Interview with Senator Jon Corzine
Q: Let's talk about pension more broadly. You're on the board of University of Chicago trustees and on the investment committee? Were you all in Enron throughout?
To be honest with you, they have had various positions from time to time, I don't know precisely. They have very small positions with a limit of 3 percent [of the portfolio] but they are mostly indexed [spread across the market] and it very rarely went into specific transactions. I am not aware that they ever went into any of the specific partnerships.
Q: The reason I ask is the numbers I got show institutional investors in mid-summer owning 64 percent of Enron's shares.
It doesn't surprise me.
Q: which is not abnormal given their holdings in the market. But working Americans generally who have their deferred wages or savings or whatever you wish to call in these huge funds that follow various beacons and I don't mean to imply anything illicit, but they have no voice whatever.
Well, they have the voice of moving their money from one stock to another.
Q: I'm not talking about 401ks. I'm talking about the big pension funds.
Right. Other than the fiduciary responsibility of the trustees which people try to perform. But I want to stop here--one of the reasons fiduciaries put limits [on concentrated investment} is that it is a known risk to have concentrated investments where you can't always protect yourself against the risks that will show up like fraud.
Q: What I'm asking is do you see the potential for a larger problem and set of reforms in terms of this huge pool of money, which is capital, and without making any accusations, there's a kind of general lack of outside accountability. I'm not just talking about the money funds but the trustees vis a vis their beneficial owners----
Oh, I think there's a whole issue on corporate governance. I'm a big believer that pension reform and accounting reform and corporate governance are places where we should go to look for changes that at least in my view are fundamentally revealed by Enron, certainly Waste Management, Global Crossing, the corporate restatements. Because I think on pension issues, we haven't really put together a structure with sensible form on defined contribution plans [401ks]. The lock- down period which the President makes a big deal out of is a tiny piece of what the real problem is. Flexibility is a real issue. Rules of locking people up till they're 50 years old, when they've been there 10 or 15 years, is crazy--people can't adjust their portfolios. So those are the kind of things that should be done. We need other responsible fiduciary elements. Diversification is the most important. You also need liabilities for people who do have lock-down. There is a whole series of questions that are important now. I think what you're talking about with respect to whether there's a proper investment plan--I don't think they're irrelevant issues but I think they're a little bit below these other issues. I think we need real reform with regard to analysts at investment banks. What's the case? That 17 investment firms were still recommending an Enron buy on December 2?
Q: Including Goldman Sachs, I think.
I'm sure my former colleagues at Goldman are not happy with this. It's an uncomfortable situation when analysts are seemingly so conflicted by the relationships or positions. But Goldman Sachs at this stage, in the last five years, has not had much of any relationship with Enron so the analysts was operating on whatever basis. We ended up having difficulty with how people did business with each other. But I think that the idea that analysts could ever be given a percentage of the profits on the investment banking transactions that are company covered is mind-boggling actually to those of us who didn't follow that practice. Now, when I say that, we don't want to get into holier-than-thou, because analysts that covered companies and have great relationships with those companies tend to see business flow to particular firms, even though it was informal and not direct.
Q: They understood who Goldman Sachs was doing business with?
Right. And I think institutional investors pretty much long ago discounted the independence of financial analysts and brokerage firms. I'm not sure that's true for individual investors and that's a problem. But I think we need some guidance and we need some bite to the analyst issue but I don't think that's as important as getting straightened out our accounting issue which is what people make their decisions on. And it's a complete free-for-all on what gets done.
Q: What about the idea of public auditors? And I don't know quite what I mean by that, but a friend said to me, when it came to airport security, Congress decided we want this done by government employees, not entrepeneurial contractors cutting corners. He suggested that at some level--maybe not all corporate auditing--but there ought to be some presence like bank examiners.
I don't think it is a horrible principle or analogy, but I don't think we want to have the SEC doing all the accounting audits of the major companies. But we want the SEC, which is a public record venue, to have a much fuller participation in this process. The oversight of the accounting firms, in my view, ought to be an SEC division. I could tolerate some intermediate organization that had some SEC members with a beefed up accounting division at the SEC coming periodically and auditing the auditors, like bank examiners. They would have this new outside public body which has some SEC members on it be responsible for supervising FASB, supervising the accounting firms themselves. And we'll have to get a way to pay for that. How you do that can be user fees and other things. But whether it's in the SEC or sort of a blended independent agency with subpeona powers and enforcement powers, we are really going to have to give some kind of real clout to deal with the penalties.
Q: Some people have suggested, myself included, that a criminal standard would be good therapy for some of the players. I don't say that as a blanket denunciation but typically now some pretty wild stuff and huge amounts of money get settled with negotiated settlements either with the SEC or the injured investors. They pay some, promise not to do it again but not admitting they did it in the first place.
I'm open to discussion on criminal, but I'm not there. I think we may need more sentencing guidelines on the civil on failed audits that are increasing dimension on multiple sequence terms. But I think that's one I would like to bat out, how much damage is done. I wouldn't go quite to RICCO statutes.
Q: People are talking about RICCO, you know, across the country--why RICCO isn't in play.
You know, John McLaughlin had Arthur Levitt and me on his "One on One" show the other day and he tried to pin us down and say whether we would support RICCO application in the Enron case. First of all, I'm not a lawyer and he was trying to drag in everybody--the analysts, the politicals. I think there is certainly an appearance of criminal behavior, criminal fraud, in this case, but I don't know about RICCO itself.
Q: Let me ask about something that is structural. I sensed from your recent remarks that you were skeptical about the mega-conglomerate banks which have emerged. At least you have some questions about how they operate.
I think the issue there is are there enough of them to be competitive rather than whether they failed or they're undermining the efficacy of our system.
Q: Say what you mean by that.
I don't think, being in a global world, it's necessarily bad that we have a Citibank. I think we need to have some pretty strict rules about conflicts of interest and tie-in's and cross-marketing arrangements, the same way we're talking about the independence of auditers and other things. But to compete on an international basis today, when I basically think that derivatives on energy, on a barrel of oil or hog bellies or Treasury bills, anything like that is a financial instument, I think we're creating false barriers on how those things relate to each other. And so, in some ways, I'm supportive of those larger institutions but I think the rules of the road can be stronger because the instiutions are stronger and have greater clout. It's not that I'm opposed to them. But, particularly in the nature of the world that we have, where technology is so important, where we want to make a global presence for companies, where we want to have money flowing into local communities,we don't want to be isolated, we're going to need some checks and balances to make sure that that works.