Yesterday's arrest of eight officials from Bell, California, including the town's mayor, sent shockwaves all over the world. Right now, they are charged with misusing $5.5 million in public funds, but a state audit suggests they may have stolen $50.0 million. In addition to receiving mindboggling salaries, it is believed that city officials also levied illegal taxes.
"Our audit found the city had almost no accounting controls, no checks or balances, and the general fund was run like a petty cash drawer," state Controller John Chiang said in a statement.
Former city manager, Robert Rizzo, was charged with 53 counts of misappropriation of public funds and conflict of interest. Rizzo became infamous when it was revealed he was being paid $800,000 a year. This shameful situation serves as a cautionary tale for so many things:
- Unbridled Greed
- Arrogant Government
- Ignorant Populace
- Importance of Transparency
But, I don't think this situation could have become as egregious if it were not for the legacy of despair. I talk about celebrating mediocrity all the time because once a person or society is willing to underachieve or accept underachievement it's on the path to ruin. There were special circumstances that allowed the scum that ran the city to push the envelope of greed beyond what even a normal criminal would consider too much.
- Only 35% of the city has a high school diploma, 4.0% bachelor's degree, and 1.3% grad school.
- Poverty is overwhelming, with 24.1% of the population living below the line versus the 14.2% state-wide average.
- The city's population is 90.0% Hispanic, 5.8% white, 1.0% Asian, and 0.8% black.
- Of the 38,000 residents, 19,530 are foreign-born, or 53% of the population, versus 26% for the state and 11.8% for the entire U.S.
- Household income is $39,394 versus $61,021 for the state.
- Per capita income is $13,244.
When People Lose Hope
"California...knows how to party
In the city of L.A
In the city of Good old Watts
In the city, city of Compton
We keep it rockin! Keep it rockin!"
Bell, California is situated near Maywood, East Los Angeles, Commerce, Cudahy, Bell Gardens, Pico Rivera, Lynwood, Compton, and Watts. In 1965, Watts went up in flames as six days of rioting saw 977 buildings burned, damaged, looted, or simply destroyed. 34 people were killed in the days after neighborhood residents claimed police brutality and the unfair arrest of a black motorist and his mother and brother. 1,032 people were injured, and 3,438 people were arrested. The neighborhood was already marked by plight and poverty but where it went from there is a place it simply hasn't been able to escape economically or mentally. All of the businesses and buildings attacked were the property of white-owned businesses.
This triggered white-flight, which took businesses out of Watts and the surrounding area. The businesses that abandoned the area weren't just mom and pop shops.
* The Goodyear blimp was actually housed in South Central Los Angeles.
* Businesses left and despair set upon the area in such a way it has become a vice grip.
Timeline & Roots of Government Larceny
The corruption in Bell, California isn't new or accidental, but an extension of deep-seated crime in government that's almost as old as the town itself.
- 1927 Bell incorporated
- 1937 Bugsy Siegel sent to California to develop gambling rackets with Los Angeles mobster Jack Dranga, his lieutenant is Mickey Cohen
- 1985 Pete Werrlein sentence
- Bell becomes charter city, less than 400 votes and more than half dubious absentee votes
- 2006 Pete Werrlein arrested
- 2009 Bell pays $4.6 million for property owned by Werrlein trust
When Bugsy Siegel was sent to California, east coast crime boss Meyer Lansky sent Mickey Cohen out to watch over him. Cohen was instrumental in helping Siegel establish the Flamingo Hotel in Las Vegas, and even ran its sports book. Meyer rose to high ranks within organized crime, and was finally brought to justice in 1950 when he was ordered to serve three years in prison for tax evasion. In 1961, he was convicted once again for tax evasion and sent to Alcatraz. Cohen died in 1976, and the executor of his estate was Pete Werrlein, also thought to be his godson.
Pete Werrlein was mayor of Bell, California in the early 1980s and a member of the city council in 1984, when he helped push the approval of gambling halls, including a 64 table hall he had an undisclosed stake in. His stake was discovered, and he was sentenced to three years in prison, did less than one, and the rest on probation. Werrlein established the template for future behaviour for Bell mayors. He attended sex parties with teenage prostitutes and Angelo Buono and Kenneth Bianchi, otherwise known as the Hillside Murderers.
In 2006, doors of a house in Running Springs in San Bernardino County flew open from a violent storm, setting off the alarm system. Police arrived and were dumbfounded by what they found. The house had slot machines and even a cashier's cage built into a wall. The home belonged to Pete Werrlein, who eventually admitted to illegally owning seven slot machines, and received probation. Perhaps the item that stood out the most in the house was a sign that read: "No Credit, Please Don't Ask."
Currently, the Los Angeles county DA is examining the purchase of Werrlein property by the town of Bell, California for $4.6 million.
Also being investigated is the $38,000 a month Bell Community Redevelopment Agency pays to Steelworkers Old Timers Foundation's Dial-a-Ride to ferry senior citizens around. George Cole runs the foundation, which won the contract while he was a member of the city council. He says he rescued himself during the vote.
Also being investigated is the fact that Bell bought Oscar Hernandez's house six years ago for an undisclosed amount of money. Mr. Hernandez is currently the city's mayor, and one of those arrested.
Then there are all the other would-be schemes and scams which sound like episodes from the Sopranos.
How can people allow this to happen all around them?
The folks of Bell knew they were paying higher taxes than other towns in the area. But I bet they didn't know their cost of living index is 161.5 versus the national average of 100. Maybe they noticed their city has 1.03 law enforcement officers per 1,000 residents while the state averages 2.56.
When people stop expecting great things they accept their fate, they become vulnerable. I had a buddy that spent time in Iraq and early on his first observation was that Saddam Hussein snatched all the fight out of them, which explains how waves of insurgents could waltz into the country and create mayhem. In Bell, the insurgents operated from within. The legacy of the Watt's riots and exodus of business created a hole in the soul of the area. This is an area where people cheer higher minimum wage and government programs designed to distribute food or flimsy jobs programs.
It's an area where mediocrity is embedded to the point someone like a Robert Rizzo could become mayor. I can only pray the citizens of Bell get justice, but real justice goes beyond the crooks going to jail. Real justice would be a change in mindset that says we want more, we expect more, and we are going to do what it takes to climb out of this hole. It will not be easy, but it's not impossible. In the meantime, as the rest of the nation looks on from afar, I hope they understand the entire nation is slowly becoming a gigantic version of Bell, California.
Speaking of Mediocrity
Economic data out of Europe has triggered early weakness in the US market. European PMI came in at 53.8 from 56.2 in August. More surprisingly, Germany's PMI missed consensus as it was also down from the previous month. In Ireland, bond spreads versus German bonds climbed 0.22% to an all time record of 4.29%. The cost to insure Irish debt is also at an all time high.
Initial jobless claims increased 12,000 to 465,000; the mavens said the number would be unchanged. This number may have sealed the fate of the market today as equities became a little weaker. Missing from the macro view will be good earnings numbers from Bed Bath and Beyond (BBBY). Maybe today's housing data could come to the rescue. If existing housing sales miss then look for serious pressure because the market is poised to give back a chunk of recent gains.