of the Securities and Exchange Commission: Pitt and Richard Breeden. Former agency chairmen "won't come cheap; it will be easy to run up a tab without getting value," warns Frank Partnoy, law professor at the University of San Diego and author of two hot-selling books about Wall Street.

"I don't understand the city's fascination with ex-SEC chairmen," hoots Weiss. "Do your city officials really believe that heading an ineffective federal agency qualifies them for anything other than heading another ineffective federal agency? Breeden is middling, and Pitt is an abominable choice."

Both would charge big bucks -- probably more than Levitt's $900 an hour. In both cases, big bucks bring big baggage. Breeden, a former member of James Baker's Texas law firm, Baker Botts, was a lawyer for the elder George Bush. When the senior Bush became president, he named his friend and confidante Breeden as head of the Securities and Exchange Commission. And who do you suppose was named general counsel of the agency? None other than James R. Doty, another Texan who had worked at Baker Botts. Doty had also given legal assistance to George W. Bush, the then-president's then-obscure son, in his purchase of a piece of the Texas Rangers baseball team -- the younger Bush's only financially successful business venture.

In the early 1990s, Dubya was a board member of a Texas oil driller called Harken Energy. It cooked the books; the Securities and Exchange Commission made it restate its earnings downward. Between the book-cooking and the restatement, Dubya dumped his Harken stock. And he was eight months late in reporting the sale. To no one's surprise, Breeden's securities agency decided not to pursue the matter.

Breeden is a highly paid monitor for accounting firm KPMG, which has run afoul of the law for concocting offshore tax dodges. (Ironically, KPMG is the firm holding up San Diego's 2003 audit.) Breeden is also monitor for Hollinger International, a media company being probed for massive fraud. KPMG had been Hollinger's accounting firm. But as the Corporate Crime Reporter points out, Hollinger under Breeden decided not to pursue claims against KPMG. Hmmm.

And Pitt? He was formerly chief attorney for the securities agency. Then he went into private practice and began raking in $3 million or more a year representing accounting firms. He also represented some rogues -- particularly, Ivan Boesky, the 1980s Wall Street arbitrageur who found his way to La Jolla after serving a stretch in prison. President George W. Bush named Pitt head of the securities commission. Very quickly, Pitt got criticized for giving private audiences to companies that were being pursued by the agency he headed. Almost as soon as he got into office, he told his former accounting industry clients that they could expect kinder and gentler regulation. But then came Enron, WorldCom, Adelphia, San Diego's Peregrine Systems, and other massive frauds. Kinder and gentler didn't sound so good.

Then in 2002, Pitt was looking for a person to head a newly created Accounting Oversight Board. There was general agreement in Washington and Wall Street that the job should go to John Biggs, who had been chairman of a big financial institution. But Biggs had been a critic of the accounting profession. The big accounting firms -- Pitt's former clients -- objected. So Pitt pushed for a Beltway insider named William Webster, who headed the audit committee of a tiny company being sued for fraud. Pitt knew it but didn't pass on the word to officials who had to vote on Webster. The officials howled, so did the public, and Pitt was gone in November of 2002.

So will Pitt or Breeden, or someone else of that ilk, be San Diego's high-priced monitor? You can expect it. The consultant scam is a perfect cover for the consummate bureaucrat.

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