Monday, May 18, 2009
The Scandal Beat: Who, What, When, Where And Why? State Politics Engulfed; We're In-Depth And In-Touch On The Big Story
We're thinking maybe we need a dose of Prozac or whatever the latest anti-depressant pill is (our old pal Dr. Hudson tells us its Lexapro) before reading the latest scandal headlines in the morning fish wrapper. That's because there's been another tsunami of bad news. It was revealed that the federal grand jury in ABQ is now asking for records from the State Investment Council (SIC) and the Educational Retirement Board (ERB), both of which used "placement agents" to determine where to make multi-million dollar investments. The biggest placement agent of them all was Marc Correra, who is fast becoming an household name around here and whose story--what could be found of it--was detailed by the Journal's investigative team.
Placement agents are involved in scandals in other states and the suspicion of corruption has now headed west. We and others have urged the Governor to start the house-cleaning that is sorely needed in Santa Fe. That means dumping State Investment Officer Gary Bland. It also means ousting SIC members appointed by the Governor, including David Harris, now under investigation for his role in the CDR bond scandal. This corner believes any board replacements should include at least one Republican legislator and/or businessperson. And anyone who has given campaign money to the Governor, statewide candidates or has ties to Wall Street firms or the brokerage industry should not be appointed the new state investment officer or to the SIC board.
ONE OLD-FASHIONED, PLEASE
The Guv, after being pushed by the Legislature, has agreed to an independent audit of the state's permanent funds. (Please, Santa Fe, do not give us one of those accounting firms that botched Enron and so many others). In addition to the audit, the Legislature and this Governor, or the next one, need a complete review of the investment practices of the SIC as it pertains to hedge funds and start-up ventures. We need to get old-fashioned in our investment thinking and work for decent returns and stop swinging for the fences. This is public money, not a paper windfall from trumped up stock options.
THE FUTURE IS THE PAST
2010 Dem Guv candidate and Light Guv Diane Denish is saying the next election is all about what's next, not the past. But is it? Not with constant news of financial wheeling and dealing that was the hallmark of the late, great bull market. Until we have systemic reform or the beginning of it, can we really start talking about the future?
Some questions that if remain unanswered could prevent Di and other 2010 hopefuls from thinking about the future include: How did these placement agents conduct business? Which members of the SIC did they talk to? How often did they meet with Mr. Bland? Where? When? Did these agents have investments in the ventures or hedge funds they were urging our state to invest in? Can we see all of Mr. Bland's business records related to his job---lunches, travel, hotels, phone records? Will he agree to release records of his personal financial investments since assuming his $301,000 a year job in 2003? How often did the Governor meet with Marc Correra, the most active placement agent who shared in nearly $16 million in fees for getting the SIC to invest in companies he represented?
Will Mr. Bland and the SIC tell us why so much business was tilted Mr. Correa's way? How often did Mr. Bland meet with Mr. Correra? Or with Mr. Correra's father, Anthony, a donor of Big Bill's? Where? When? Why? Did Marc Correra offer Mr. Bland any personal investment advice he acted upon? Does Mr. Bland have or did he have any financial interests with Mr. Correra, directly or indirectly?
Maybe some of those questions were answered at last week's Legislative Finance Committee hearing, but we did not hear of it. Whatever the case, a federal grand jury seems a perfectly reasonable forum for these questions--and the answers--to be heard under oath and on the record.
And a note to the journalism watchdogs. As Bill Maher would say: New Rule. If there is a grand jury probe and we learn of public figures granted immunity for whatever reason, we will report it as we have before. Timidity is not a disinfectant. Sunshine is. Journalistic pedants and blogging Hamlets are welcome to debate it. For us, it's back to the action...and the future.
EVEN MORE QUESTIONS
We know Mr. Correra was a major donor to the Democratic National Committee, but we want to know more about his business and personal relationships with members of the SIC and ERB. Also, State Auditor Hector Balderas has returned a $10,000 campaign contribution from Mr. Correra--the largest he's ever received. He told the newspaper he has never spoken with Mr. Correra. Why did he get that big contribution? A State Auditor questioning the role of placement agents in state investments could make life uncomfortable for those in Mr. Correra's profession, couldn't he? If you're Auditor Balderas now may be the time--before the June 2010 primary--to really show you are serious about assisting in getting to the bottom of the SIC mess.
SOME CAN DO CANDIDATES?
Will the 2010 candidates for State Auditor and State Treasurer voluntarily reject campaign contributions from major investment houses and placement agents that pose a potential conflict of interest? Will the candidates, including Treasurer James Lewis and Mr. Balderas, limit the amount of individual contributions they accept? How about the attorney general candidates?
Treasurer Lewis and Land Commissioner Pat Lyons, by law, are both members of the SIC as is Department of Finance Secretary Katherine Miller. Are they satisfied that they and their staffs have adequately represented taxpayers? What reforms do they advocate, if any? What was the extent of their contact with any placement agents? What specific SIC and ERB staffers communicated with placement agents? How often? When? Where? Did staff have any personal financial relationships with the agents? Any interest in the investments they recommended?
NO SPIN; JUST REALITY
The SIC spin is that no taxpayer money was directly given to placement agents. Agent commissions came from firms and hedge funds wining the state investments. But we all know the real question---was there influence peddling? Bribery? Did these placement agents peddle influence with members of the SIC and ERB boards and/or their staffs or the Governor and his staff to obtain investment dollars? And if so, how?
We have one lawsuit alleging campaign contributions to the Governor were the reason for certain ERB investments--$90 million in investments that went bad. The lawsuit has been ridiculed by some in the political classes as being politically motivated and half-baked. Maybe so, but with new revelations coming almost daily, everything is on the table. The federal grand jury might want to look at every single investment for the past eight years involving the use of placement agents by the state of New Mexico and determine if there is any cause for suspicion.
SHOW US THE SUBPOENA
We hope this SIC statement in response to a press request to see the federal grand jury subpoena is simply pro forma:
"We are...determining whether that subpoena is releasable (to the public) under the state's inspection of Public Records Act."
Oh, it's releasable all right. In fact, what time the folks in charge of billions of our dollars took their bathroom breaks is releasable. The Governor should urge the contents of that subpoena be released and the NM Foundation for Open Government should sue if the SIC stonewalls.
And please, before we tear our hair out, will the spin doctors stop telling us what happened with these placement agents is "common industry practice?" The entire financial structure of the USA is under scrutiny. What has passed for common industry practice is not the desired standard, it's a cause for alarm and multiple investigations. What Mr. and Mrs. America want are new and better "common industry practices" that protect them and their life savings from the rapacity of the financial vultures largely responsible for the greatest financial bubble in our history and that set off a decline in living standards that has only just begun.
WHAT WE'RE PROTECTING
New Mexico has done a magnificent job in building up the Land Grant Permanent Fund and the Severance Tax Permanent Fund. The land fund dates to statehood and reaps fees the state charges for leasing 13.4 million acres of mineral resources and 8.8 million acres of surface land. The severance fund comes from royalties on natural resources like oil and natural gas. Those two permanent funds are currently valued at about $11 billion, and that is even after the 2008 stock market crash (The ERB fund totals over $6 billion).
Many states sold off their public lands decades ago and have little or nothing to show for it. But the New Mexicans who came before us had the foresight to create a remarkable legacy for themselves and future generations. These funds today throw off income of over $400 million a year to fund public education and other programs. It's a huge portion of our annual state budget and is one of the great success stories in public investment in American history, and that's not hype.
WHY IT REALLY MATTERS
New Mexico faces difficult times in the years ahead. Funding for the national laboratories is flat or declining; the bear market in oil and gas will further shrink our economy and state budget; the end of the unemployment cycle is still not in sight and creation of decent paying jobs to replace the thousands being lost remains a serious question mark. The money from our permanent funds was intended to shelter us in times such as these. It will be needed more than ever in the years ahead. The funds are going to make up an ever larger percentage of our state budgets as other revenue sources decline. That's why a federal grand jury probe, an independent audit, continued legislative hearings, investigative reporting and a house cleaning of the SIC and ERB members under the Governor's control is not overkill. It is the bare minimum needed to protect today's citizens and those of future generations. Bring it on.
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(c)NM POLITICS WITH JOE MONAHAN 2009
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