Yes, this is America and everyone is entitled to make a living. But pushing risky bonds on five Wisconsin school districts while failing to disclose the risk crosses the line. Even the often silent (and slow to react) SEC agrees and has filed a civil complaint against Mr. Noack and his firm.
That famous phrase (“Have you no sense of decency?*”) was delivered to the infamous Wisconsin Senator Joseph McCarthy by Army General Counsel Joseph Welch, as McCarthy tried to accuse yet another patriotic American of being a Communist. Historians say the uttering of that phrase and the disdain in Mr. Welch’s demeanor sparked the downfall of the Senator. He had simply gone too far.
And so too has David Noack and Stifel Financial gone too far. Yes, this is America and everyone is entitled to make a living. But pushing risky bonds on five Wisconsin school districts while failing to disclose the risk crosses the line. Even the often silent (and slow to react) SEC agrees and has filed a civil complaint against Mr. Noack and his firm claiming they committed fraud. Yes, fraud; directed no less at schools in need of every dollar.
How low can we go Mr. Noack? Although the schools (and the children they serve) lost tens of millions on the bonds, Mr. Noack and his employer netted commissions totaling a cool $1.6 million. Let’s say Mr. Noack personally received 15% of that commission, or approximately $250,000. That’s a lot of money in Wisconsin (or anywhere) but is it enough to justify depriving students and teachers of badly needed resources?
Gretchen Mortensen highlighted this case, where Noack convinced a risk-averse, inexperienced school district to invest $200 million in AA- rated notes. He did so by assuring them that they were sure-thing investments. According to the SEC’s Complaint he promised that "15 Enrons" would have to occur to put the investment at risk; that, or a default level worse than that during the Great Depression. Of course, neither occurred, but Mr. Noack collected his commission while the school district’s investment collapsed and millions in public funds went with it.
While Noack is no Joseph McCarthy, he is sadly indicative of a generation of bankers that place profits above ethics and ahead of their clients’ interests. When will see a change in ethics? It may be a while, and in the interim, Michelle Bachmann, Rick Perry and Sarah Palin be damned, we need more regulation and more regulators to ensure that the Noacks and Stifels of the world at least have some deterrence in place to temper what seems like an insatiable appetite for profit. And let’s hope long term that those Wisconsin kids whose schools were robbed learn ethics and are mindful of the need to put what is right before what is profitable. Otherwise my children may be writing this same blog post one day.
*This post originally read, "Have you no shame," misquoting the historic line from Mr. Welch. It has been corrected with the correct quote. TCO apologizes for the error.