Joseph Graham died living on the streets, 2nd RIer in a month


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grahamJoseph Graham was 52-years-young when he was found dead on the side of the road in Warwick last month.

“A walker spotted Graham’s body down an embankment at 915 Toll Gate Road, near the intersection with Route 2,” according to the Providence Journal. “Investigators do not know what caused Graham’s death, but there were no signs of trauma to his body, and they do not believe he was the victim of a homicide…”

He was homeless when he died.

Graham was from West Warwick, according to his obituary. “Joe was a self-employed arborist and the owner of J.T. Graham Tree Service for many years,” it says. “He enjoyed hunting and fishing, and was a kind and gentle man who always treated people fairly. He touched the lives of all who knew and loved him, and will be sadly missed.”

Mike Carley, a West Warwick lawyer who has known Graham since childhood said, “Joseph was a good man, a spiritual man who had great compassion for people and animals.”

The Rhode Island Coalition for the Homeless is hosting a vigil for Graham tonight at 7:30 at the Arctic Gazebo in downtown West Warwick. It’s the second such vigil in a month for the homeless advocacy group.

“The deaths of Michael Bourque in Newport in March, and now Joseph Graham, are a stark reminder of the year round danger of being homeless,” said a press release.

“This could be your friend, your neighbor, someone who’s work on your car, the girl at the Dunkin Donuts drive thru,” said Sherri Ferretti, coordinator of the Advocacy for the Homeless Kent County, in the release. “That is the face of a homeless person. Think of the person living down your street for a number of years and you don’t see them around any longer. The only thing that remains is the orange sticker on the front door indicating no longer livable and it’s in foreclosure. We all are the face of a homeless person.”

The vigil will feature a song by Newport police officer Jimmy Winters, a long-time advocate for the homelessness. He founded of the Housing Hotline, a non-profit organization that helps people with any kind of housing issue or homelessness.

“Homelessness is a 12 month a year crisis,” exclaimed Barbara Kalil, Co-Director of the Rhode Island Homeless Advocacy Project (RIHAP) and a member of the Statewide Outreach Committee. “People can still die on the streets in warm weather just like in the cold winter months. The good news is we can avoid these tragedies – there is a solution, it is called affordable housing.”

Ratings agencies knew they were serving rotten sausage


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image courtesy of Rolling Stone
image courtesy of Rolling Stone

If the ratings agencies are wrong to consider lowering Rhode Island’s credit rating for not making payment on the 38 Studios bond, they were really wrong when they gave the 38 Studios bonds an investment grade rating in the first place.

38 Studios was always a risky investment, and the state never had a legal obligation to pay on the bonds. The ratings agencies are responsible for an artificially high rating, and are now trying to push around the people of RI into paying for a deal they knew was bad all along.

The bond prospectus clearly states that “no guarantee can be made that the Company will meet it’s Loan Payment obligations under the Agreement or that the Company will continue to be in business now or in the future.”

On page 29, it says:

Development Stage Business. The Company is a development stage video game and entertainment company with no revenues from product sales, except those projected by the Company over the next several years. The company is currently considered “pre-revenue” and no guarantee can be made that the Company will meet it’s Loan Payment obligations under the Agreement or that the Company will continue to be in business now or in the future.

And on page 26, it says there has been “substantial doubt” the company would succeed since the summer of 2010:

On July 6, 2010, the Company’s auditor, PricewaterhouseCoopers LLP issued a “going concern” opinion in connection with the Company’s most recent audited financial statements stating that the Company will require additional financing to fund future operations and raising substantial doubt about the Company’s ability to continue as a going concern.”

But a company’s success or failure isn’t the only factor for investors to consider. These bonds had an insurance policy, and because of the insurance policy backed by Assured Guaranty, the bonds would receive an investment-grade issue rating of AA+/Aa3. But there was also an underlying rating of A/A2 issued to the bonds. The underlying rating of A/A2 means that the ratings agencies felt that the 38 Studios bonds were investment-grade even without the backing of an insurer.

The NY Times’ Mary Williams Walsh reported in August, 2012 that municipal bond defaults are in fact much higher than most people are aware of: “Moody’s Investors Service has reported that from 1970 to 2011, there were only 71 municipal bond defaults. But the Fed report counted 2,521 defaults in that time.” Economists at the Federal Reserve Bank of NY found that municipal bond defaults are only reported for investment-grade rated bonds, not for unrated (junk) bonds. Furthermore, their research showed that: “…financing projects using new technologies or projects with no historical track record tend to make up a majority of unrated IDB defaults.”

So the main reason we can’t default is because these were investment-grade bonds. But why were these bonds investment grade?

Is there the potential for a lawsuit? Maybe. Giving artificially high ratings to bonds backed by specious economic activity in the real world caused the mortgage crisis too. An ongoing federal lawsuit filed by Eric Holder in 2013 claims that credit rating agency S&P defrauded investors and fueled the financial crisis. At the center of the suit are the favorable ratings issued by the credit ratings agencies on what they knew were toxic assets.

“Holder accused S&P of falsely claiming that its high ratings were independent and objective,” reported the USA Today in Feb 2013. In reality, Holder charged, the ratings were influenced by conflicts of interest and the firm’s drive to reap higher profits by pleasing bond issuers at the expense of investors.

In other words, imagine the following scenario as outlined by Acting Assistant Attorney General Tony West: “buying sausage from your favorite butcher and he assures you the sausage was made fresh that morning and is safe. What he doesn’t tell you is that it was made with meat he knows is rotten and plans to throw out later that night.”

Beginning in the 1970’s, bond issuers began paying credit ratings agencies to get higher ratings on their bonds. This is a type of conflict of interest that Eric Holder was talking about above. Despite all of the evidence pointing to the ratings agencies gaming the system, little has been done to change business as usual. The issuer pay model still exists and the “Big Three” ratings agencies have seen their profits soar largely as a result of their ratings business.

For years, the ratings agencies have been shielding themselves from lawsuits by claiming that they are essentially financial journalists – their ratings are merely opinions protected by the free speech clause in the First Amendment. Litigants would have to show that the ratings agencies had “actual malice” in order to have a case, which is extremely difficult to prove.

But a 2009 federal district court ruling rejected the free speech defense that credit ratings agencies had been using for years:

The suit alleges the two ratings services issued misleading ratings to a $5.86 billion investment vehicle that collapsed in 2007. Scheindlin acknowledged that ratings typically are “matters of public concern,” protected by the First Amendment from liability. However, the protection doesn’t apply, she wrote, “where a rating agency has disseminated their ratings to a select group of investors rather than to the public at large,” as the plaintiffs in the case alleged.

Page 33 of the judge’s opinion states that because the ratings weren’t disseminated to the public at large, but instead to a select group of investors in connection with a private placement, that the free speech defense wasn’t viable. Court rulings in 2010 in California and 2011 in New Mexico yielded the same results.

These court cases are somewhat similar to 38 Studios, which was also a private placement. It therefore may be possible for a group of taxpayers (or the bondholders) to file a class action lawsuit against the ratings agencies for negligent/fraudulent ratings issued to the 38 Studios bonds. 

A little more food for thought. The (sadly) slow implementation of the Dodd-Frank Act should hopefully make the big three ratings agencies less of an influential factor in the future. A recent SEC report showed that ratings practices by the ratings agencies still have some problems. Remember that the 38 Studios bonds were issued prior to Dodd-Frank being implemented at all, so we can probably assume that the ratings agencies had even more problems back then. In a 2013 Rolling Stone article I cited earlier, internal credit agency emails revealed:

Moody’s and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.

In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.

“Lord help our fucking scam . . . this has to be the stupidest place I have worked at,” writes one Standard & Poor’s executive. “As you know, I had difficulties explaining ‘HOW’ we got to those numbers since there is no science behind it,” confesses a high-ranking S&P analyst.

It’s quite ironic that a few companies that fueled an enormous financial crises are now trying to bully the people of RI. Where has Wall Street’s moral obligation to Main Street been?

Providence Renaissance Hotel lost its gay-friendly rating


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Masonic_Temple,_Providence_RI
Renaissance Providence Downtown Hotel

The Renaissance Providence Downtown Hotel, which occupies a prime piece of real estate between the Rhode Island State House and the Providence Place Mall, was opened with great fanfare in 2007 by Sage Hospitality Resources. Advertised as being “among the most remarkable hotels in Providence” it is described as featuring “exquisite historic architecture with excellent modern hotel amenities and premium service.” This is a four-star hotel where room rates hover around $500 a night.

In 2008 the Renaissance became TAG (Travel Advocacy Group) Approved. According to the press release issued at the time, “This prestigious designation is awarded to gay-friendly hotels, resorts and destinations across the United States.” In order to be TAG Approved, the hotel must be recognized for its “outstanding commitment to equality,” including:

-Enforcing non-discriminatory policies including sexual orientation
-Treating heterosexual spouses and homosexual domestic partners equally in personnel policies
-Providing diversity and sensitivity training for employees
-Empowering customers and employees to be watchdogs of its gay and lesbian business practices

The Procaccianti Group (TPG), “a Cranston-based hotelier and development company,” acquired the hotel from Sage Hospitality Resources in late 2012/early 2013. By May, 2013 the Renaissance was no longer TAG Approved.

The exact reasons for the Renaissance losing its TAG Approved status are unknown, but I learned that one or more complaints have been filed with the Rhode Island Commission for Human Rights (RICHR) due to discriminatory practices against LGBTQ employees. When I requested information on these complaints from RICHR I was informed that under the Access to Public Records Act, investigatory records are not releasable. RICHR could neither confirm nor deny that any complaints were made or that any investigation was being conducted.

TAG has a similar policy of not commenting on the exact reasons for loss of TAG Approved status. When I called TAG I was told only that the Hotel lost its TAG Approved status in May, 2013.

Reading the TAG Approved Accommodations Member Application, only one manner of losing TAG Approved status is discussed. Upon becoming TAG Approved the Renaissance committed itself to the following stipulation:

By becoming a TAG Approved Accommodation, property management acknowledges that both their customers and employees may become “watchdogs” of their business practices. TAG Approved encourages both hotel employees and customers to contact TAG Approved to report if the property does not follow required policies. It is the policy for TAG Approved to follow up on all complaints, and we expect the property to adequately address and resolve the issues presented. If TAG Approved determines that the complaint is not being adequately addressed, or that the property does not meet TAG Approved’s Best Practices qualifications, the property will be terminated as a TAG Approved member and the company must agree to immediately cease using TAG Approved identification on promotional materials.

In other words, it seems that employee and/or guest “watchdogs” made one or more complaints concerning the violation of the non-discrimination policy the hotel agreed to under TAG guidelines. When this was reported, TAG expected the Renaissance “to adequately address and resolve the issues presented.” When the hotel failed to adequately resolve the issue(s) the hotel was “terminated as a TAG Approved member” and the Renaissance was immediately compelled to cease “using TAG Approved identification on promotional materials.”

“We are proud to receive TAG approval because it recognizes our efforts to serve and welcome the gay community,” said Angelo De Peri, general manager of the Renaissance Providence Hotel, in 2008, “We hope this designation inspires any and all travelers to stay at the Renaissance Providence Hotel, where they will find a welcoming and non-discriminatory environment.”

Five years later, even as Rhode Island was celebrating the passage of marriage equality and the positive effects such passage would have on our tourism industry, the Renaissance Providence Hotel, with De Peri still as manager, was quietly dismissed from the program. This is the same De Peri now under fire from hotel workers seeking to unionize at the Renaissance.

The Renaissance Providence Downtown Hotel either cannot justify its behavior towards LGBTQ employees and customers or worse, it doesn’t care to. One wonders if the discriminatory actions that remain unaddressed by the hotel are worth the loss of revenue and prestige the TAG Approved label once brought.

Debating RI’s future: Moving away from knee jerk negativity


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Power of Place Summit adIf you’re like some key local pundits and bloggers, you believe that Rhode Island is a hopeless economic and political basket case that can’t seem to do anything right.

At Grow Smart RI, we think this conclusion is as off base and dangerous as the notion that Rhode Island is performing up to its potential—to the point where no major public policy changes or new investments are needed to improve our economic performance.

Why “Hopeless” Rhode Island is a Myth

Let’s pretend for a moment that the Ocean State is actually a total economic and political basket case. The following would not be a reality:

  • Attracting the world‘s largest distributor of organic foods (UNFI)
  • Emerging as a national center for world-class brain research
  • Gaining a national reputation for facilitating business startups
  • Attracting national acclaim for coastal resiliency planning
  • Moving rivers, railroad tracks, and highways to revitalize and visually enhance our major city
  • Our capital city of Providence having a vibrant food and music scene, which contributed to its recent distinction as #1 on Architectural Digest’s “Best Small City” list.

You would agree that—while this list is not exhaustive by any means—all of these indicators validate and radiate what our state motto claims: there has, and always will be, hope in Rhode Island.

Playing to Our Strengths

Despite these and other signs of progress and competence, Rhode Island today, with its relatively high unemployment and underemployment rate, is a major economic underachiever that has tremendous untapped economic and social potential.

Among the assets that we can leverage and capitalize on much more systematically and aggressively are:

  • Our outstanding collection of historic buildings and neighborhoods
  • Our well positioned deep water ports and harbors
  • Our good fortune to have more college students per capita than almost any other state in the country; with highly ranked design, research, culinary, oceanography, and business schools, as part of the vibrant local mix
  • Our compact size and development patterns
  • Our easy access to diverse natural resources and beauty
  • Our strategic geographic location within a day’s drive of more than 40 million people and
  • Our distinctive urban rural balance as the 2nd most urbanized and 16th most forested of the 50 states

Our 2014 Power of Place Summit: Positioning Rhode Island for an Economic Renaissance 

Grow Smart RI is convening a broad cross section of more than 500 Rhode Islanders on Friday, May 23rd at the RI Convention Center to learn from one another how to play more effectively to these and other strengths.

By doing so, we’re challenging ourselves to go beyond the negative headlines and the superficial whining that dominates too much of life in the Ocean State today.

We will learn from each other: exploring successful smart growth policies, partnerships, and projects that are already working to move our state forward, as well discussing those that have the potential to do the same.

And we will be sending a clear message regarding our economic woes: that while a sense of urgency is warranted and can serve as a catalyst for solutions—one of hopelessness and desperation is unwarranted and counterproductive.

The dialogue about Rhode Island’s future needs more balance, and more connection to reality vs. knee jerk negativity. We intend to push the dialogue in this direction, even if it requires confusing some people with the facts.

If you’re willing to move beyond stewing to doing, join us on May 23rd at our 2014 Power of Place Summit. [REGISTER HERE]. We look forward to seeing you there.

Wingmen: Should we pay 38 Studio bond debt?


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wingmenThe candidate who sues the ratings agency will be the next governor, I told Justin Katz and Bill Rappleye on this week’s NBC 10 Wingmen. To me a lawsuit seems like the best way to punish the ratings agencies – who BY ALL MEANS should be punished. But – so far, it seems to me – the state’s likely to spend less money going forward by paying our $12.5 million (not legally-binding) obligation this year. Assuming you support future public infrastructure.

News, Weather and Classifieds for Southern New England

Government FOR the People


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mark_binder2Last week I wrote an op-ed in response to Mike Stenhouse’s op-ed Left won’t defend failed RI Policies lambasting Tom Sgouros and Sam Bell .

My first draft went to the Providence Journal, but the conversation with the editor didn’t go well for a variety of reasons.

Next I sent it to GoLocalProv with the intention of it being the first of a series of weekly columns. I made the mistake of sending an invoice to GoLocal, and evidently the idea of paying for content was so far out of the framework, that they immediately removed the article.

I’m not saying this is my best piece of work. But it does reflect my thinking these days.

I believe that people are more important than corporations, that government’s job isn’t to prop-up business interests and who also think that the system of our government needs repair. Enjoy the article. Too bad you can’t read the slew of negative comments that popped up on GoLocal.
– Mark Binder

Government FOR the People

Enough about Left versus Right and Liberal or Progressive versus Conservative. Mike Stenhouse is a shill for the wealthy, who thinks that his ideas and opinion should be treated as gospel.

I’m not sure if I’m a leftist, a liberal, or a progressive. I know there’s waste in government: just look how much education funding has been funneled into the testing industry and how many dollars enable cars rather than RIPTA.

Stenhouse claims that the left won’t defend failed RI policies, damned right. Because the State government’s policies aren’t “left” policies, they’re just lame. Our State is run by a pair of appointed “leaders”, who bully our elected legislators, who are funded and buffaloed by corporate lobbiests and are too poorly paid to fight for the interests of citizens. At the same time, Stenhouse and his band of so-called experts spout nonsense, ignore facts and “chuckle” when faced with inconvenient truths.

Let’s lay it out. There is a myth created by followers of Reagan and Rove that cutting taxes will create jobs. It’s bull. We know because we’ve tried it. We’ve seen corporations outsource manufacturing and cut retail price by lowering wages, driving out small businesses, and putting the cost of underpaid employee health care on taxpayers. Then they wonder why nobody’s trained for a “job.”

Here’s what happens when you cut taxes. You also have to cut services and funding for transportation and funding for education. You get a race to the bottom, with municipalities and states trying to “attract” businesses that pit government against government and move on when the next best deal comes. (Hello New London.)

Our government stinks at “job creation.” (Hello 38 Studios.) In the old days, when a politician was running for election, he (not she) created jobs to get votes. This is effective politically, but produces bloat and inefficiency. The job of government is to protect the people and to organize projects that benefit the people.

Now, though, billionaires and multinational corporations fund non-profits and hire consultants to sway the rhetoric. Remember how staunchly George W. Bush denied climate change? (Hello, Matunuck.)

But enough about “them.” Let’s talk about what we, the people, really want.

We want more money for public education so that we can hire more teachers, because the single most important factor in improving learning is the ratio of students to teachers. At the same time, we want to create a testing policy that helps teachers assess students, not one that puts fear in the heart of educators and learners.

We want more money for public and alternative transportations. Europe and Japan had high taxes on petrol for years while we laughed and drove. Now they’ve got rail systems and lead in energy efficiency. We’ve made little progress since the so-called “energy crisis” of the 1970s.

We want corporations to pay to keep our environment clean, not sweep regulation aside to make it easier for them to pollute.

We want universal healthcare, not a bloated compromise designed to keep insurance corporations and non-profit boards fat and healthy.

We want our government to raise taxes so we can stop the borrowing that funnels citizens’ money to investors who manipulate bond ratings to get the best deals.

Don’t cut taxes on the arts and pretend that everybody’s going to run out and buy a painting. This is a benefit for the wealthy. And then, because the arts aren’t generating revenue, don’t push for a so-called bond issue that’s going to be run by the renamed EDC. If government believes that arts generate revenue, increase funding for the arts!

Don’t even consider the pathetic pleas from real estate interests (hello Superman building) to borrow money to bail them out. And face the truth that rebuilding in a flood zone is building on sand.

We want the wealthy to pay more, exactly because their fair share isn’t the same as the poor’s fair share.

And we want the opposition to stop ignoring facts, figures and realities.

My company published Tom Sgouros’s most recent book, “Checking the Banks” because it explains in simple terms how banks and investments firms scam governments. One of the tactics of Stenhouse and his lot is to ignore the facts and restate dogma.

When Tom debated Stenhouse’s out-of-state expert, he realized that the man knew nothing of the actual history, facts and policies of Rhode Island. Tom didn’t say that those failures were good things. Checking the Banks> suggests that rather than borrowing, our taxpayers would do better if Rhode Island created its own internal bank. But the chuckleheads laughed, and then swiped some of the copies of the book that Tom had for sale.

That’s exactly the challenge that honorable human beings face. Wealthy people aren’t satisfied with what they have. They want to us begging for scraps. They blame us for laziness and waste and then steal even more from those of us who are trying to make a living.

Conservatives and progressives both wrong on ideology of RI General Assembly


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state house francis st lawnI take a pretty dim view of the way most of RI’s political commentators describe the situation at the General Assembly. On the left, you tend to hear the argument that conservatives within the Democrats have at least veto power over the Democratic agenda (and often it’s claimed conservatives control the GA) and these conservatives need to be overthrown. On the right, you’ll hear the argument that X number of years of ultra-liberal rule have doomed this state. Both of these narratives are simplistic and wrong.

The problem is both of these arguments rely on nothing more than feelings. That’s mainly because we lack any sort of data at all when it comes to the political positioning of state legislatures.

Luckily for us, political science professors Boris Shor and Nolan McCarty have not only addressed this lack of data, but they’ve made it free for anyone with a spreadsheet program (which is literally anyone with a computer) to use. The caveat is that it only runs from 1993 to 2011, and not all of it is complete. It also measures the median legislator.

So where does the RI General Assembly fall in this data? Well, first draw a vertical number line where -2 is far left and 2 is far right. Keep that in mind when you examine the graph below:

Graph of RI Polarization
(via Samuel G. Howard)

The Republicans turned right from 2008 to 2011. This seems to be because the 2008 elections knocked out some Republicans, and the 2010 elections brought more right wing candidates into the fold. But the interesting part about this graph is that while the Senate Democrats went more left following 2008, the House Democrats turned right.

The other thing this graph points out is that among state legislatures, the Republican Party in the RI General Assembly is essentially dead center. Meanwhile the Democrats are center-left. Among other things, this points out the Moderate Party was always going to be a waste of time. RI’s general assembly isn’t being pulled between two poles of left and right, but between center and center-left.

Now, before everyone leaps to the comments to proclaim how stupid liberals are, let’s pause a moment and compare the caucuses to their counterparts in other states. We have two options here. We can use the most recent data that Shor and McCarty provide – which ranges from 2006 to 2011 depending on the state OR we can use 2006 across the board, which is where we have complete data for all legislatures. I’ll use both, and you can decide which you prefer. Note that Nebraska has no House of Representatives, and Pennsylvania’s most recent data is missing its Senate.

For the most recent data:

  • RI House Dems are 31/49 most liberal (NV, GA, NC, PA, UT, TN, IN, SD, AK, WV, ND, MS, AL, LA, OK, KY, AR to right)
  • RI House GOP are 46/49 most conservative (CT, MA, HI, NY to left)
  • 3rd least polarized House (LA, KY less polarized)
  • RI Senate Dems are 34/49 most liberal (MO, SC, TN, AL, TX, DE, KY, IN, SD, NE, MS, ND, WV, AR, LA, OK to right) PA: missing data
  • RI Senate GOP are 45/49 most liberal (VT, CT, NJ, MA, NY to left) PA: missing data
  • 4th least polarized Senate (LA, DE, WV less polarized)

For the 2006 data:

  • RI House Dems 30/49 most liberal (KS, NV, NC, PA, GA, IN, WY, UT, TN, SC, AK, WV, SD, ND, AL, OK, LA, KY, MS, AR to right)
  • RI House GOP 48/49 most conservative (NY to left)
  • 3rd least polarized House (LA, KY less polarized)
  • RI Senate Dems are 35/50 most liberal (SC, TN, KY, DE, SD, IN, MS, TX, ND, WV, AL, AR, LA, NE, OK to right)
  • RI Senate GOP are 49/50 most conservative (NY to left)
  • Least Polarized Senate

So what does that tell us? Well, that among Democratic state caucuses, RI Democrats sit in the right wing. Certainly, among Northeastern Democrats, RI Democrats are noticeably right wing. However, they’re still left of center. It’s because of the GA’s Republican caucuses that RI’s legislature (among all members) is one of the most centrist and least polarized legislatures in the country. I know I’m out on a limb here, but this is what the data’s demonstrating.

This is a state of affairs that disappoints both left and right and wins no accolades from anyone. Activists on both sides will call for their leaders to move towards the wings, and they’re likely to be successful in doing so.

Let’s jump track and look at the findings of Richard Wilkinson and Kate Pickett in The Spirit Level, which found that while Vermont and New Hampshire pursued two very different agendas (one on the left and the other on the right), they’ve arrived at roughly the same outcomes for their people. That’s ultimately what the General Assembly is judged on: the outcomes of the state. And I know people will dislike this, but some of it is simply beyond our control. Republicans in RI were lucky enough to preside over a period of industrialization, cheap labor, and prosperity from the mid 1800s to the early 1900s. Democrats in RI were lucky enough to preside over the broadening of that prosperity and the deepening of that industrialization, and unfortunate enough to preside over its collapse as well.

A lot of that wasn’t because of government policy, but because of events and technological advances no one would’ve foreseen. How a government creates or fosters broad prosperity is less important than that it does so. And it could very well be its own centrism that’s hamstringing the General Assembly from taking any action of importance for the economy.

Will management efforts end eel bootlegging?


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DEM monitors glass eels, or baby eels, in the Annaquantucket River in North Kingstown this time of year. (Photo by Bob Plain)
DEM monitors glass eels, or baby eels, in the Annaquantucket River in North Kingstown this time of year. (Photo by Bob Plain)

We tend to think of eels only as sushi or bait. But they are also among the most interesting, endangered and expensive fish in Rhode Island waters.

In contrast to river herring, salmon and other anadromous fish (those that live in salt water and breed in fresh water), eels are catadromous. They spend their lives in fresh water and swim out to sea to breed and then die. We know they spawn somewhere in the Sargasso Sea, a section of the Atlantic Ocean west of Bermuda. But their mating ritual remains a secret. Despite many attempts, it has never been witnessed.

The larval offspring randomly float to points all along the northwestern edge of the Atlantic – anywhere from the Caribbean islands to Canadian maritime provinces. Once they’ve reached a coastline, they make their way upriver into fresh water. For the next seven to 20 years they will live in local rivers and lakes, growing to be about two or three feet long, before secretly swimming back out to the Sargasso Sea to spawn and then die.

“It’s one of the great mysteries of the sea,” said Bob Ballou, assistant director of the state Department of Environmental Management. “These fish are amazing.”

In rivers all over Rhode Island right now, these tiny and somewhat transparent baby eels are ruthlessly swimming upstream to find a freshwater home. At this stage of their lives, smaller than 65 centimeters, they are called glass eels, and they are one of the most valuable and threatened species of fish found in New England.

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This chart shows the decline in eel populations since 1981. Click on the image for a larger version.

Earlier this week, Ballou attended an Atlantic States Marine Fisheries Commission meeting where it moved forward in developing new interstate regulations for eels. The group will study and discuss a range of options throughout the summer, including a moratorium on glass eel harvesting. In 2011, eels were considered for protection under the Endangered Species Act.

“Eels are going to be an emerging issue,” Ballou told me. “They are going to get a lot more attention.”

Adult eels, or yellow eels, live quietly in our local lakes and rivers and are legally harvested in many states – in Rhode Island they must be at least 9 inches. But the take is very small; though eel is a delicacy in Japan, here they are used just for bait to fish for striped bass.

The glass eel harvest is another story entirely.

It is outlawed in every East Coast state except Maine and South Carolina, where they are sold and shipped to China and farmed indoors for food. “Adult eels are mostly sold in Japan where they are roasted,” according to the Boston Globe, “in the United States, sushi eaters might recognize them as unagi.”

So valuable are the tiny, transparent eels that the ASMFC and others, such as Save The Bay, are very concerned with poaching in one state to bootleg them to Maine or South Carolina. Last year, a pound of glass eels could be sold legally in Maine for $2,000.

“It was like the wild west up there,” Ballou said. “There were reports of people making $150,000 on a good night.”

Last year, at least two poachers were arrested in Rhode Island, according to this ecoRI report. Jack McIlmail, a captain in DEM’s law enforcement division, declined to provide documents relating to any arrests for eel poaching and DEM declined to discuss law enforcement actions concerning glass eels entirely. Ballou said he wasn’t aware of other arrests, and stressed that poaching hasn’t been an issue in Rhode Island. DEM does patrol for poachers though; an enforcement officer was recently at the Mattattuxet River, asking people if they have seen vehicles with Maine or South Carolina license plates.

This season in Maine the price is down to about $1,000 a pound, said Bill Quinby, an international fish broker based in South Carolina who used to business in Rhode Island waters (He coordinated the deal between the DEM and the Russian fish-buying boat in Narragansett Bay). His company Mayflower International is a licensed glass eel dealer in Maine and owns one of only ten harvest licenses in South Carolina and sells them to Chinese and Korean businesses.

There are three types of eels in the world, Quinby explained: Japanese, European and American. An earthquake decimated the Japanese eel population about six years ago and the European fishery is very heavily regulated. This set off the eel boom in Maine.

“It was shortly after the tsunami and earthquake in Japan,” he told me, “and the demand for glass eels for aquaculture in China, particularly, escalated tremendously because they used to get their baby eels from Japan and grow them out for market.”

Dealers would drive around with carloads of cash, Quinby confirmed, and trade Maine fishermen tens of thousands of dollars for their glass eel catch. This year, Maine instituted a quota of 11,000 pounds and transactions are now done with a swipe card.

Save The Bay Baykeeper Tom Kutcher said Maine instituted the quota knowing the ASMFC would be putting new regulations in place. “It’s irresponsible management to let it go on,” he said. “It’s really good pay for really irresponsible work.”

Save The Bay would like to see the ASMFC put a moratorium on all glass eel harvesting. “They are undergoing this incredible decline,” Kutcher said. “At one time they were the highest biomass fish in our rivers.”

Ballou, who is a member of ASMFC American Eel Advisory Board, said there may be room for harvesting a small number of glass eels in Rhode Island someday.

“There is a school of thought out there that if we could do it in a sustainable way, if you had a facility to grow out these eels,” he said. “You could argue that you’d actually get more protection for the resource by capturing some with some sort of innovative approach. It could be beneficial to the resource and have commercial value.”

Video: Rhode Islanders Fight for $15, part 2


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The Smallest state, the smallest Wendy’s, the smallest pay, I feel like a nobody,” said one of the Wendy’s employees on strike yesterday. “Today I feel strong.”

Here’s video from the second public protest from Rhode Island fast food workers yesterday. You can watch another video from yesterday’s strike here, and please check out these two photo essays – one from Burger King in Providence and the other from Wendy’s in Warwick.

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Mattiello, Paiva-Weed both tiptoe back from 38 Studios support


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mattiello2Senate President Teresa Paiva-Weed and House Speaker Nick Mattiello just made a striking shift about the 38 Studios bailout, which is interesting since they both have a history of supporting the bailout.

Go back to what Paiva-Weed, and former Speaker Gordon Fox, said when the 38 Studios bonds were being issued.  At that time, in 2010, Fox and Paiva-Weed told Wall Street’s credit-rating agencies that the state would bail out 38 Studios bondholders if 38 Studios was unable to pay, although the Rhode Island Constitution forbids the General Assembly to “pledge the faith of the state for the payment of the obligations of others” without voter consent.  Still, even though our constitution is meant to give voters the right to have a say whenever the state is pledged to pay, Fox and Paiva-Weed did their best to get around our constitutional right and signaled that they would get the General Assembly to do a bailout if one was requested.  The rating agencies decided to act as if there really was a promise by the state to pay, as if it really was state debt—though of course our state really didn’t have any kind of obligation, because the procedures that the constitution designed to protect taxpayers were never followed.  Since the Speaker and the Senate President were in favor of making taxpayers pay for a bailout if need be, their perceived unofficial clout was enough to make some Wall Streeters think they could profit from participating in this dirty deal, even though 38 Studios didn’t seem to have  a very viable business.

But the State House leaders are taking a different line in today’s Providence Journal.  Paiva-Weed now says that what she said to the rating agencies in 2010 is not binding now, and Mattiello similarly says that he’s not bound by what Fox said then even though Mattiello had been Fox’s #2 at the time.  Instead, Paiva-Weed and Mattiello now say that they’ll look at what’s best for Rhode Island right now (since we all know that our State House leaders are dedicated to figuring out what’s best for Rhode Island).

Paiva-Weed has been a longtime bailout supporter.  Last June, when the House was debating the state budget, Mattiello was a big advocate on the House floor for bailing out 38 Studios bondholders.  This year, Mattiello is often portrayed in the media as someone who hasn’t taken a position about a bailout.  In today’s story, Paiva-Weed and Mattiello don’t say that they’re against the bailout.  And I wouldn’t be surprised if they go back to saying that taxpayers should pay for this debt which we don’t owe, like they’ve said in the past.  But they’re now saying that if they come out in favor of a bailout it will be because of what’s best for the state right now, not because of the personal pledge to the Wall Street rating agencies that was made in 2010.

It’s no secret that the 38 Studios bailout is very unpopular.  The strongest advocates for a bailout have been those in high-ranking positions, like Fox and Paiva-Weed and (last year) Mattiello.  After all, it’s generally those in high places who arrange all sorts of shady deals like 38 Studios, and it helps them if they can continue the tradition that those who seek to profit from these dirty deals will always be assured of being paid.  If you go a little further down the power ladder to the representatives who were actually elected by voters, there was a serious rebellion last year against doing the bailout.  And of course the bailout is even more unpopular among the voters themselves, who are the least powerful in this debate, which is why there was an effort to stick them with the bill in the first place.

From what I hear, a sizeable number of politicians who have to face the voters are planning to vote against the 38 Studios bailout this year, though there are also lots of politicians who are holding out against the voters’ will and supporting a bailout.

What I notice about the statement in today’s Projo by Mattiello and Paiva-Weed is that it’s exactly the kind of thing that would provoke the Wall Street rating agencies.  Paiva-Weed is pretty clearly going back on what she said to the rating agencies 4 years ago.  Mattiello is making a similar shift, even though he’s known to belong to the same clique as former speaker Gordon Fox and the preceding speaker William Murphy. Because Paiva-Weed and Mattiello said what they did in today’s Projo, we’re likely to see a downgrade by credit-rating agencies now that’s quicker or more severe than it would have been if Paiva-Weed and Mattiello had said nothing.

If Paiva-Weed and Mattiello have decided that they need a big downgrade to scare people into supporting the bailout, they’re doing exactly the right thing to anger the credit-rating agencies and provoke a big reaction, even though Paiva-Weed and Mattiello have always been careful not to suggest that they’re actually against a bailout.  If all this works, we get a serious ratings downgrade, the politicians pass the bailout again, the crooks on Wall Street immediately put us back to a higher rating, and our unelected leaders get to preserve their reputation as people who can insure that those who want to be paid in these kinds of dirty deals will get a taxpayer bailout.

Let’s remember, by the way, that our credit rating is actually not the most important thing.  Good investors look past the credit rating on a bond and do their own due diligence to see whether the bond is a good investment.  They have to do that, since the credit-rating agencies got a reputation for doing shoddy work during the financial crisis, putting AAA ratings on investments that were worthless.

I assume that the rating agencies will lower our state’s credit rating, even on the legally binding voter-approved debt that’s obviously going to be paid no matter what happens.  So yes, ratings agencies can certainly make these unjustified ratings as a way to pressure us into a bailout, but those rating agencies don’t speak for the whole market.  Whether the rating agencies lower our voter-approved bond rating to BBB, or further to B, or even to D, doesn’t matter as much as what investors are willing to pay.

It’s traditional for rating agencies to retaliate, but it’s the business of smart investors to look instead at whether their investments will make a profit.  Since we’re a small state that needs to sell only a small number of bonds, we only need a few smart investors, as I explained earlier.  So let’s put aside the hype about credit ratings.  Focusing on retaliatory credit ratings downgrades, rather than on what’s a good deal for investors in our voter-approved bonds, is exactly what people do when they want to present a slanted case for a bailout.  For investors who want to buy legitimate, voter-approved bonds, we can actually offer a better deal when we don’t let the insiders waste our scarce taxpayer money on bailing out their dirty deals like 38 Studios.

Photos: Rhode Island’s Fight for $15, 12pm at Wendy’s


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Fast food workers are fighting for $15 an hour all over the country today – and all over Rhode Island. After a 6am action at a Burger King in Providence (, video here), the workers and activists convened again at the Wendy’s in Warwick, where the local protests began.

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Video: Rhode Islanders Fight for $15


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DSC_7364Here’s video from this morning’s Fight for $15 protest at Burger King in Providence. There are protests today at fast food restaurants in Pawtucket, Providence at the Warwick Wendy’s at noon.

Robert Paquin, the executive director of the Rhode Island Republican Party, said he will be attending the Warwick Wendy’s protest at noon.

Photos: First of two ‘Fight for $15’ events today!


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Charles, 10 year Burger King employee

With a last minute change of location from the Dunkin’ Donuts on Broad St. in Central Falls to the Burger King on Lonsdale Ave., Jobs with Justice launched their fourth action for $15 an hour and and unionization for fast food workers. Burger King management kept the doors to the restaurant locked but they couldn’t stop the voices of workers demanding fair wages for long hours of work. Towards the end, Charles, a ten year employee of Burger King, spoke briefly about the impossibility of supporting oneself on the paltry wages on offer. The next event is at noon in Warwick, I’ll have pictures from that event soon.

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Stop making #BringBackOurGirls about you


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In case you’ve been living under a rock for the past month, Nigeria based terrorist group Boko Haram has been holding almost 300 Nigerian girls hostage with plans to marry them off for a sum of $12 a pop to various members and sympathizers of their organization. You can read more about this here and  here. I won’t waste your time rehashing details you are likely familiar with.

What I am here to say is that #BringBackOurGirls is an extremely important campaign and one that needs laser-point focus. We need to promote #BringBackOurGirls for the health and welfare of these young Nigerian girls. Period. Derailing to highlight what you consider to be an important cause is a cheap shot at best. For examples of derailing, please see here and here. Let me highlight one that came through on RI Future’s own Steve Alhquist’s blog about Friday’s Bring Back Our Girls rally in Providence.

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Dear Ryan,

While I sympathize with your…. Actually you know what? No. I’m not going to be nice about this.

Dear Ryan,

Allow me to educate you on derailment, although you seem to (unconsciously?) be an expert at it. Derailment is when you take away from a cause to bring the point back to yourself and your opinions on something unrelated. See what I’m getting at here? I mean really, Ryan? Guantanamo Bay?
I get your outrage. I really do. I too take issue with Guantanamo Bay and the treatment of prisoners there.  I understand that while I care about this issue, I can also (at the very same time!) care about what happens to over 200 innocent girls in West Africa. The focus in this very moment needs to be on how we can help bring back these girls from the grips of terrorism. This is an urgent situation that requires more than commenting upon. It requires action.

So, Ryan. I am asking you a favor. I feel like I can do that now.

Now is not the time for statements about how you think Boko Haram might “feel” about the US. Now is the time for action and support of the Nigerians who are actively fighting to bring the girls home.

Here’s some things you can do. Yes you, Ryan.

1. Follow the Official Twitter Page of #BringBackOurGirls here. Tweet when they ask and signal boost for them.

2. Sign the White House Petition asking for further action and supporting UN efforts in Nigeria.

3. Stop conflating what you feel with actual facts. These are the facts: There is almost nothing we can do to help these girls besides signal boosting the activists on the ground and supporting the work of US groups with ties to Nigeria, like the  Nigerian Community of Rhode Island. These are the people who know the situation best. Let’s help them spread the word.

4. Keep these girls in the forefront of discussion. Every day until they are returned to their families.

Remember: These are not just human rights we are philosophizing about here. These are innocent girls who were trying to get an education when they were forcefully and brutally kidnapped. Their schools were burned. People are dying. Let’s do something, anything to help fight these acts before more people are affected.

RI fast food workers walk off job


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wendysWorkers from several Rhode Island fast food restaurants are striking tomorrow in the most recent direct actions in the fight for a $15 and hour, according to a press release from Jobs With Justice.

“Fast-food workers in  Central Falls, Warwick, Providence and Pawtucket will walk off their jobs,” according to the media advisory. “They are expected to strike at Providence major fast-food restaurants, including Dunkin Donuts, Wendy’s and KFC.  Clergy, elected officials, and community supporters will join fast-food workers on the strike lines.”

Affected businesses include a Wendy’s, McDonalds, KFC (formerly known as Kentucky Fried Chicken) and Dunkin Donuts.

This is the fourth such direct action in Rhode Island that began at the Wendy’s in Warwick in December (watch video of that action here). It will be the second time workers have actually gone on strike, or not reported to work as a protest against the emloyment conditions.

The effort is part of national campaign, led by the SEIU, to raise the minimum wage in the fast food industry to $15 an hour and the right to form a union. Across the nation, workers will be striking at more than 150 fast food establishments, according to the release.

Public protests will be held at a Dunkin Donuts on Broad Street in Central Falls at 6 am Thursday morning and at noon at the Wendy’s in Warwick.

Here’s some background on the Fight for $15 movement from the Jobs With Justice press release:

A campaign that started in New York City in November 2012, with 200 fast-food workers walking off their jobs demanding $15 and the right to form a union without retaliation, has since spread to more than 150 cities in every region of the country, including the South—and now around the world.  Last December workers in Warwick and Providence joined the movement with a one-day strike.  Momentum continues to grow throughout Rhode Island to include workers at restaurants in Central Falls and Pawtucket.  The growing fight for $15 has been credited with elevating the debate around inequality in the U.S. When Seattle’s mayor proposed a $15 minimum wage earlier this month, Businessweek said he was “adopting the rallying cry of fast-food workers.”

As it spreads, the movement is challenging fast-food companies’ outdated notion that their workers are teenagers looking for pocket change. Today’s workers are mothers and fathers struggling to raise children on wages that are too low. And they’re showing the industry that if it doesn’t raise pay, it will continue to be at the center of the national debate on what’s wrong with our economy.

Earlier this year, workers in three states filed class-action suits against McDonald’s alleging widespread and systematic wage theft. And in a filing with the Securities and Exchange Commission, McDonald’s said worker protests might force it to raise wages this year. With shareholder meeting season upon us, and a recent report showing the industry has by far the largest disparity between worker and CEO pay, scrutiny on fast-food companies is bound to intensify. USA Today called the growing worker movement, “the issue that just won’t go away” for the fast-food industry.

38 Studios bond only one way Wall St. treats states unfairly


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One of the things I admire most about the debate over whether to repay the 38 Studios bonds is the way that we’re supposed to ignore the plain meaning of legal language. On the front page of the prospectus for the 38 Studios bonds, in capital letters, there is a paragraph that reads:

THE 2010 BONDS AND THE INTEREST THEREON DO NOT CONSTITUTE A DEBT, LIABILITY, OBLIGATION OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN A SPECIAL OR LIMITED OBLIGATION OF THE ISSUER) AND NEITHER THE FAITH AND CREDIT NOR THE TAKING AND TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION OR MUNICIPALITY THEREOF IS PLEDGED TO THE PAYMENT OF THE 2010 BONDS OR THE INTEREST THEREON. THE ISSUER HAS NO TAXING POWER. THE OBLIGATION OF THE STATE TO MAKE PAYMENTS FOR DEPOSIT INTO THE CAPITAL RESERVE FUND IS SUBJECT TO ANNUAL APPROPRIATION BY THE STATE GENERAL ASSEMBLY.

38_Studios_LogoAs if this isn’t enough, the paragraph is repeated verbatim (also in solid capitals) in the body of the document, on page 2, and again on page 11. And there are other sentences to reinforce it, too. So my question is which other sentences in the prospectus are to be ignored? Is there some secret legal code that says that if it’s repeated three times in all caps it doesn’t count?

If the above paragraph doesn’t mean what it plainly says it means, what about this one (on page 4):

Interest in the 2010 bonds will be payable on May 1, 2011 and semi-annually thereafter…

That one, of course, is not all caps, and it only appears once, so maybe that’s the key difference why this clause is inviolate while the others apparently don’t appear at all in a practical sense.

As you read further, you can see that there was no hiding the nature of the investment from investors. These bonds say “38 Studios LLC” in their title, and Curt Schilling is identified on the third page as chairman, founder, and part of the “visionary team.” His name appears 11 times throughout the document. There is a long description of the company on page 18, that says the company is “developing an original fantasy story” which seems about right, but apparently they aren’t talking about their business plan, but the setting for their video game.

Another thing you can see on the emma.msrb.org site is that some of the fears about damage to the state’s bond ratings are not overblown. A slew of bonds sold by the airport (through EDC, the same as the 38 Studios bonds) last December are already rated “BBB+” by Moody’s and S&P, downgraded from the previous AA rating.

On the other hand, what’s really important is the financial consequences. Not many bonds are sold with that low a rating, so comparisons are a little challenging. But I see that those bonds sold for yields of from 3% (1 year) to 4.375% (15 year), a better rate than similarly rated securities from Missouri and Texas got last fall.

In other words, what damage there will be may already have been done. Not only are we hearing that we will be punished for imagining that words in a bond prospectus should have their plain meaning to bond investors, but we are already being punished for even having the temerity to discuss the proposition. This is nothing more than financiers desperate to be made whole for their own misjudgments, feeling confident they can browbeat the state into doing it, and then doing so.

RI Future contributor Tom Sgouros recently wrote this book about fixing the banking system. Click on the image for more information.
RI Future contributor Tom Sgouros recently wrote this book about fixing the banking system. Click on the image for more information.

And it will probably work, too. The threats of the bond rating agencies are very effective, since your governments, at every level, are big borrowers. And because they do this borrowing as mere customers, they have to do whatever the bankers say. Which is strange, because yours is a state with billions of dollars in assets. An individual or company that controlled that much money would reject the kind of treatment our governments think is routine. Indeed, the hold of the financial industry over governments in America is a lasting disgrace, a blot on our nation, and the threats we’re all hearing is only the latest shameful chapter.*

It would be one thing to accommodate the financial industry if it were holding up its end of the bargain, but it does not. Why do agencies like RI Commerce (formerly EDC) and the Providence Economic Development Partnership exist, in virtually every state, county, and city in the nation? It’s because of capital market failures. There are qualified business borrowers all over the country who cannot get access to the capital they need to grow, and their entreaties to governments across the country have conjured into existence agencies like EDC and PEDP. Obviously, these agencies are subject to corruption, but corruption is not why they exist. They exist because of a private market failure to allocate capital in a public-good-maximizing fashion, in city after city and state after state.

The choice ahead is not between go along with the financial industry and remain unharmed or resist and be crushed. The choice is to go along with the financial industry that is already punishing our state — and whose spokesmen cannot promise they will not punish us anyway — and resisting the threats to find a better way. Senators and representatives who choose to resist have a special duty to seek alternatives to the financial industry in its current state. These exist, and are in place in other states and other countries around the world. It’s long past time we learned from those examples, and understood that the public good is not the currency of our nation’s financial markets.

*I wrote a book about this: Checking the Banks.

Senate subcommittee to debate climate change bill today


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art handy memeA petition with more than 500 signatures will be awaiting the Senate Environment and Agriculture Committee when it meets today to discuss the Resilient Rhode Island bill that aims to address climate change in the Ocean State.

“We need to plan ahead for climate change in order to achieve positive solutions that work for all Rhode Islanders, not wait until strife and necessity dictate our responses,” reads the petiton. “We need our state and local government to consider climate change when making decisions, and the act ensures that state and local government have the information and tools they need to protect Rhode Island’s economy, public health, and welfare.”

You can sign the petition here. And listen to an in-depth interview with Rep Art Handy on the Resilient RI bill here.

“If we had passed legislation like the senate climate bill 20 years ago as the science was telling us to, we could have minimized the damage done by the extreme weather of recent years while we grew jobs by accelerating our transition to a clean energy economy,” said Abel Collins, program manager of the RI Sierra Club and author of the petition. “Fortunately, the innovative leadership embodied in the bill can still reduce the negative impacts of climate change while maximizing the economic benefits of building a resilient Rhode Island.”

Sens Whitehouse, Nelson talk about sea level rise


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sheldon“Florida and Rhode Island have a lot in common,” said Senator Sheldon Whitehouse in a floor speech yesterday, “like a beautiful coastline, an economy and a way of life that is tied to the sea and as a result risk from the ocean from a changing climate.”

Whitehouse recently went on a fact-finding mission down the southeast coast looking for local solutions to coastal climate change, you can listen to Miami public radio interview him about it here), Upon his return, he invited Florida Senator Ben Nelson to join him in his weekly climate speech on the Senate floor.

“At high tide, they are already having flooding in the streets of Miami Beach,” Nelson said.

Whitehouse added, “One of the scientists I met in Florida said it this way, very simply, ‘if we don’t do something about this people are going to get hurt and it’s going to cost a lot of money.'”

The warped politics of a 38 Studios default


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38_Studios_LogoRhode Island’s politics are often pretty messy. But with the 38 Studios bonds, they party lines are crystal-clear. There’s a pro-default party and there’s an anti-default party.

I’m am clearly on the anti-default party. I think it tends to be a more coherent; it’s solely about protecting Rhode Island’s credit rating. There’s a lot of bull about “protecting bondholders” and backing Wall Street, but I think the anti-default party couldn’t care less about protecting Wall Street wankers and are thinking that in the event we ever need to borrow again (which is a pretty common -and popular- request of voters on Election Day), we should do so with the best interest rates possible.

The pro-default party is less coherent. My favorite argument so far is the belief in the kinda-smart investor, as proposed by Justin Katz:

What if the state of Rhode Island went out to sell general obligation bonds and set its own terms for the debt?  Maybe Moody’s and S&P would call the bonds junk, but that would simply be a lie.  Backed by the full faith and credit of the state, with the express approval of the voters, the bonds would be as good and as safe a bet as if 38 Studios had never happened.

Are we to believe that the state couldn’t find enough investors who are sufficiently savvy to identify how badly rated the bonds are and to ignore the agencies?

Here’s the thing – the investors Katz has proposed are savvy enough to ignore the credit ratings of the bonds, yet not savvy enough to realize they stand to gain far more by getting the high-interest yield that junk bonds provide. Why buy these bonds when the interest could be much higher? I should walk my abuse of them for saying this, but the investors in the 38 Studios bonds were actually pretty smart. No matter what happens, they get their cash back. By the way, here’s the 10 companies who hold 90% of the bonds.

The left-wing pro-defaulters are more about refusing to dance to the whims of the credit ratings agencies and Wall Street – though I think it also assumes Katz’s magic investors as well. And while I think the impulse to defy Wall Street is admirable, we lack the economy, the population size, and the power to do so.

I’ve arrived at the same conclusion as Bob Plain, conservatives don’t actually care what happens in a default. But this applies to all of RI’s conservatives, Democrat and Republican. Either way a default plays out, it’s a win for them. If there are no substantial penalties, then they were right. If they’re wrong, then the inability of Rhode Island to effectively borrow achieves a long-standing goal for the “starve the beast” crowd. RI budgets couldn’t rely on any borrowing. A greater share of the budget going to service on interest payments means less money spent on social services – which means drastic cuts to programs and government payrolls.

Pro-defaulters are fond of saying the anti-defaulters are kowtowing to Wall Street, but the kind of budget RI would have to implement across the state should there be a default would undoubtedly make conservatives and the credit ratings agencies leap for joy. We’d probably see a budget that did more and more to favor the rich while cutting assistance to the poor. And we only need to look at Greece or Spain for the types of austerity Wall Street would like to see imposed on us.

However, pro- and anti-default are not the only type of political parties we have here in Rhode Island. That’s part of what makes 38 Studios so unique, it was a bipartisan screw-up. It was hatched by a Republican governor, a Republican businessman. It was enabled by a Democratic-led General Assembly. A Republican-led EDC signed off on it. And an independent administration failed to provide proper oversight.

The man who seems to have the cards in his hands right now is Speaker of the House Nicholas Mattiello. The question is how serious Mattiello is about his bipartisan budget. If Republicans follow House Minority leader Brian Newberry’s old advice of using 38 Studios against Democrats in 2014, they’ll have to vote against any budget containing service on the 38 Studios debt. Otherwise, they’ll undercut the argument that Democrats’ responsibility for 38 Studios has led to these straits. Right now they have a pretty decent narrative of “Democrats are in charge right now, so 38 Studios belongs to the Democrats.” They vote for service, they lose the ability to say that.

Mattiello (and Newberry) also has to realize that 38 Studios is a really good argument against incumbents; especially any incumbent who voted for giving the EDC the money it used for the 38 Studios deal. At this point, incumbents have already weathered one campaign with 38 Studios looming over their heads, but a default would really be bad. The status quo of payment for 38 Studios is painful for the state, but bearable. Default would be a massive blow to Rhode Island. It might spur a large-scale primary challenge to Democratic candidates, and rally independent and Republican candidates for the general election.

Since even with that, it’s likely Democrats will hang on to power, implementing a Wall Street-spurred austerity budget would shift more momentum to the Republicans. Regardless of the economic policies of the opposition party, voters tend to vote them in. I think a best-case scenario for Republicans would be ending the veto-proof majority of Democrats; given the strong partisan preference of RI voters for Democrats and the RI Republican Party’s own ineffectiveness.  But with a Republican governor, that might well be enough to implement their policy preferences, especially if bolstered by support from the conservative faction of Democrats.

So defaulting on 38 Studios isn’t just bad policy for the state; for the Democratic Party it’s also bad politics. I’d hope the Democrats realize this, and take their lumps from 38 Studios.

Chafee blasts Block and Fung ‘unfit to be governor’


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chafee_bryantGovernor Linc Chafee has long been the staunchest critic of the 38 Studios loan. He’s also one of the biggest critic of not repaying it.

Today he blasted Republican gubernatorial candidates Ken Block and Allan Fung for suggesting the state shouldn’t make payment on the moral obligation bond to service the 38 Studios loan debt.

Here’s the governor’s statement in its entirety:

The candidates who can’t understand these two obvious truths are unfit to be Governor. The consequences of default would place Rhode Island as one of the lowest state bond ratings in the nation, and the industry would reduce Rhode Island to ‘junk bond’ status. We have been told in no uncertain terms that the reaction to not paying our debt obligations will be severe and have an adverse impact on Rhode Island. In addition, failure to honor our obligations could have harmful effects on the pending lawsuit.

The push by Allan Fung and Ken Block to default is disheartening. We hear from them populist rhetoric that lacks any empirical research or credible support. Common sense dictates that you pay your debts however distasteful.

From the beginning, I have been the most vocal and strongest opponent of the 38 Studios deal. In the summer of 2010, I was denied access to a Rhode Island Economic Development Corporation (now called Commerce RI) meeting where I hoped to speak and state the case on behalf of Rhode Islanders on why this was a bad investment.

Earlier today, I wrote that the Republican candidates for governor have political motivation to not make the payment. Yesterday, Sam Howard wrote that it should be repaid regardless of how bitter the pill.

The state owes $12.5 million on the moral obligation bond to pay for the 38 Studios loan. Because it is a moral obligation bond there are no legal ramifications to default, though there are likely to be fiscal implications. The General Assembly could not include the money in its budget. So, in effect, the state legislature gets to decide the fate of the state’s credit rating during its annual budget process this year.

Senate President Teresa Paiva Weed supports making payment on the bond and House Speaker Nick Mattiello has not yet committed.


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