On October 23, 2018, PBS, a television network that takes public money to finance operations and programming, aired a Frontline documentary titled THE PENSION GAMBLE, produced by Marcela Gaviria, Martin Smith, and Nick Verbitsky. I decided to watch it because I have been reporting on and off for the past several years on the Rhode Island pension fund, which was invested into hedge funds in the aftermath of the 2008 crash, resulting in the largest loss of money in the history of the state according to financial forensic investigator Ted Seidle.
The film is a woeful misrepresentation of a much larger and systemic issue. It lets far too many guilty parties off the hook for dubious (if not illegal) behavior, obfuscates the nature of hedge funds, and crafts a story about bipartisan greed and malice into the oh-so-typical Boston WGBH PBS liberal fantasia about dastardly Republicans and decent Democrats. While pensioners complain to their various fiduciaries about diminished returns for pension contributions during their working days, we as taxpayers should consider going after Martin Smith for his bad journalism.
First is the rather basic and commonsense question, what exactly is a hedge fund? Martin Smith as the narrator/interlocutor of the picture utilizes a lot of pretty adverbs like “exotic” and “high-risk” while not actually giving a basic definition for these financial instruments. While I accede that there is some warranted complexity to such a proposed definition, I also have Michael Hudson’s book Killing the Host(published by Counterpunch Books) at hand and rely on his extremely knowledgeable and plainspoken phrasing:
By 2006, hedge funds – collections of wealth for raiders to use as a basis for borrowing to take over companies – were accounting for nearly half the trades on the London and New York stock exchanges, and their share is substantially higher today. Although they only control a small percentage of equity, their aggressive behavior has gained support from pension funds and other investors that join them in subordinating the industrial economy to financial managers… [With regards to the 2008 crash] bankers and hedge fund managers knew quite well what was coming, and they had the foresight to put in place a political strategy to make the government bail them out when the crash did hit. But for the losses to be borne by “taxpayers,” the collapse had to seem as if it all were a surprise, an act of nature rather than bad policy and outright fraud.
As we shall see, there also is a role played by hedge funds in campaigns to privatize public assets (most notably public education). But that’s getting ahead of the train. Keep on board the choo-choo and you’ll see some real fireworks that Martin Smith apparently is too shy to broadcast.
The pension fund in Rhode Island, as in many states, had been managed quite badly over several generations by a series of governments that relied on the fund as a piggy-bank to cover their backsides in case of reliable and consistently-cyclical instances of bad governing. Stuck on the I-95 corridor between Boston and New York City, Providence has always been the idiot cousin of Democratic Party machine corruption, a quasi-mafia state where the head boss is prone to putting his shoes on the wrong feet and wearing his underwear on the outside of his trousers.
In 2011, then-Treasurer Gina Raimondo pushed through the legislature the Rhode Island Retirement Security Act of 2011. It invested the fund into hedge funds. It put new public sector employees who would have been normally paying into the fund into a hybrid plan that included a 401 (k)-style component, which is nowhere near as reliable or secure as a defined-benefit pension. And it revoked the annual cost of living (COLA) for current pensioners until the fund reached a benchmark that would bring it into a safe zone in terms of funding. But, owing to a variety of hidden fees and expenses charged to the pension by the hedge fund managers, the return to that solvency level became a mirage in a horizon that one could never reach. It bears mentioning here also that, while pension funds do sometimes require an increase in taxes, they also can serve as a state-sponsored wealth redistribution system that can pull a local economy out of a recession.
In a state like Rhode Island, where unemployment and under-employment hits especially hard, things were made to tank even harder after 2008 when seniors stopped spending so much money in local restaurants, hotels, toy stores, and other businesses that depend on retiree spending for a good deal of their annual gross. The Ocean State is a service economy, something that developed after the local textile, jewelry, and manufacturing jobs were off-shored by globalization. Consumer spending on seasonal tourism defines the livelihoods of a significant percentage of the workforce. When Raimondo was elected to Tresaury and took a look at the shenanigans that had happened over the past several decades, she decided that she had some friends on Wall Street that she had met during her lackluster days as a venture capitalist who could use a few bucks.
In a 2013 column for Rolling Stone, Matt Taibbi wrote (1):
Soon she was being talked about as a probable candidate for Rhode Island’s 2014 gubernatorial race. By 2013, Raimondo had raised more than $2 million, a staggering sum for a still-undeclared candidate in a thimble-size state. 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. Within Rhode Island, there began to be whispers that Raimondo had her sights on the presidency. Even former Obama right hand and Chicago mayor Rahm Emanuel pointed to Rhode Island as an example to be followed in curing pension woes.
This is not what Martin Smith and Frontline are interested in talking about. They go to Kentucky and start their timeline with Republican Governor Matt Bevin, himself a former hedge funder, who was elected in 2015 on a platform that included the Raimondo pension schematic. They include interviews with Ted Seidle (2), who I have interviewed myself several times over the years, as well as Chris Tobe (3), who I have also interviewed for my work. Seidle was hired by Rhode Island pensioners and unions including the AFSCME to do three different audits of the Rhode Island pension fund. But Smith edits the film so they function as talking heads with bare minimum of presence on screen. Let’s face it, trying to interest people in the calculation of annual COLAs and ARC payments is a pretty dull event. Why not instead make a human drama about rightfully pissed-off teachers losing their shit in public forums and beginning the internal coordination of actions that became last spring’s wave of wildcats strikes across southern red states? That’s much more epic than discussion of fiduciary obligations as opposed to Wall Street deregulation measures.
Returning to Raimondo, I first got engaged by coverage of this story in December 2015. When I wrote a story for Counterpunch (4) about the good press that the Washington Post was giving Raimondo regarding her pension policies, Diane Bucci of the Rhode Island Retired Teachers Association contacted me with a 13 page letter that Seidle had mailed to Elizabeth Rosato of the FBI’s White Collar and Complex Financial Crimes unit, LeeAnn Ghazil Gaunt of the SEC’s Municipal Securities and Public Pensions unit, and Stephen Dambruch of the U.S. Attorney’s Office – District of Rhode Island’s Criminal Division. At the time I was a volunteer with the nonprofit news blog RIFuture and we ran the letter on January 14, 2016 (5). It was a huge hit and had significant traffic for the site on the day of publication. Notable also was the fact that Raimondo had invested the pension in her not-actually-that-blind trust that held the assets she had divested herself of before entering office.
In the next several weeks, I continued to report for RIFuture on the pension heist. Raimondo had been given significant support by Enron alumnus John Arnold (6), who has been waging a multi-year multi-state war on pensions. He had executed this publicity campaign via donations to the Pew Charitable Trusts Foundation, the Bill and Melinda Gates Foundation, the Blackstone Group, and the Laura and John Arnold Foundation. There was also a dubious report he got the Brookings Institute to issue and the financing of a multi-segment evening news report about the alleged pension crisis that was produced by the PBS New York affiliate (7).
Could this be why Martin Smith and Frontline are not talking about this stuff?
Along for the ride also was a Clinton insider named Marvin Rosen(8). Siedle wrote of him:
…When asked by the SEC in 2009, ERSRI admitted that Fenway Partners Capital Fund III paid an influential intermediary, Marvin Rosen, of Diamond Edge Capital Partners $262,500 related to this investment and paid the firm a total of approximately $1 million related to four private equity investments. Mr. Rosen was a Democratic fundraiser linked to former President Bill Clinton whose firm earned millions in New York pension fund deals in 2005 and 2006 when Alan Hevesi was state controller. Fenway and Mr. Rosen were also was involved in a pay-to-play controversy related to the New Mexico state pension.
Taibbi laid out further the names of the hedge funders:
Dan Loeb’s Third Point Capital was given $66 million, Ken Garschina’s Mason Capital got $64 million and $70 million went to Paul Singer’s Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. Felicitously, Loeb, Garschina and Singer serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms. The institute named Raimondo its 2011 “Urban Innovator” of the year.
Here’s where things take a turn into Kafka land. Dan Loeb, Paul Singer and Paul Tudor Jones are all major patrons of the corporate charter school industry, so significant that AFT President Randi Weingarten launched a high-profile publicity and divestment campaign against these hedge funds. Things got so combative that one of the Wall Street tycoons paid for a Times Square billboard attacking Weingarten (9).
That means that, in practical effect, every week a Rhode Island public school teacher paying into the state pension fund sees on their pay stub a deduction that finances the busting of their own union!
It bears mentioning at this point that, while union busting a pillar of the labor movement is bad enough, the truly awful aspect of the charter school industry in Providence is the negative impact on those students who are not chosen for charter enrollment. School funding in South Providence includes monies provided by the federal government for high-poverty populations, property taxes, and state-level taxes that are combined into the per-pupil expenditure. When you take significant tuition monies away from the public school system via the per-pupil expenditure, that results in lack of funding for resources that would be used to support special needs and English as a secondary language learners.
Whereas GOP frontal assaults by ICE and other elements of the police state are deeply traumatizing acts of violence, Democratic Party neglect and lack of care caused by austerity measures is another type of violence that unfortunately does not get the attention of the media.
Things with my reporting were going well at RIFuture until those retired teachers hired us to do advertising and sponsored content. It was a good way for the site to make cash while pushing a good cause. The teachers had surveyed pensioners and I was presented with the following data set.
6 questions were asked. We have eliminated question 2 and 3 as they were poorly worded.
Question 4 asked how they keep current with local and state news (Newspaper, Radio, Television)
Two remaining questions were:
Are you in favor of more open information from the RI State Treasurer about pension investments and fees? Yes or No
All 247 responded yes
Has the loss of the yearly COLA had a negative impact on your standard of living? Yes or No
230 responded yes
Is it important the RIRTA continue to investigate the RI Public Pension Fund for possible criminal mismanagement? Yes or No
Again, all 247 responded yes
Finally we asked “In a few sentences, please tell us how the new pension law (loss of COLA) has impacted your life.” Following are some of the comments:
-Believed the COLA/pension was a guarantee-thought it would be wisely invested.
-A sad ending (COLA loss) to a job I loved.
-Rent goes up! Healthcare goes up! Check does not.
-I am chipping at my savings to keep pace with rising taxes, insurance, goods, fees etc.
-I have no hope that my pension alone (no COLA) will keep me financially viable.
-Mentally for sure. Am I going to have enough money till the end? How long will I be able to stay in my house? All the same concerns I heard from my Mothers’ generation.
-It is like living in Limbo and the future is scary.
-I cannot be a consumer anymore. The bottom line is there is no expendable income to support out local businesses, charities and nothing for political contributions.
-Have discussed with my wife the advantage of moving out of RI to a state that will not tax my pension.
-I made my decision to retire based on the 3% COLA…..I don’t have the funds I thought I could count on.
-The comfort level we anticipated for us through our elder years has been stolen from us.
-There are over 20,000 of us suffering our own recession.
Then things started to go south.
The teachers wanted to start laying into current Treasurer Seth Magaziner, son of Clinton confidante Ira and a superstar for many progressives. In my own limited view, I am told Magaziner has done some decent work with the pension while trying to avoid paying the heavy penalty fees for withdrawal from the hedge funds. He has been doing some important work around school facility renovations while creating a green infrastructure bank for municipalities to use to create sustainable communities. At the same time, Providence Mayor Jorge Elorza moved to expand his Achievement First Mayoral Academy charter so significantly it would “break” the public school system, according to one City Council member. In this sense, the lack of action has created an opening for further neoliberal efforts to privatize the commons. Ultimately, Raimondo’s strategy has never worked out. She promised a dog leg-style financial chart over the course of several years, first the pension would see losses before ticking up significantly and showing big returns. But that never happened, instead the losses have been continued.
My editor at RIFuture, Bob Plain, wanted to preserve interview access to Seth Magaziner while I wanted to keep on the path of a good story. As a result, Plain got the retired teachers to cut me out of any further business and RIFuture continued to put up glowing stories about Magaziner. Friendships I had with other writers at RIFuture were wrecked because of this episode.
So here we are in 2018. Raimondo is up for re-election. She faces two unrepentant reactionaries, the Koch-aligned Alan Fung, a Republican, and Joe Trillo, the head of the Trump base in RI who broke with the GOP to run an independent campaign. Fung has been mayor of Cranston, a suburb of Providence, since 2009 and in that time has stimulated economic growth with lots of construction projects, either in the private sector or with a staggered roads repair schedule. There is a dark side to this, however, because he also allows ICE to prowl around construction sites and grab immigrant workers. When Raimondo and Fung vied for the Governor’s Office four years ago, it was the Libertarian-leaning Moderate Party candidate Bob Healey who siphoned enough red votes away and helped Raimondo eke by with the narrowest of leads. Given the extremism of the Rhode Island GOP that has developed in the past two decades, the prospect of a loudmouthed bigoted Italian gremlin like Joe Trillo being responsible for keeping a pro-choice governor in office is a truly astounding matter to contemplate.
Bob Plain and Martin Smith are quite obviously liberals, the kinds of people who seriously believe in lesser-evil voting being as impactful as the contradictions of capital. They don’t believe that the bourgeoisie picks the winner in all the contests that count every time. This is the true tragedy of American journalism in general and outlets like PBS or RIFuture in particular. More than 200 years after Marx’s birth, more than seven years since the Occupy Wall Street movement, four years since the Ferguson rebellion, and even after the Bernie Sanders campaign has fostered the growth of Democratic Socialists of America into a mass-membership party, the American press maintains the hegemony of neoliberalism. They continue with the progressive chic aesthetics while defaulting, when push comes to shove, to a neoliberal Democratic Party. This week, Raimondo is being floated by the neoliberal press outlets as possible presidential material (11). They seem to have missed when Brown University’s economics professor Mark Blyth, immediately after the 2016 election, wrote “The era of neoliberalism is over. The era of neonationalism has just begun” (12).
And this is why it is tragic.
Several weeks after the election of 2016, I was at a small meeting in a rural part of Rhode Island, Trump-land. Part of why Raimondo was able to get away with her pension heist was due to the longtime housing segregation and redlining that forced the most progressive voting blocs, namely Black and Brown voters if we follow the sociology of Michael C. Dawson, into the ghettos while public sector workers moved out to the suburbs (13). A woman described talking to a neighbor and inquiring about his vote. “So if you don’t hate gays and immigrants, why did you vote for Trump?”
“Because Gina Raimondo took away my COLA!”
As it was in Weimar Germany, so it is true now, austerity always breeds reactionary politics in the middle class, the cohort that unleashes fascistic politics upon the landscape.