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“The Most Opaque Investment Schemes Ever Devised”: Cities And States Paying Massive Secret Fees To Wall Street

California’s report said $440 million. New Jersey’s said $600 million. In Pennsylvania, the tally is $700 million. Those Wall Street fees paid by public workers’ pension systems have kicked off an intensifying debate over whether such expenses are necessary. Now, a report from an industry-friendly source says those huge levies represent only a fraction of the true amounts being raked in by Wall Street firms from state and local governments.

“Less than one-half of the very substantial [private equity] costs incurred by U.S. pension funds are currently being disclosed,” says the report from CEM, whose website says the financial analysis firm “serve(s) over 350 blue-chip corporate and government clients worldwide.”

Currently, about 9 percent — or $270 billion — of America’s $3 trillion public pension fund assets are invested in private equity firms. With the financial industry’s standard 2 percent management fee, that quarter-trillion dollars generates roughly $5.4 billion in annual management fees for the private equity industry — and that’s not including additional “performance” fees paid on investment returns. If CEM’s calculations are applied uniformly, it could mean taxpayers and retirees may actually be paying double — more than $10 billion a year.

Public officials are overseeing this massive payout to Wall Street at the very moment many of those same officials are demanding big cuts to retirees’ promised pension benefits.

“With billions of public worker and taxpayer dollars put at risk in the highest-cost, most opaque investment schemes ever devised by Wall Street for a decade now, investigations that hold Wall Street profiteers accountable are long, long overdue,” said former Securities and Exchange Commission attorney Ted Siedle.

Private equity firms have argued that their fees are worth the expense, because they supposedly deliver returns for investors that beat low-fee index funds, which track the broader stock market. But those private equity returns are typically self-reported by the firms over the life of those longer-term investments, meaning there are few ways to verify whether the returns are real. Indeed, a recent study from George Washington University argued that private equity firms are using their self-reporting authority to mislead investors into believing their returns are smoother and more consistent than they actually are.

In a 2014 speech, the SEC’s top examiner, Andrew Bowden, sounded the alarm about undisclosed fees in the private equity industry, saying the agency had discovered “violations of law or material weaknesses in controls over 50 percent of the time” at firms it had evaluated.

To date, however, the SEC has taken few actions to crack down on the practices, but some states are starting to step up their oversight.

In New Jersey, for instance, pension trustees announced a formal investigation of Gov. Chris Christie’s administration after evidence surfaced suggesting that the Republican administration has not been disclosing all state pension fees paid to financial firms.

In Rhode Island, the new state treasurer, Seth Magaziner, a Democrat, recently published a review of all the fees that state’s beleaguered pension fund has paid. The analysis revealed that the former financial firm of Democratic Governor Gina Raimondo is charging the state’s pension fund the highest fee rate of any firm in its asset class.

In Pennsylvania, the new Democratic governor, Tom Wolf used his first budget address to call for the state “to stop excessive fees to Wall Street managers.”

These moves are shining a spotlight on one of the most lucrative yet little-noticed Wall Street schemes. With so much money at issue – and with pensioners retirement income on the line — that scrutiny is long overdue.

 

By: David Sirota, Senior Writer at the International Business Times; The National Memo, April 24, 2015

April 24, 2015 Posted by | Pension Plans, Public Employees, Wall Street | , , , , , , | Leave a comment

“Still With Worrisome Fundamental Beliefs”: It Says A Lot That A Strong Economy Is Bad News For Mitt Romney in 2016

Nothing says democracy like a private-equity-manager-turned-governor whose dad ran for president facing off against a governor-turned-private-equity-manager whose dad was president over, you guessed it, the presidency.

That’s what we might get, though, if Mitt Romney, who’s “considering” a run in 2016, and Jeb Bush, who’s already formed a political action committee, end up duking it out over the Republican nomination. (Romney started out in private equity before becoming a governor, for those keeping score at home, while Bush was a governor before getting into private equity). But before we, well, get too far into the horserace, we should remember that Romney, at least, lost in no small way because he didn’t have anything approximating a policy agenda.

Think about that. Romney was a professional presidential candidate for almost five years by the time Election Day rolled around in 2012, and he still didn’t have a coherent strategy for the economy by then. His tax plan was a mathematical impossibility: he would have had to either abandon his tax cuts for the rich, raise taxes on the middle class, or run much bigger deficits to make it work.

And his economic plan, well, we’re still waiting for it. Romney told his donors that “if it looks like I’m going to win, the markets will be happy” and “we’ll see capital come back, and we’ll see—without actually doing anything—we’ll actually get a boost to the economy.” And that was it.

Romney really thought President Obama was scaring away a recovery, so all he had to do was win and then do nothing. Now, to be fair, doing nothing has actually worked out okay for Obama since he got re-elected, though not by choice, as the combination of more monetary stimulus, less fiscal austerity, and time have healed the economy enough that unemployment has started falling fast.

In fact, joblessness is already lower after two years, at 5.6 percent, than Romney said he’d get it in four. But, as you might have noticed, the recession put us in such a deep hole that there are still plenty of problems that need fixing. Romney, though, didn’t have a plan to take advantage of can’t-go-any-lower interest rates to rebuild our infrastructure. Or to help underwater homeowners refinance their mortgages. Or, more on this in a minute, to increase worker wages.

Romney, in other words, just ran against the economy, and hoped that would be enough. It wasn’t. And it shouldn’t even be an option in 2016, when unemployment could be as low as 4 percent. The question then won’t be how to get jobs, but rather how to get good ones with good pay.

Now, Romney is ideologically flexible. But he seems to have some worrisome fundamental beliefs that would hurt him if he runs in 2016.

After he lost the presidential race, Romney blamed his loss on Obama giving “gifts” to minorities and women, and warned that “this is really serious” since “we’re following the path of every other great nation, which is we’re following greater government, tax the rich people, promise more stuff to everybody, borrow until you go over a cliff.”

Does that sound like somebody who would try to boost stagnant wages—which should be the issue of 2016—by, say, expanding the Earned Income Tax Credit (and the ranks of the “47 43 percent“) like a lot of conservative wonks want to?

 

By: Matt O’Brien, The Wonk Blog, The Washington Post, January 12, 2015

January 15, 2015 Posted by | Economic Policy, Election 2016, Mitt Romney | , , , , , , | Leave a comment

“Jeb Bush Counts On Short Memories”: Trying To Clean Up His Act Now That He’s All Sleek With Wealth

So not that very long ago, Jeb Bush’s aggressive and controversial business tactics, mostly focused on the politically perilous area of private equity management in conjunction with shadowy foreign partners, especially in China, convinced some observers he sure wasn’t acting like somebody planning a presidential campaign. Now there are signs that what Bush has been engaged in lately is the tail-end of a financial fattening-up period before the long hard winter of a campaign. Here’s how the L.A. Times‘ Joseph Tanfani puts it:

After leaving office in 2007, he set up Jeb Bush and Associates, a management consulting firm. His son, Jeb Bush Jr., serves as managing partner. Bush has said the firm’s clients range from Fortune 500 companies to small tech startups, but Campbell declined to discuss the company’s business or identify its clients.

That same year, Bush also was hired as an advisor to Lehman Brothers, the New York investment bank and financial services firm. When Lehman collapsed in bankruptcy in 2008 amid the global financial crisis, Bush shifted to Barclays, the London-based multinational banking and financial services giant that bought Lehman Brothers’ North American divisions.

He got involved in a venture that provides disaster response services. He and two partners also set up another company, Maghicle Driverless, that is trying to develop self-driving vehicles for passengers and cargo.

“He was grabbing at a lot of things to make money quickly,” said Susan MacManus, a political science professor at the University of South Florida.

Now he appears to be trying to clean up his act now that he’s all sleek with wealth and ready to focus on a restoration of the family dynasty.

[Kristy] Campbell, the Bush spokeswoman, said he will leave Barclays by Dec. 31 to focus on a possible presidential run. She said his work for Lehman Brothers and Barclays was mostly offering clients “his perspective on the impact of economic trends, regulations and policies.”

Yeah, it’s a total coincidence Jeb associated himself with two of the world’s most recent examples of financial malfeasance. But that’s not the sort of thing Team Jeb is most worried about; it’s this:

[O]n Wednesday, Bush resigned from the board of directors of Tenet Healthcare Corp., also effective Dec. 31, according to a corporate filing. The Dallas-based company actively supported the 2010 Affordable Care Act, and has seen its revenue rise from it, an issue that could draw fire in Republican primaries.

Bush earned cash and stock awards worth nearly $300,000 from Tenet in 2013, according to corporate filings. He also sold Tenet stock worth $1.1 million that year, the records show.

Can’t be associating with Obamacare lovers, can he?

Jeb appears to hope his whole pattern of financial system bottom-feeding and door-opening for shadowy global interests will be forgotten once the campaign is underway. In that respect as in others, he is the appropriate representative of a Republican Establishment that views lack of wealth as the most unforgivable character flaw.

 

By: Ed Kilgore, Contributing Writer, Political Animal, The Washington Monthly, December 26, 2014

December 27, 2014 Posted by | GOP Presidential Candidates, Jeb Bush | , , , , , , , , | Leave a comment

“Aiding The Masters Of The Universe”: With Romney-Ryan, GOP Becomes Grand Old Private-Equity Party

The ticket Republicans will nominate in Tampa next week is uniquely connected to the “vulture capitalist” constituency, and uniquely committed to protecting the interests of today’s robber-baron class.

Paul Ryan grew up in a wealthy family with a Republican bent and all the right political and corporate connections.

He could easily have made his way into the private sector—doing business with family and friends, as have generations of wealthy Ryans.

But Paul was always the starry-eyed, perhaps wild-eyed. idealist. He read Austrian economic texts and far-right authors with a passion, committing to memory the writings of Friedrich Hayek, Ludwig von Mises, Milton Friedman and his intellectual heartthrob, Ayn Rand. Reading Rand, the newly minted Republican vice presidential contender once said was “the reason I got involved in public service.”

Ryan has since tried to distance himself from Rand’s militant atheism and even more extreme attitudes regarding the least among us. But his older brother, Tobin, told reporters: “Paul can still quote every verse out of Ayn Rand.”

Rand’s greed-is-good thinking plays well with hedge-fund managers, private equity players and the “vulture capitalist” class that enjoys taking a break from pillaging to plod through novels about, well, guys like them.

But as the youngest Ryan child, Paul got a little mavericky. Much as he talks up the private sector, Paul Ryan forged a career in the public sector. He’s worked as a Congressional aide and congressman—with brief breaks as a conservative “think tank” associate and a speech writer for Jack Kemp’s 1996 presidential campaign—since leaving college.

But older brother Tobin followed the more traditional route for sons of privilege.

As Fortune magazine notes, Tobin Ryan is a full partner with Seidler Equity Partners, a California-based “private equity investment firm that partners with visionary executives to grow their businesses.” Before he went to Seidler, Tobin worked with a politically connected Wisconsin-based private equity firm, King Capital (founded by former Republican Party of Wisconsin chairman Steve King, who served as finance chair for Paul Ryan’s Congressional runs). He also put in a stint with Bain & Company, the consulting firm where Mitt Romney says he “enjoyed working with a team of people to arrive at ideas and solutions” for what Texas Governor Rick Perry described as “vulture capitalist” interventions.

Tobin Ryan joined the Bain & Co. team after Romney moved to the private-equity firm that the consulting firm spawned, Bain Capital. But the connection has raised eyebrows, and spawned plenty of headlines, in the financial press.

The Ryan brothers are, in Tobin’s words, “very close.” Indeed, they live “about a three-wood away from each other” in the town where the Ryans have for decades been a pre-eminent (construction and contracting) business family. Tobin, a frequent media spokesman and surrogate for his brother, refers to Paul’s first US House race as “our first campaign.”

“So we’ve now got a former private equity executive running for president alongside the brother of a current private equity executive,” observes Fortune senior editor Dan Primack.

And Paul Ryan, like Mitt Romney, is politically committed to the aiding the masters of the universe who run the private-equity empires that now so dominate the US economy.

The “Roadmap for America’s Future” budget plan that Ryan wrote in 2010—the document that, arguably, launched into orbit as a Republican star—pledges to change tax policies to create “an enhanced investment climate.”

Specifically, Ryan proposed to:

* eliminate taxes on “interest, capital gains, or dividends” and estate taxes

* allow investments to be “fully deducted immediately” by corporations

* “eliminate the corporate income tax entirely” and replace it with “a single-digit consumption tax” that businesses and investors would calculate themselves.

* repeal the alternative minimum tax, which was designed to assure that millionaires and billionaires who take advantage of tax-code loopholes will have to pay something

How good would a Romney-Ryan administration be to the private-equity constituency?

According to a study by the chairman’s staff of the Joint Economic Committee of Congress, most working Americans who earn under $200,000 a year would see their taxes go up under the latest version of the Ryan budget. By the same token, Mitt Romney—whose income is “comprised of interest income, capital gains and dividends”—would pay less than 1 percent of his income in taxes.

The Romney-Ryan approach, forged and advocated for by candidates with personal and family ties to private-equity concerns, will yield great benefits for those very wealthy Americans who understand private equity as a personal reality.

But as the Joint Economic Committee report says, “House Budget Committee Chairman Representative Paul Ryan claims that the policies outlined in his budget will reform the broken tax code and put ‘hardworking taxpayers ahead of special interests.’ In reality, the Ryan plan gives the largest tax cuts to the wealthiest Americans and will pay for those tax cuts by raising the tax burden on middle-class workers.”

Indeed, the report concludes, “The richest households would receive the greatest benefit from these changes. The top 0.1 percent, for example, would receive an estimated average federal tax cut of close to $1.18 million per taxpaying household in 2015.”

America’s robber barons have had to wait for more than a century—since Teddy Roosevelt went rogue and joined the anti-trust campaigners—for a Republican ticket that would truly represent their interests.

But every indication is that the Romney-Ryan ticket will be of, by and for the private-equity managers who have become the masters of America’s economic universe.

The Romney-Ryan ticket rejects the American faith of not just Democratic presidents such as Harry Truman and Franklin Roosevelt but of Republican presidents such as Dwight Eisenhower and Teddy Roosevelt.

“The absence of effective State, and, especially, national, restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power,” Teddy Roosevelt warned at Osawatomie, Kansas, in 1910. “The prime need to is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise.”

That remains the prime need.

Now, unfortunately, the party of Teddy Roosevelt is preparing to nominate a ticket that is passionately at odds with the principle that the general welfare must prevail over the passions of men “whose chief object is to hold and increase their power.”

 

By: John NIchols, The Nation, August 20, 2012

August 21, 2012 Posted by | Election 2012 | , , , , , , , | Leave a comment

“Nice Work If You Can Get It”: Why Mitt Romney Likes Firing People

Mitt Romney would prefer for you to recall just one number regarding his record at Bain Capital. That would be 100,000 — the number of jobs that the Republican candidate claims he created during 15 years at the private equity firm.

But now there is a more interesting, plausible and relevant number: $20,000. That’s how much money Romney is estimated to have made from each worker laid off during Bain’s many corporate takeovers.

In fairness, Romney’s goal at Bain was never to create jobs but to reap the biggest returns for their valued investors. Judging by that metric, he did exceedingly well, as even Bill Clinton accidentally admitted when discussing Romney’s “sterling” business career. And of course, Romney’s fortune, estimated somewhere between $190 million and 250 million, attests to that assessment.

But over the course of the Romney’s years at Bain Capital, at least five of the companies he took over eventually went bankrupt, while still rewarding Bain investors handsomely:

• American Pad & Paper: Bain invested $5 million in the Ohio paper company in 1992, and reportedly collected $100 million in dividends on that investment. But AMPAD went bankrupt in 2000, resulting in 385 employees losing their jobs.

• Dade Behring: Bain invested $415 million in a leveraged buyout in 1994, borrowed an additional $421 million, and ultimately walked away with $1.78 billion. Dade filed for bankruptcy in 2002, and laid off 2,000 employees.

• DDI Corporation: Bain reportedly invested $46.3 million in the electronic parts manufacturer 1997, earning $85.5 million in profits plus $10 million more in management fees. When the company went bankrupt several years later, 2,100 workers were laid off.

• GS Industries: In 1993, Bain invested $60 million in the Kansas City steel maker, borrowed a lot of money, and then took $65 million in dividends. But GS eventually went bankrupt in 2002, and 750 workers lost their jobs and pensions.

• Stage Stores: Bain invested $5 million to purchase the Houston-based retailer and took it public in the mid-’90s, reaping $100 million from stock offerings. In 200o, following Romney’s departure from Bain, Stage filed for bankruptcy and 5,795 workers were reportedly dismissed.

While it is true that some of those companies went under after Romney had left Bain, the job growth for which he now seeks credit also occurred after his departure in 1999. But the bankruptcies — and the bust-out scenario that helped Bain to profit anyway — are not news. What AOL’s Daily Finance has contributed to the Bain debate is a simple calculation: Bain Capital booked $1.995 billion in profits from the layoffs of 11,030 workers at various firms. And by that scoring, Romney earned roughly $20,000 himself for each of those fired employees. Nice work if you can get it (or take it away from someone else).

 

By: Axel Tonconogy, The National Memo, June 15, 2012

June 30, 2012 Posted by | Election 2012 | , , , , , , | 1 Comment

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