The Pension Benefit Guaranty Corporation’s first Senate-confirmed Director has come under scrutiny for ties to former peers at Wall Street firms:
An examination of thousands of pages of e-mail messages and other internal documents obtained by The New York Times shows the other side of the story: the two firms aggressively courted Mr. Millard, so extensively that they may have compromised federal contracting rules or at least violated the spirit of the law, contracting experts said. The records also illustrate the clash between Washington’s by-the-letter rules on contracting and the culture of Wall Street, where deals are often struck over expensive meals.
“Both sides should have known better,” said Steven L. Schooner, co-director of the Government Procurement Law Program at the George Washington University, who reviewed some of the material for The Times. “What happened here is wrong, stupid and probably illegal.”
PBGC is tasked with paying retirement benefits to a little over half a million people with terminated pension plans. The firms, BlackRock, Goldman Sachs, and JPMorgan Chase, were competing to manage US$1.6 billion of PBGC’s US$50 billion in retirement funds. Last week, contracts were canceled, the contracting process nullified, and investigations by Congress and the agency’s inspector general explored.
Let’s take the credulous view for a moment: it would be easy to assume that Mr. Millard was chosen for domain knowledge from his experience on Wall Street, including an informed view of who on the Street manages investment portfolios particularly well. In 2007, we could assume that Mr. Millard would have believed that the market would provide a better return on PBGC’s investment, and that he might well have been appointed to achieve that very end. At least one of the parties claims that Mr. Millard paid his own way any time they had a meeting or social occasion, and to date Mr. Millard remains unemployed rather than using those connections to land a lucrative job among the tight network of firms on the Street. At the very least, it seems plausible that Mr. Millard was unaware that his actions might create the appearance of impropriety, and that he was behaving consistently with the reasons for his having been appointed.
So, does this pass the smell test? Oddly enough, I think it might.
I don’t doubt that the spirit or the law of the federal contracting process were infringed, nor that the process should have been nullified. What is less clear to me is that any of this is out of the ordinary for Wall Street–that any of it would have seemed out of bounds for Mr. Millard or the firms. Yes, I’m aware that the federal contracting process has clear rules for a reason and that the big Wall Street firms are hardly exemplars of ethical propriety, but Mr. Millard was (presumably) hired for his expertise and his ability to sort out which firms might bolster the health of PBGC.
One can assume that the improper contacts were either ignorance of the law, willful disregard for the law, or intentional violation of the law. It’s always tempting to see a conspiracy any time a hint of collusion rears its head, but that isn’t the simplest answer (Occam, Occam, Occam). The simplest answer is that Millard spent a career building up a successful network and has never worked any other way. Whether he didn’t know about the rules or thought they were stupid, the simplest explanation is that he did what he knew how to do.
That doesn’t make it right, but it is a simpler explanation than conspiracy. Hanlon had a razor of his own:
“Never attribute to malice that which can be adequately explained by stupidity.”