We may not be able to fire Wall Street, but we can send its elected friends packing.
Photo Credit: Gage Skidmore/Flickr
March 18, 2014
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Wall Street loves to celebrate its knack for innovation, and it's
hard to disagree. The ingenuity financiers have mustered to scam
Americans out of their retirements is truly a wonder to behold.
Working
through well-funded media campaigns and strategic investments in
politicians who carry out their plans, the Wizards of Wall Street have
done a triple whammy on any hope we had for a decent retirement. They’ve
attacked Social Security and pretended that it’s unaffordable and/or
insolvent, they’ve worked to move us into fee-riddled private investment
accounts, and they’ve looted our pensions.
They couldn’t have
done it without friends like Gov. Chris Christie. Over in New Jersey,
the big man is showing us how it’s done.
First, a little recap of how we’ve been screwed so far.
Private
equity billionaire Pete Peterson is the Big Kahuna of Social
Security-bashing, shoveling money toward folks like Alan Simpson and
Erskine Bowles, co-chairs of Obama’s deficit commission, who have worked
overtime since the financial crisis to con the American people into
accepting cuts to the country’s most successful anti-poverty program
under the threat that the deficit is growing —except, oops, now it’s
actually shrinking!
Nonsense aside, Wall Street has gotten its
way with Social Security before, such as the 1983 deal under Reagan,
which, still unknown to many Americans, chopped the program and forced a
higher retirement age onto young people who could not vote at the time,
up two years, from 65 to 67. Ayn Rand acolyte Alan Greenspan, foe of
Social Security and worshipper of Wall Street, was instrumental in
getting that deal done.
Then there’s the 401(k), foisted on the
American public 30 years ago as a rising tide of laissez-faire fanatics
convinced policymakers to move us into do-it-yourself retirement plans. A
study by the think-tank Demos revealed that the typical 401(k) steals
an average of
nearly $155,000 from
a median-income, two-earner family over a lifetime of saving through
hidden fees. The plans have also been shown to drive inequality and make
ordinary people more vulnerable to economic shocks. Despite these
dismal results, politicians across the country are pushing more
Americans into 401(k)s. Republicans in Florida, Kansas, Illinois and
elsewhere have been trying to move public workers into them, and
Democrats with Wall Street ties have often joined in the effort: Former
Democratic presidential candidate and U.S. senator from New Jersey Bill
Bradley, who now advises an investment firm, was
part of the (failed) effort to force Kansas state employees into 401(k)s, calling the effort to transfer investment risk onto workers “innovation.”
The
innovative folks on Wall Street have also concluded that as long as you
have pensions around, you might as well loot them. Financiers have
aggressively promoted the idea of moving pensions from safe investments
like treasuries into “alternative investments” on which they can charge
ridiculous fees and deliver subpar results.
Robert
Johnson, executive director of the Institute for New Economic Thinking,
has been researching the so-called pension crisis in the U.S. and has
found that underfunding is not nearly as widespread as the media, stoked
by anti-pension campaigners with deep pockets, has portrayed (see my
AlterNet article on his research).
Further, he found that places where funding problems do exist are often
troubled by corruption. Pay-to-play schemes and bribery are common, and
barring obvious corruption, big money politics often has a deciding
influence over the management and allocation of pensions. Political
scientist Thomas Ferguson has
pointed out
that local and state politicians are relying more and more on Wall
Street and other anti-pension business interests for funding, and this
creates incentives to move pensions from safe vehicles to more risky
things like hedge funds and private equity.
For a perfect example of how this works, look no further than Gov. Chris Christie of New Jersey.
As Lee Fang of the Nation Institute has
reported,
Governor Christie wasted little time after his election to launch a
fear-mongering campaign to “reform” New Jersey’s pension system by
raising the retirement age and cutting benefits. But somehow that
process of reform also included bringing Wall Street into the game —
despite the fact that Christie has pummeled his predecessor, John
Corzine, for doing just that. After Christie’s election, the man who had
helped bankroll his campaign, one Paul Singer, hedge fund manager and
head of the conservative Manhattan Institute, would see his investment
in Christie pay off big-time. A gold-plated bromance blossomed between
the two men. As Fang writes:
“In his second year in
office, Christie’s administration proposed giving Singer’s hedge fund,
Elliott Associates, a contract to manage $200 million in state public
pension funds. Elliott Associates won the contract in 2012. Singer again
demonstrated his political loyalty to Christie in December 2013,
shortly after Christie became chair of the RGA, a coveted post for GOP
presidential aspirants. This time, Singer gave the group $1.25 million,
making him the largest contributor that year and significantly enlarging
the RGA’s war chest under Christie.”
Singer wasn’t
the only Wall Streeter to win big. Hedge fund manager Dan Loeb, another
close ally of Christie, “also won big contracts to manage state retiree
money under the governor.”
The foxes came racing into the
henhouse, tumbling over one another to get a piece of the action, bent
on maximizing returns to Wall Street and minimizing benefits for
hard-working people. Lee states:
“Under Christie, the
amount of retiree money in the hands of outside managers, such as
private equity firms or hedge funds like Singer’s, dramatically
increased, while the share going to less risky and more traditional
investments like treasury notes or the S&P 500 declined.”
That
same hustle is happening in other parts of the country, and your state
or city could well be next. Over in Rhode Island, State General
Treasurer and Wall Street veteran Gina Raimondo, a Democrat now running
for governor, has been touted as a hero of pension reform. But her
reform has also focused on moving pension funds into Wall Street
vehicles. The
New York Times’ Gretchen Morgenson questioned Raimondo’s activities back in October 2013 in an article aptly titled “
How to Pay Millions and Lag Behind the Market.”
Morgenson described an investigation into the pension system’s recent
plunge into alternative investments which highlighted the high costs,
risks and poor returns:
“The investigation, by
Benchmark Financial Services, a forensic firm hired by a Rhode Island
council of the American Federation of State, County and Municipal
Employees, concluded that the $7.7 billion Employees’ Retirement System
of Rhode Island was at risk because of its increased concentration in
high-cost and opaque alternative investments. The union represents
workers whose pensions are invested by the state.
In less than two
years, the Rhode Island pension system has ramped up its investments in
hedge funds, private equity and venture capital from zero to almost $2
billion, or more than one-quarter of its assets under management. But
this mix of investments hasn’t outperformed the fund’s peers, the
Benchmark report said. For the year ended June 30, 2013, the fund
returned 11.07 percent, versus 12.43 percent earned by the median public
pension fund.”
When I saw her at an event in the
fall of 2013, I attempted to question Raimondo on the issue of subpar
returns, which she denied was an issue at all until I held up the
Morgenson article, at which point she and her press secretary scrambled
away with my card, promising to be in touch. I never heard from them.
Before her election, Raimondo was a partner at Point Judith Capital, a venture capital firm. As Rolling Stone’s Matt Taibbi has
reported, Wall Street has lavished her campaigns with cash:
“Donors
from Wall Street firms like Goldman Sachs, Bain Capital and JPMorgan
Chase showered her with money, with more than $247,000 coming from New
York contributors alone. A shadowy organization called EngageRI, a
public-advocacy group of the 501(c)4 type whose donors were shielded
from public scrutiny by the infamous Citizens United decision, spent
$740,000 promoting Raimondo's ideas.”
This is just
the tip of the iceberg. The wolves of Wall Street are salivating for
your retirement funds, and they are dressing in sheep’s clothing and
talking to us about “reform” and “responsibility” in order to do it. We
can’t fire them, but at least we have a chance to do something about the
politicians who do their dirty work — namely, send them packing.
Lynn Parramore is an
AlterNet senior editor. She is cofounder of Recessionwire, founding
editor of New Deal 2.0, and author of "Reading the Sphinx: Ancient Egypt
in Nineteenth-Century Literary Culture." She received her Ph.D. in
English and cultural theory from NYU. She is the director of AlterNet's
New Economic Dialogue Project. Follow her on Twitter @LynnParramore.
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