First, what, exactly is a Bezzle?
From John Kenneth Galbraith, The Great Crash 1929, chapter 8.
“In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in - or more precisely not in - the country’s business and banks. This inventory - it should perhaps be called the bezzle - amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.”
So until we discover just where the dishonesty is, deal with those who have engaged in such practices, and write off the losses, the markets do not and cannot determine the fair value of
anything. We cannot know what a stock or bond is worth; nor, for that matter, if the pension we worked for will ever be paid. The Madoff scandal, among others, suggests that the system still has a great deal of bezzle.
In that light, let us consider this:
WASHINGTON (AP) — The former director of the government's pension agency took the Fifth Amendment Wednesday when senators asked about allegations that he had inappropriate contacts with Wall Street firms while running the operation, which insures the pensions of 44 million Americans.
Charles E.F. Millard denies that he had improper communications with the firms that recently won multimillion-dollar contracts to advise the agency on a new strategy to invest its assets more heavily in stocks, real estate and private equity rather than more conservative fixed-income treasury securities.
In a statement issued before the hearing, Millard's attorney Stanley Brand questioned the Senate Special Committee on Aging's jurisdiction in the matter. He said he advised Millard to assert his constitutional rights because he believes certain members of Congress appear to have already reached negative conclusions about his client's actions.
"I decline to answer any and all questions," Millard said.
The allegations were contained in a PBGC inspector general's report last week that said Millard's office had hundreds of phone conversations and e-mails with the Wall Street firms bidding for the work in 2007 and 2008 at the same time he was actively evaluating their proposals.
"The draft report was published on a committee Web site and senators were calling for further investigations before the report was even final," Brand said. "The Fifth Amendment protects innocent people against hostile environments. And Congress's recent actions and statements have created a biased and hostile environment toward Mr. Millard."
The hearing was held at a time when the rapidly deteriorating financial health of the PBGC is raising alarms in Congress. Key lawmakers are demanding tougher rules to ensure vigilant oversight of its multibillion-dollar investment portfolio.
LINK
The PBGC is important to a great many Americans because companies are failing, and hence are unable to meet the commitments they made. If the PBGC has less money than expected, then it is likely the federal government will bail out the organization - thus generating more debt.
Some argue that we cannot have a true bottom in the markets until we have wrung the bezzle out of our financial system. This news story suggests we still have quite a long way to go.
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