A Word on Words; 0913; David Vise

it's been a word on words are programmed delving into the world of books and their other talks about people on the street or a word and words mr jon seaton singing it's a great pleasure to have an old friend as my guest and old friend who's a distinguished author is a pulitzer prize winning journalist they've advised welcome to work on words it's great to have you here right it's great to be here with you and there the book is eagle on the street that is a book that recites really the corruption of the street

it's a story that goes inside the securities exchange commission examines and that commission at a time when a change in policy really made it possible for on many evils to wash up on wall street and it's based on that their prize winning series of articles used the coded for the watch them of a try when john shad there came from wall street to washington in nineteen eighty one he decided he wanted change the place he said too often the letters sec has stood for securities an ethics commission is arabia instead of focusing on the public interest this daily sports and dinner and here in the nineteen seventies were a focus on the stockholders interest we're gonna get the government off the backs of the financial markets and pull back and let that free market don't fly and then of course over the consequences of that are quite damaging you know sporting uni va years of open up the sport and last day on the job thats right and spanish spoken as you

say was a disheveled little love tough law enforcement regular and he was the chief of the law enforcement section he had enormous power and it was more for equal under the commission he was johnny is the bureaucracy and jack johnstone was fourteen was one of those people who proves power defied the organizational chart he was the soul of the securities exchange commission and he was loved by the young attorneys who would flock there with their sense of mission and duty they go to the sec to wear the white hat tried root out why telegraph he was hated and detested in the corporate boardrooms across this country because they felt like he went too far that he came up with a creative and somewhat disingenuous theories too to basically take the moral principles that he felt kind of put them in action in the marketplace know when he left office there too big cases pending and he had developed with his death of background case with mobile allocated in citicorp and really expected that those two

cases would would be for sudan and he sounded other one night before he left with with jon shed the new chairman will but his boss at the state of clear shed was happy yet now they're over the cia with their mutual friend bill gates but he was glad mr lehr because i suppose he knew that these two cases had made their way up and we're about to surface and of sport can enslave it would've been very very difficult i think for a shed to the panel of cases and the cavalier way that you did it was a change and it was it was a sign of the changing times in washington that after sporting left the sec to go over to the cia those two cases he had so carefully shepherded both got shot down by john chad's sec i shared said the heck this agency doesn't need to be out prosecuting citicorp it's a big bank and they in a while there've been questions that have been raised here about phony trading to generate tax losses and everything out if this is a real problem let the iris worry about it let the banking regulators worry about is not the sec job

and in mobile to people the commission backed the apps before smith that the sec has to negotiate an agreement with mobile nearly that the company submit a report to the agency explain that that in certain ways that the son of the chairman of mobile had been involved in business dealings with the company with his father and if those hadn't been disclosing that it had helped the sun get started in business and she had said no we're not going to do that and it was a new era the man from wall street was in charge level more students are just talking about the man from wall street i guess is i came at is a bohemian grove in northern california and meet sir well when he met ronald reagan for the first time i sensed in the late seventies at the grove bohemian grove this exclusive all male enclave in the california redwoods and that rating was sitting on a fence or watching a performance by the ventral it with edgar bergen and shad walked up an inner beast himself and they have a great deal in common they both sort of believed in and now the america of the nineteen fifties i would

say the american of hardworking industry and trust and loyalty and and the values and also the america of limited government and that that took a walk to a nearby camp and sat down for lunch and years later george george bush was their waiter that day that's what that's the route that grows you go you you take a turn waiting david that's right formal i thought was less than their relationship develops and from there i wish outcome of it to lower washington after ronald reagan's campaign in new york and the shot was a complex man many of the people who worked closely with them to know if i'm really all that well and he was such a driven man wants it he sat at his desk at the sec or we work late into the night an exterminator came into his office and starts prying all around everybody else had left the building nobody wanted to die from the stuff cher kept his head down and kept right on working and again is a tower and this is a man who's probably worth more than twenty million dollars he doesn't tell him late at night and had dinner usually would consist of a bowl of campbell's soup that he did on a hot plate and so also i guess had a fascinating interest in

life around and that story about him going out to see michael jackson is going down on his own buying his own take and going up the road at a stadium to see what michael jackson was all about in the phenomenon that music world was about chad shad was a bulldog which i can capture his personality you're wealthy a one time and he was writing a taxi from austria to la guardia airport coming up the east river drive in manhattan and he said the cabbie get into the left lane apples in the last place to get in the right way i get up at this exit you know we won a maneuver away to traffic for it can be turned around and said look mr genson a great ideas would you like to drive to the airport and said get out of that scene got in the forestry drove a yellow category and then there is the and then it was a very a very human personage i have out there and i mean you know he loved his wife dearly i had this great affection for you go through that scene in which shed your ears live and become an agnostic girl rejecting it faces fathers in his

grandmother who was a mormon man suddenly when his wife has a stroke face for their praise and weeps track very touching and a girl or the book is filled with the john sheridan with an awful lot of wheelers and dealers of names have been in the paper michael milken ivan boesky used their t boone pickens is that you know the sec was hot on the trail of ivan boesky michael milken for years before they were able to make the case isn't one of the things that we do an enormous tree is taken readers really i think behind the saints and look at what the young investigators at the sec were doing as they tried to track down boesky and in nineteen eighty four abbas he came to washington to testify and he was questioned about his trading and dr pepper stack are just bussed to show up an hour late for his deposition to strut upstairs the victorian man of

finances to find black sudanese and his loafers in his gold pocket watch when it took up richer and he pulled out a cigar and one of the sec lawyers there said ivan this is a small conference room one of us is allergic to smoke please don't smoke both to turn his trial council and said i insist that you demand my right to smoke an e lit that's a dark fable of smoke right the faces of the sec and regulators just as he did for years until a couple of the nineteen eighties only been blowing smoke a lot of interactions were a longtime tijuana reasons why the sec has such a tough job is the people why the agency over and over again they would ask people why did you trade that stock and when people had inside information they'd make up other reason they used to joke around sec headquarters about something called the airplane defense people would say about that stock because i overheard on an airplane and another time when general i could borrow rca the sec was invested a lot of insider trading rca stack and that when they got to the pivotal really the pivotal deposition in that case i asked the gap widened by the star wattage for thousands of dollars of their family's money

in this stock and he gave a croissant the fifth visit eleanor in manhattan cause i'm not there you know shared recognizing the wealth and success of milk and then oh ski really sort of looked upon the mom it was a good deal of admiration he did and it does cause those flows regulators who worked on the shed too have to go fully tell the story of a chief investigator i guess an open space to who works for him rafi is developing a case at a paris preliminary thirty page single spaced memorandum and it starts up through the pipeline of the agency in a couple bureaucrats know that it's just not going to flow to fit david

reviews share them so it and so it was time for the pyramid and young fellow named jackie whitt jack you could have changed the course of financial history in this country in nineteen eighty three he read a memo and he said drexel barber more and they're as a major supervision problem in beverly hills office there's a man out there who was the mastermind of financial scheme in his name's michael milken john chats sec didn't want to make those kinds of adventures some cases you didn't have a pen that he really couldn't write his way out of a box set of express himself well it would've taken a lot more work and his supervisors have forced the division said look this is an eerie or where we want to use our resources wisely with putting more sure fire case it may be smaller and may not lead to something but you know it'll be a bird in the hand and of course the rest is history that book the debt that was added to corporate their balance sheets all the bankruptcy that we see around us now as result of some of that activity would never taken place if they had pursued that case and stuck with the un and steve year they're called the fellow journalist

matt talk here about cowboy capitalism ran and and that's what really yet the street during this arab know what i mean like i'm a compelling case that the environment created by shed his acquisition of the chair of the sec really was conducive to cowboy cap wasn't made it possible falvo skim milk in them and others sued move in john you know john shad believed that nearly every by a wall street was honest and a wall street that he lived on a handshake was a handshake in a deal was a deal and that he had a hard time believing all these noises about a criminality and you know was an officer shot seven nineteen eighty one to come down on insider trading with hobnail boots you want to go after individuals who traded on inside information but he also wanted to pull the sec back from going after firms like merrill lynch when they had one bad stockbroker one bank branch

manager he felt that that difference would suffer too much you didn't wanna hold the institutional institution accountable for the acts of an individual a wonder to her how much how much david have to do with with the joke was the fact that boesky and milken woman rate we're a great stat emirate enforcer economic i l l and hewitt andy as you point out milken's pay forty forty five million bucks a year more than by far and then you had the investigators know michael is alive and i am my sense of it is that that was all restraint ultimate you're right and the boesky chant was a nice fellow who was kind of naive i think in some of his judgments but it all a few months before the sec brought its case against ivan boesky that shed had ivan boesky come to sec had course to provide advice on how the agency ought to be regulating corporate takeovers and what it ought to be doing in in the nineteen eighty four

john shad almost did something about this craze of corporate takeovers he went to new york and get historic speech he called leveraging of america said that much right he said that more debt driven takeovers and leveraged buyouts today the more bankruptcies are going to have tomorrow after he got back to washington even though the sec is ostensibly an independent agency shed became the subject of the reagan administration campaign as it was a mobile political camp that's right and i pulled him back they said you know these takeovers are dragging stock prices higher they're creating a lot of prosperity even if it's only in a short run john shad never uttered words like president well and then inside the agency had them yell at least one critic who got a populist be voters beecher wrote the us pry alter the markets are going and greg giraldo was the chief economist of the eighty or so cheaply create says it was a view source of yours you know the un

why maybe he was a leader and anna share newly was a leak or shed confront him about a job like most bureaucrats just admitted it a couple times yeah he was he was something of a gadfly and you're with the chicago school the free market's going we're chatted are those words he was worried about regulating takeovers bureau would have done anything to pull the chairman of the sec back and he sort of for him it was a badge of honor to be a leader and to admit to the chairman he did not want to become part of the establishment the chicago school economists who sat out there used to say you know you can't go to washington and try to practice what we preach because if you do you become part of the establishment and jiro said no longer go to walk into a watch i won't become part of the establishment is waking was a part of that yes then you have another aspect of a chess personality and that was his inability to go along with congress he really had difficulty accepting congressman dingell says oversight role and he became furious when

members of his bureaucracy would leak two congressional investigators so that he would be call over there and effect being dressed down by dingell uniform his personal finances of the way that the agency does that not do his job and he had a tough time taking urgent john shad as an investment banker a wall street was one of those people has succeeded because he was a good nuts and bolts hands on that kind of operator he didn't have a sort of similar the lawn of the investment banker who could work the corporate boardroom and similarly in washington he really was not much of a politician and as i think we say nicholas treaty led with his chin and usually there was a democrat ran away with ross up and being delayed and lively at a model there and eat as shadid understand much about public relations hearing was important and he hasn't got on or democrat for a big theater it crazy to paycheck or that entered this even in them latest our glory when they brought the case against ivan boesky the sec behind closed doors was suffering because

they allow boesky to sell off stocks in advance of the announcement of the insider trading case against him so instead of being celebrated as heroes people were saying look at the sec bailout both good i have one last great insider turmoil omar never ever heard chatter anybody else apparently at the agency that they might be criticized and then there was the case when you don't know how joe flom russo representing representing aetna that's right an sec medicaid for the first time in many decades as a closed hearing and farmers like a speech to make an argument for the commission sec has closed meeting room is like the pentagon's war room it's a place that's off limits to the general public and it's that around an oval shaped table where it is like opening night on broadway play but for sec employees only people present the cases at the table there debated it's all done behind closed doors when people have argued they were made from the outside they have to submit them in writing which shed a friend on wall street is named joe flom aetna higher fonda represented

and i shed invited him to come into a closed sec meetings in violation really the agency's the history and traditions and i would fly and walked into the rome it looked around didn't know where to sit there was an awkward moment and said look that when someone just had run of the ride over here i was in one of the fcc commissioners chairs that the yemen the deal that the book with the lowest rate is is filled with fascinating stories stories that really didn't make it into your series of newspaper articles that won a pulitzer price it wrong behind glee scalpel follow those original stories and and really put flesh and and and some real blood and some fund was built on that scale to an end one of the one of the stories which is fleshed out it has to do with a group of small investors in the middle west well tell us for a share

and i mean i think i mean when you think about one small investigate on airplane rushing to washington banging on the door of the sec to say look out there's something wrong tell that story jarring there would say yam there was a group of investors and rhineland or wisconsin and they used to gather every day above the drugstore there there was dr tom the dentist and you know just the whole local crew they would gather there around any harm in their stock broker and they used to trade something called options but they did it in a very dangerous way in the name of the chapter actually is naked options outside the reason they're called naked options is that theoretically out when you sell these options which have to do with future stock prices you're theoretically exposed at least for a few days to unlimited lost in the event that the markets move this moves against you for years in the smith barney office there they've been trading has no good options in making money making money and then through an audio version of this was not bill that are untried and then finally they traded options in a comical city service and that they were hanging

out there one day when a fellow from amarillo texas named t boone pickens came along and that the cosmetic takeover bid for cities service the options price moved against them and suddenly this group of the local people and rylan are found itself exposed for millions of dollars and everything was up in flames and they said with twelve million gallons of the drought that's right or else up while come in after year and no one of them got on an airplane and flew to washington said this is a great conspiracy to get the little be an american i'm going to go tell someone and again the sec and they flew to watch until the sec and the john shad ultimately was a case against smith barney ad against a stockbroker danny herman would put them into this and falsified records and diaconate and obviously this was a group of people one of them at a mild form of learning disability couldn't read the newspaper could read anything really and as it has and there's a transcript of his testimony in which he says that it's not a route that's right and business was considerably risky trading shad opposed the filing of charges against smith barney he said that the institution the brokerage firm should be held

accountable for the acts of these individuals even though the supervisors have been doing it shattered there's no evidence of a systemic problem here and others on sec staff said oh yes there is when you have a problem in a single office and a compliant system doesn't work even even though they had indications of trouble but that's a systemic from chad last decade but you know in an overall sense he won he won the war even if he lost the battle because people didn't pursue cases like that you detect when will he won the war but the sec lot about on the street because the result of it was that then there are e eight that atmosphere were open and there was another great anecdote about the episcopal priest there was this guy who put forty thousand bucks in his life savings really into into account when you again the high school principal an episcopal priest dealing with a broker named victor now and then that worked for merrill lynch same as the smith barney story of people are signing over their life savings and that was the fast talking broke broker he had a smooth style they trusted him and teacher in their can see just kept trading tried to generate commissions boards off

and i fell and bobby lawyer who was the attorney for the for the sec its efforts is cup black girl i miss a cigarette in mississippi flew to washington what a moment of high drama was idiocy sit behind closed doors that the a black attorney from mississippi bobby lawyer against the wall street titan john shad the man from park avenue and the lawyer argued that maryland should be charged in effect matter should be thrown out as securities business and shattered know it's not fair to charge maryland and staff prevail once again the other commissioners at the beach at an abrupt a case against religion you know later had the audacity to apply for the job you do it because some to go back to last only benefit approach because he actually applied for a job it will they didn't they'd inherit not a big part of the problems that afflicted the street during this period i had to jump bonds and the menu toppled about that goes up

because there's still a great deal of question about what junk bonds were were they all bad election anything in the nineteen eighties junk bonds a word good idea to get taken too far just taken to an extreme the air most companies i can't sell rated bonds at eighteen abby and their buns are rated aaa blue chip quality joint boundary where those bonds of risky companies or companies that they don't have a track record and michael milken had an idea and i was he'd sell bonds to help fund growing companies you know who can argue with you can argue with the idea of helping companies that are growing get access to capital awake crossed the line was he began to use these bonds to finance and corporate takeovers leveraged buyouts and lots of hostile deals but even now be allowed a times over and our system is a check on management but the grease the skids on the wager he cheated he broke the rules aimed at rock and the legal and illicit trade arrangements so that he could make a judge by mass market grow much faster than it would otherwise have been

able so it basically was a good idea run amok and unfortunately there's a guy who had worked so hard and that was a genius at least as a salesman and that today serving a ten year prison term are still has a lot of devoted followers he doesn't right now there isn't there is a lot of people rich hall himself and didn't know there was a moment in the book when when the case against the boesky in malaga breaks for the sec and there is a third party who gets very proud of the fact that his wasn't a letdown the biggest case in his dazzling dennis living their incredible story and the sec after email dennis lehane went to a conference room with the eu with people from the us attorney's office and began to be

briefly and he told them he could deliver to the government mr ivan boesky the fell they've been going after for years but the government didn't think that living could help make the case against boesky alone because of the levin said even providing boesky with inside information and busting a promise to pay him for actually no money never changed hands between them so lacking that can of a paper trail people thought well both the fights it'll just be a one on one and court levine's word against those keys people will say that living was lying because he wanted to save his own neck and that they were wrong or the sec they day they set out on a strategy to smoke mostly out a series of subpoenas to various companies and the boesky realized that that the end was near and that the love they might not be the only one to come forward and that he better do is he had done before he traded stocks and bonds in it was portrayed michael milken to the government and to save his own neck and what a moment it was very light from the sec met with i've been assuming his lawyer they used to have to ride with ivan boesky he was gratified understand and the bookies lawyer said threw in the towel my client wants to

cooperate he was to cut a deal and we'd sat across from the movement will have to consider this matter certain and when his attorney walked out and shut the door there were government lawyers in the sec little advancing a level comparable as they were so excited about the case one day out of what a fascinating drama of this whole story is a and m and how an outstanding job you and steve gunn thank you have the two of you worked together on this well yeah but we were right to life now we were we were detained i've got enormous respect for steve coll he's a fantastic journalist and that we worked on this at the washing post under the direction of a great team of editors and really bob woodward was instrumental in our ability to find ways to try to get inside the securities exchange commission it helped us develop the reporting strategies that we've used as week as we get our reporting and stephen i would talk about each chapter before we wrote it and one of us would write it the original draft a senator the other guy the other guy would re write and send this back to the other

women would get on the telephone and really hash out every paragraph or question referring upon which we we had had a different about what happened with clinton wright about them same same process that's why we got away we did the book chapter by chapter same process and you know i think this would've really been tough reporting and writing to do it alone it really helped i have a so my along the way some would bounce ideas off during those moments when we get stuck in the reporting on the writing end i'm really another another first to bring creative energy to work on what was really terrible long process this was a tough nut to crack is what about so when the two of you went to the un and to have it published will appear with editors of the book tough on on the manuscript well we actually switched publishers wanna wanna know an interesting wake up after the newspaper series ran in the washington post we get calls from several publishing houses indicating interest in that vise author of the eagle on the street as ben our guest

on the word on where your hostess then john zillion dollar this program was produced in the studios of wbez in nashville right