4 Things You Need to Know About the Plot to Sell Off Your Pensions to Wall Street
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Less than a year ago, the Wall Street Journal alerted its national readership to what was happening in the tiny state of Rhode Island. In a story headlined “Small State Gets Big Pension Push,” the paper noted that the state’s “rollback of public-employee retirement benefits has turned (it) into a national battleground over pensions.” With the help of billionaire former Enron trader John Arnold and his partnership with the Pew Charitable Trusts, conservative ideologues and Wall Street profiteers who engineered Rhode Island’s big pension cuts were looking to export those “reforms” to other states. Now, after two huge revelations in the last few days, we know more about what that means in practice – we know the kind of corruption and damage the “reforms” mean for taxpayers and retirees, and we know what kind of new muscle is behind the effort to bring that corruption and destruction to other states.
The first set of revelations comes from a detailed forensic analysis of Rhode Island’s pension system by Forbes columnist and former SEC investigator Edward Siedle. Commissioned by groups representing public pensioners in the Ocean State, the data-driven analysis ends up reading like a criminal indictment of the speculator-turned-State-Treasurer Gina Raimondo (D), who is now cheerily touted by the Wall Street wing of the Democratic Party as a rising star. Raimondo has received such billing from corporatist Democrats in no small part because of her role in helping turn her state’s pension fund into a private profit center. Indeed, in 2012, this Wall Street-funded Democrat joined with Arnold to champion specific pension reforms that simultaneously slash guaranteed retirement income and give a disproportionate amount of retiree money to the hedge fund industry, thus enriching Raimondo’s old pals in the financial industry. According to Siedle’s report, they also potentially enrich Raimondo personally. Here are just some of his report’s key findings:
1. “A sinister pall of secrecy”: The report documents “a sinister pall of secrecy” about the pension fund’s new investments in hedge funds – a pall “orchestrated by state officials and aided by key investment services providers.” Siedle reports that “the overwhelming majority of the information…requested for this review (has) been withheld in apparent violation of state law.” As Rolling Stone’s Matt Taibbi and I noted in our recent San Francisco Chronicle report, such secrecy is now the norm in states, as “reformers” have changed the law to prevent retirees from even seeing how much of their money is being handed over to hedge fund billionaires.
2. A transfer of retirement income to Wall Street, potentially costing taxpayers big money: The report documents a “staggering, almost 700 percent planned increase in (pension) investment expenses from $11 million to an estimated $70 million—fees paid to Wall Street hedge fund and other alternative managers” who control the so-called “alternative investments” in hedge funds. In total, Siedle estimates that “the projected cost to (the pension fund) of the Treasurer’s $2 billion alternative investments gamble over the next 20 years amounts to in excess of $3 billion.” That’s more than the total savings of the retirement benefit cuts, meaning those cuts aren’t saving taxpayer’s money – they are being used to finance a new Wall Street handout.
3. “Profiting at the expense of the state”: Raimondo came to the Treasurer’s office from a financial firm backed by billionaire hedge funder Paul Tudor Jones. According to the report, “A significant portion of (her) wealth and income relates to shares she owns in two illiquid, opaque venture capital partnerships she formerly managed” at that firm – “one of which she convinced the state (pension fund) to invest in.” Siedle notes that during Raimondo’s time in office running the state’s pension system, the fees Rhode Island is paying to the fund she has an ownership stake in “are significantly higher than the venture capital industry.” As the report concludes, all of this means that “the Treasurer may literally be profiting at the expense of the state.”