Former Massachusetts Representative Barney Frank was in Providence Monday morning campaigning for Hillary Clinton in the form of an interview with RI Treasurer Seth Magaziner. The Congressperson was the chairman of the House Financial Services Committee from 2007-2011 and the Frank half of the Dodd-Frank Act, a major reform of the financial industry signed into law under Obama.
Frank says that the United States is trapped in a vicious cycle: People have lost confidence in a government that responds to their needs, so they elect anti-government candidates who produce a government that is even worse than before. Frank believes that the only way out of this is to elect Hillary Clinton as president.
Bernie Sanders, says Frank, is being too critical of anything that falls short of his own lofty ideals. Frank thinks this is a mistake and strongly disagrees with this way of thinking.
Almost every representative committed to progressive change is for Hillary Clinton, says Frank, including the entire congressional LGBT caucus and every member of the Black caucus, save one. This isnt because they are part of the establishment says Frank, but because they are committed to progressive change.
If you tell people its either revolution or nothing worth fighting for, says Frank, you open up the not-voting behavior.
As for taking money from Wall Street, Franks says that Sanders idea that politicians taking money from businesses they want to change cannot be counted on goes against every person Ive ever served with.
Frank then went into his experiences passing Dodd-Frank, which reversed 12 years of a Republican-controlled Congress loosening the regulations that controlled Wall Street. He noted Rhode Island Senator Jack Reeds contributions to that process.
Sanders promise to break up the big banks makes no sense to Frank. The problem isnt that institutions are too big, its that they had more debt than they could handle.
Frank says that he helped pass legislation to prevent too much indebtedness. AIG couldnt happen today, he says. He helped to outlaw sub-prime loans and increased the companies on-hand capitol.
General Electric got out of the financial business because of these laws, says Frank.
Under Franks legislation, regulators can look at a companys holdings and in the event that it looks dangerous, can order divestment. Clintons plan to regulate Wall St would lower the bar for divestment, giving her enhanced authority to order divestment.
In contrast, says Frank, Sanders isnt coherent on this issue. How can you say something is too big if you dont know what size it should be? asks Frank.
Hillary, says Frank, understands how it all works.
Clintons tax policy was also touched upon. As President she wants to tax high frequency stock trades and tax hedge funds as income. Frank objects to Sanders McCarthy-ite suggestion that shes soft on these issues because of the money she accepts.
Clinton will increase taxes on people making more than $1 million and especially those who make more than $5 million, says Frank.
When asked about health care, Frank was not in favor of introducing single-payer system, at least not quickly. People need to be shown how this can be done, said Frank. I think Sanders will be a disaster [on health care], says Frank, People are not ready to have a tax increase to pay for universal health care.
Clinton will crack down on big pharma pricing, prevent tax dodging of companies incorporating overseas and expand health care, says Frank.
Frank, who was among the first openly gay members of Congress, ended with some words on LGBT rights. Though Sanders has always voted the right way on LGBT issues there is near unanimous support in the LGBT community for Hillary, he said.
Clintons Supreme Court picks, Frank said, will help reverse the Hobby Lobby decision and uphold legislation, like the kind being worked on by RI Representative David Cicilline, to prevent private action discrimination against LGBT people.
One final note: Frank did say that if Sanders wins the nomination, Of course Ill campaign for him.
]]>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.
As 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.
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.
]]>Two years later, Rolling Stone has a blockbuster story focusing on Raimondo and Rhode Island’s pension deform called: “Looting the Pension Funds: All across America, Wall Street is grabbing money meant for public workers.” If you haven’t read it yet, you should. Or, at least watch Matt Taibbi talk about it on Democracy Now!.
He calls the COLA freeze “wealth transfer from teachers, cops and firemen to billionaire hedge fund managers” and calls John Arnold, the moneyman behind EngageRI, to “the new Koch brothers figure.”
He also says, “Pension funds are sort of the last great big unguarded piles of money in this country and there are going to be all sort of operators who try to get their hands on that money.”
]]>The solution that a lot of Wall Street-funded think tanks are coming up with is to get higher returns by putting these funds into alt investments like hedge funds and in a lot of cases what i;m funding is that tee fees that states are paying for these hedge finds and new type of alt investments are actually roughly equal to cuts they are taking from workers.
In the state of Rhode Island, for instance, they’ve froze the cost of living adjustment and frozen COLA roughly equals the fees they are paying to hedge funds in that state. So essentially it’s a wealth transfer from teachers, cops and firemen to billionaire hedge fund managers.
Here’s what the Providence Journal reported Wednesday about a little-discussed law:
Union officials lobbied from the sidelines for the state to make good on a promise made after the state’s 2011 dramatic pension overhaul froze cost-of-living increases to Rhode Island’s retired public workers until the fund is in better financial shape.
The law required that any state money that comes in — over and above the state’s official revenue estimate — go into the state pension fund. This year that would have totaled $12.9 million. But Chafee sought to eliminate this provision, and carry the money forward into next year’s budget.
To the dismay of the unions, the lawmakers agreed, prompting this response from J. Michael Downey, president of Council 94, American Federation of State County and Municipal Employees: “Shortchanging employees’ pensions, while taking care of Wall Street bondholders and restoring tax credits, is immoral.”
I would agree with Downey’s moral compass on this one. It is immoral to shortchange middle class retirees and not companies. Similarly, I feel it is immoral to shortchange the homeless and struggling cities and towns while taking care of middle class retirees.
Whether either scenario is financially advantageous to the citizenry is another matter altogether. I would argue deciding whom to take care of and whom to shortchange based on such rationale is what makes it immoral. Not that we don’t have to make immoral decisions sometimes, we should just recognize it isn’t necessarily benevolent. In other words, we have no moral obligation to be prosperous, but we do have a moral obligation to do the greatest good for the greatest amount of people. Intentionally obfuscating these two often competing values is very immoral, by the way.
To my way of thinking, Rhode Island’s economy would be better served if we ended homelessness than if we fully funded our pension system. I also think we have a higher moral obligation to end homelessness than to fully fund pensions. Similarly, it may be true that our economy would be better served if we fully funded our pension system than if we fully funded our debt obligations. But I’m certain we have a higher moral obligation to fully fund commitments to people than to credit markets.
Now some may agree with my economic and moral theories, and they may be right to do so. And what makes the most moral and/or economic sense at one time might not be the best decision at another time. That’s why it’s bad policy for state lawmakers to codify outside of the annual budget process a class system of financial obligations.
]]>