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Putting treasurer's spat into historical perspective

by BOB LARUE/Guest Opinion
| March 14, 2014 9:00 PM

Recent news articles surrounding the Kootenai County Treasurer's and the Idaho State Treasurer's investment strategies read like an old Theodore Dreiser novel. No, not his most famous novel, "An American Tragedy," published in 1925 and made into two movies; most notably "A Place in the Sun" starring Elizabeth Taylor, Montgomery Clift, and Shelley Winters in 1951. Most of Dreiser's tales contain similar themes: have-nots who yearn for much more than the world gives them. It is his novel, "The Financier" published in 1912, that departs from the longing for money and social standing theme and delves into the world of public finance and the marketplace. Writing in the Wall Street Journal in 2012, Leonard Cassuto calls it "the greatest of all American business novels."

In "The Financier," Dreiser draws his main character, Frank Cowperwood, from the real-life story of Charles Yerkes, one of the more freewheeling Gilded Age robber barons. Like Yerkes, the fictional Cowperwood serves as financial agent for the city of Philadelphia's treasurer. He cuts a deal with the treasurer that allows him to speculate with the city's short-term loan issues. He invests in local street railways. The Great Chicago Fire of 1871 sparks a financial panic. Cowperwood gets caught short when the railway stocks plunge and he cannot cover his questionable loans. He and the treasurer both go to jail. In real life, Yerkes suffers a similar fate.

This is not to say that anything occurring in Kootenai County is quite so dramatic. However, the charges made in the Cd'A Press opinion piece "County can do better investing for taxpayers" on Feb. 21, 2014, are certainly less than complimentary of our guardians of the county treasure. Reading that: "(1) the investment policy used by the county is woefully outdated; (2) current investments do not follow fundamental investing and asset management principles," surely leads the citizenry to wonder what the heck is going on in the treasurer's office.

In his rebuttal, "What the treasurer is hired to do," Cd'A Press, Feb. 28, 2014, the county treasurer predictably defends his activities. He states that: "the county's investment procedures are not outdated... The three principles of investing public money are: 1) safety of principal, 2) liquidity, and 3) return on investment. AND IN THAT ORDER. Safety of principal is No. 1." He then goes on to cite the several instruments the county uses, among them "agencies with the implied backing of the U.S. Government."

The term "recession" has long since 1871 replaced "financial panic" in economic parlance. It somehow seems less inflammatory. Even so, the results are the same. The Great Recession the U.S. economy experienced starting in 2008 is no exception. As with the panic of 1871, practically every investment instrument known to man took a beating in 2008 and beyond. On Nov. 20, 2008, during remarks at the Ronald Reagan Presidential Library, U.S. Secretary of Treasury Henry Paulson said, "We are working through a financial crisis caused by many factors... The combination of these factors led to a critical stage this fall when the entire U.S. financial system was at risk." Under those circumstances, perhaps investing in agencies backed by the U.S. Government is not so safe after all.

If safety of principal is indeed No. 1, perhaps a better strategy would have been for the county treasurer to have dug a hole in the courthouse lawn and buried our treasure therein. Or he might have taken it home and hid it under his mattress. Even today, with the national debt pushing $20 trillion and an administration hell bent on achieving that goal, maybe those still remain the better options. Many economists feel that the entire U.S. financial system is still at risk.

One good thing about living in our democracy is that every two years you get to be entertained by what the county treasurer calls "The political silly season," an election cycle. Grand eloquence and hyperbole will reign supreme and intensify from now until November. Back in the 1870s with elections looming, Charles Yerkes was tried, convicted and sentenced to 33 months in Eastern State Penitentiary. Scheming to stay out of prison, he attempted to blackmail two Pennsylvania politicians. His plan failed. However, the damaging information was eventually made public. Political leaders like President Ulysses Grant feared that the revelations might harm their prospects in the upcoming elections. Yerkes was promised a pardon if he would deny his accusations. He agreed and was released from prison after serving just seven months. The body politic was at work then as now.

"The only thing new in the world is the history you don't know." - Harry Truman

Bob LaRue is a Hauser resident.