The General's President (43 page)

In the case of an inefficient operating system, we'll correct the system—perhaps reorganize it—and may ask for bids from private contractors who think they can do it more economically. Where we switch to a private contractor, normally we'll require that the contractor staff-up his new operation from among the federal employees whose old jobs are being discontinued. In the case of carelessness, training and disciplinary action will be used. Where there has been dishonesty for gain, criminal charges will be filed and people will be arrested....

***

....The "Wall Street" scene was pretty complicated. I've had four experts brief me on it, one at a time. One was a prestigious professor and two were prominent brokers. The other was a merger specialist. I taped the briefings, and after each of them, I sat down with two of the government's in-house specialists. We'd listen to the tapes of the last briefing and I'd ask questions. Then I was ready for the next expert. I wasn't totally ignorant to start with, but I learned quite a bit.

What I'll talk about here are just a few of the points, to give you a sense of it. I'm doing this because many of you know very little about what Wall Street does. Then I'll tell you what we're doing to reform its operations.

First, the stock markets. They serve very important functions. Stocks are pieces of ownership, shares, in a corporation, The stock markets provide a system for financing business expansions. They help stockbrokers find buyers for shares or bonds that the owners want to sell. And they provide a service for people who want to invest, usually to invest as a source of retirement security.

Tens of millions of you lost your investments in the crash; lost the security those investments were intended to offer. But over many decades, many millions of people retired very comfortably on just such investments: sometimes investments they arranged themselves, but more often the investments that their pension funds consisted of.

The stock markets generally do not help new businesses get started. New businesses, if they are not sole ownerships or partnerships, are usually privately-held corporations whose stock cannot be sold in the stock markets.... Their startup money is commonly venture capital, and such investments are often quite risky. The venture capitalist often takes big risks with his money in hopes of big profit. It is often the venture capitalist who finances the new ideas of business pioneers. Later, when an established small company wants to expand, it may apply for the right to offer stock for open sale on a stock market....

Now on Wall Street there were brokers called "futures traders," who dealt with fairly unpredictable commodities. Let's consider a corporation whose business includes buying and selling corn. For example it buys corn from farmers' cooperatives. No one can predict a year ahead of time whether next year's corn crop will be excellent, good, or not so good. Or whether, in more normal times, there'll be a profitable export demand for corn.

Futures traders buy corn that hasn't been harvested yet, or even grown yet, perhaps not even planted yet. They buy these "corn futures" assuming that there'll be such and such demand for corn, and such and such supply. Then they own lots of corn that they can sell when it eventually is harvested.

Though commonly they'll sell before that; they'll sell what they bought, which is not corn but "corn futures."

Futures are bought with borrowed money that the traders never see or touch. The transactions are simply paper transactions, or actually, over the last couple of decades, computer transactions. They buy when they judge that prices are going to rise, and they sell when they feel that prices are topping out, or as soon as they start to fall, to make maximum profit.

Their very legitimate function is to provide money, in the form of credit, to farmers, banks, grain elevators—whoever or whatever might already own an ungrown or unharvested com crop and needs money for some purpose such as expansion or machinery. And that is a useful service. On the other hand they manipulate the market without ever raising a crop, without ever delivering a shipload or carload of corn....

Futures trading is not a reprehensible activity. I've used it here as an example of the sort of things that go on, in the money game. Smart, perceptive people spot a need and use ingenuity to fill it. A useful financial service is provided, sometimes with harmful side effects.

And sometimes use is made of it which is at least dishonest and may be criminal. Because there is the possibility of getting BIG money easily and quickly with a strategic bit of dishonesty.

Futures traders are brokers of a special sort. Brokers more generally buy and sell securities such as stocks and bonds, and serve as valuable pipelines for investors....

Let's say Mr. Jones worked for a beer distributor. Mr. Jones owned his own truck and delivered beer to stores and taverns in his city, while Mrs. Jones worked as a secretary for the distributor. They worked hard and made pretty good money, they weren't extravagant, and they wanted to put some of their money where it would provide a good retirement income. Stocks and bonds.

And having neither the time nor the inclination to become educated in investment, they hired an investment firm, a brokerage firm, to invest their money for them. The brokerage firm had a team of trained, salaried brokers who performed this useful service for thousands of people like the Joneses. And they performed this service skillfully and ethically, so that over the years, Mr. and Mrs. Jones developed a nice investment portfolio, and at age sixty retired to Sun City to live happily ever after.

Except that "happily ever after" didn't work out that way, because the stock market crashed and there weren't any more checks coming in.

So the whole area of what is loosely termed "Wall Street" has been under review by a joint committee of Congress. And also, separately, by a small select group outside of government. These committees aren't thinking about replacing the system. Basically the system works, it exists ready made, and it's starting to function again, although relatively slowly and cautiously these days. What the committees are working on is modifying the system to decrease the risks, and preliminary drafts of their reforms are being critiqued now.

There is another element of the stock markets that we are doing something about already. That is the criminality in the system, and I'm going to tell you about that now. Some of this criminality is subtle and hard to detect. You might see evidence that something criminal was happening, but not just what or by whom. Over the years, changes were made in brokerage and other business procedures and in monitoring techniques, to make financial crimes harder to commit, and financial criminals easier to catch. But the payoff possibilities were BIG. And while most brokers were ethical, the temptations were too strong for brokers with flabby ethics or a snootful of cocaine.

So I'm adding to their risk in a different way. The white-collar criminal who breaks federal law, be he stockbroker, banker, government official, corporation executive—what have you—will be imprisoned on a special basis.

In the past his imprisonment was almost always on a special basis too, if he went to prison at all. The white-collar criminal was rarely a violent or vicious man; he tended to be mannerly and quiet. And he often had influential friends. So he was given privileges and decent quarters in prison. His work duties were clean and easy. He typed and filed in an air conditioned office and generally worked less hard than secretaries do on the outside. Less hard than he had as a broker or corporation executive or lawyer or judge.

Alas for him, the new special basis is different than the old. Under new law he will enjoy the hospitality of a prison camp for white-collar criminals in the Gila River Valley of Arizona. There the crooked broker will work long hours chopping weeds in the cotton fields. Side by side with crooked lawyers and crooked judges and crooked corporate executives.

Now this is not "cruel and unusual punishment" in the language of the Constitution. Prisoners, though rarely white-collar prisoners, have done the field labor on prison farms in this country from the beginning. In feet, the white-collar prisoner will be doing the kind of labor that cotton farmers long took for granted before mechanization and chemical herbicides.

He will also enjoy the comfort of an old army squad tent, shared with others, and sleep on a folding cot. Just as so many soldiers and marines have done in war-time. He will live and work under hardnosed but not brutal supervisors, and eat plain but healthy food. Very plain. I'm told that brown rice and beans, along with some fruit and green vegetables, powdered milk and coarse bread, make up a balanced diet. Not bad in times like these. And counseling will be available to him, if he wants it—counseling psychological or religious.

Barbed wire fences will be his walls, watchtowers his monuments. Dustdevils and desert crags will be his scenery. He will learn all about sweat and dirt. And in case he develops a sense of physical daring, there is a mine field outside the fence. We're done with building enormously expensive federal prisons except for prisoners who require stone walls.

And if his wealthy friends hire a rescue mission, they will find the guards equipped with anti-tank rockets and Stinger anti-aircraft missiles.

As a matter of fact, we have white-collar criminals in federal prisons right now who, on Thursday, will be on a plane to Gila Bend to learn all about mucking out irrigation ditches and chopping weeds with a hoe and picking cotton by hand. And you may be pleased to know that, over the past week, we've rounded up a lot of white-collar criminals who've been free on suspended sentences because the jails were considered too crowded. Actually there were a lot more of them free than in jail. They'll be among those flying to Gila Bend.

And when they're released, they'll have a new perspective on the basis of wealth, which is honest production. For let it be understood that production of goods and services is the only basis there is of wealth. That's what wealth is: goods and services. Money is simply pieces of paper used to represent goods and services. The goods may be cotton, for example; the service may be the honest brokerage of cotton futures or the transporting of cotton. Whatever.

Production of the various goods and services
is
the basis of wealth.

Up till now, much of the wealth stolen by the Wall Street criminal has remained his—converted into stock, real estate, and so forth. That too has now changed. In future cases, his personal wealth will be confiscated and put into a superfund to help make restitution for what we might call the "people damages" of white-collar crime—the damage to people.

This seizure of property will be only what is necessary to cover what a jury decides is proper restitution and amends, plus court costs. And of course, seizure will not be resorted to if the criminal himself arranges restitution, which he will be allowed to do.

Admittedly, in some cases this conversion of his estate will be hard on his family, who've been used to the affluent life, but they will be eligible for help from the superfund on the same basis as any of his other victims.

And let me add that none of this is done in a spirit of revenge. Although I'll admit to feeling a certain vengeful satisfaction from these laws. No, the biggest single reason is to emphasize and instill, within the society of big money, the concepts of
responsibility
and
accountability
for one's actions. And the concepts of restitution and amends. It is also—and this is a key part of it—it is also to
discourage
white-collar crime, not only on Wall Street but on Main Street. Not only in brokerage houses but in banks and government offices.

And beyond that, this is to demonstrate to you, the people of this country, that there is no longer a special moneyed class to whom the laws and penalties do not apply the way they do to the rest of you. The theft by a white-collar criminal is often of very large sums—occasionally even huge sums. His penalties will no longer be paltry....

***

One other thing I want to touch on tonight is federal taxes and the IRS. Congress, presidents, and the innumerable lobbies have had much more to do with the federal tax mess than the IRS has. The IRS has simply had the unenviable job of trying to collect.

Unfortunately, in trying to cope with the mess, the IRS has too often been guilty of decisions having less to do with justice than with making their difficult job easier.

Some officials in the IRS have been arbitrary and high-handed, making decisions far outside the intent of Congress. We fired a number of them last fall, and we've jailed others whose actions were criminal. President Wheeler, you may recall, charged several such officials with malfeasance and abuse of office, charges very hard to make stick at that time. For one thing, judges tended to be afraid of the IRS. So in most cases the charges were dropped when the officials agreed to resign.

Well, those charges have recently been reviewed, and where appropriate they have been revived. There have been several arrests. And when the courts have heard the cases, I'm sure the cotton fields along the Gila River will have some additional workers. And if you listen closely, you may hear President Wheeler laughing and clapping clear up in heaven.

But the real problem has been the tax laws, not the IRS.

I admit that I wince whenever I use or hear the term "tax reform." Such atrocities have been committed under that name! But I've read the prefinal drafts of the new tax reform law, and it
really is reform.
The new law will have nothing in it of tax "penalties" for being in certain businesses, and tax "breaks" and "incentives" for being in certain others. Incentives and breaks are actually government subsidies. In the future, business subsidies and penalties, if any, will be entirely separate from federal taxes. They will not be allowed to complicate and generally muck up our federal tax system. The new tax system is intended solely to provide money to operate the federal government with. Any additives would be abominations.

And in the future, I hope the voters will be smart enough to throw out of office anyone who tries to complicate the system again, for whatever purpose.