A Glimpse of Public Pension Reform in Rhode Island: Who’ll Lose Benefits? Who’ll Get Rich?

RhodeIslandSealSubmitted by Elaine Magliaro, Guest Blogger

Last week, I wrote a post titled Looking at the Causes of the Public Pension Problem in America. In it, I provided some reasons why states and municipalities may not be able to meet their pension obligations to retiring workers: the financial meltdown and subsequent loss of billions of dollars in pension fund money, the willful underfunding of public worker pensions by states and municipalities, and the “borrowing” of pension money “to finance other budget needs.”

I did not mean to imply that many public pension plans should not be revisited…that many may not need to be reformed…that some individuals aren’t abusing the system. Still, we have not been getting the whole story about the “public pension crisis” in America from the mainstream media. I hope to provide more information on the subject to readers of this blog as I continue my research to find out what’s really going on  with public pension reform in this country.

The Institute for America’s Future recently published a report on the subject of pension reform titled The Plot against Pensions, which was written by David Sirota. In his report, Sirota said that many of the pension reforms being advocated today are akin to “President George W. Bush’s proposal to radically alter Social Security”—in that they would “transform stable public pension funds into individualized accounts.”  He adds that these pension reforms “would most often reduce millions of Americans’ guaranteed retirement benefits. In many cases, they would also increase expenses for taxpayers and enrich Wall Street hedge fund managers.”

Matt Taibbi writes about the recent “reform” of public worker pensions in the state of Rhode Island in his Rolling Stone article titled Looting the Pension Funds. His article speaks to Sirota’s claim of hedge fund managers being enriched by pension reform.

Gina Raimondo and Public Pension Reform in Rhode Island   

(Note: Gina Raimondo, the State Treasurer of Rhode Island, is a Democrat. “Raimondo clerked for U.S. District Judge Kimba Wood before joining the New York offices of Village Ventures, a venture capital firm based in Williamstown, Massachusetts.[3] She returned to Rhode Island to found the state’s first venture capital firm, Point Judith Capital.”)

According to Matt Taibbi, the state of Rhode Island declared war on public pensions and rammed “through an ingenious new law slashing benefits of state employees with a speed and ferocity seldom before seen by any local government.” Gina Raimondo spearheaded this effort as a means to avert a “looming pension crisis.” Raimondo’s reform plan—known as the Rhode Island Retirement Security Act of 2011—was “hailed as the most comprehensive pension reform ever implemented.” Reportedly, some people in the state were “overwhelmed” and didn’t know how to react to the pension reform being instituted in their state. Paul Doughty, president of the Providence firefighters union, was quoted as saying: “She’s Yale, Harvard, Oxford – she worked on Wall Street. Nobody wanted to be the first to raise his hand and admit he didn’t know what the f*ck she was talking about.”

Maybe that’s the way Raimondo, a Rhodes Scholar, wanted it. After all, people can’t complain about the bad things that might happen to their retirement pensions and benefits if they don’t know what’s really going on.

Taibbi said that no one was aware “that part of Raimondo’s strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb’s Third Point Capital was given $66 million, Ken Garschina’s Mason Capital got $64 million and $70 million went to Paul Singer’s Elliott Management.” These hedge funds will be paid “tens of millions in fees every single year…” Taibbi adds that Loeb, Garschina and Singer all serve on the board of the Manhattan Institute, “a prominent conservative think tank with a history of supporting benefit-slashing reforms.” (Note: Raimondo was named the Manhattan Institute’s “Urban Innovator” of the year in 2011.)

Former SEC watchdog Edward Siedle also had something to say about Raimondo and her pension reform plan in his Forbes article titled Rhode Island Public Pension ‘Reform’ Looks More Like Wall Street Feeding Frenzy.


A look behind the curtain reveals her[Raimondo’s] changes to the investment portfolio of the $7 billion Employee Retirement System of the State of Rhode Island will inevitably dramatically increase both risk and fees paid to alternative investment managers, such as hedge funds and private equity firms.

There’s no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits. It’s no surprise that some of Wall Street’s wildest gamblers have backed her so-called pension reform efforts in the state legislature. Former Enron energy trader emerges as a leading advocate for prudent management of state worker pensions? That’s more than a little ironic.

What’s happened to date in Rhode Island is unprecedented in public pension history and, given the myriad risks involved, should be setting off alarms: A little-known money manager hired by the state’s pension to manage a paltry $5 million succeeded in getting herself elected as state Treasurer. That means she’s now responsible for overseeing the entire $7 billion.

Essentially, there has been a coup—the foxes (money managers) have taken over management of the henhouse (the pension).  To make matters worse, she’s an unproven veteran of the “alternative” investment industry—the hallmark of which is a profound lack of transparency…

I’m all for public pension reform—prudent contributing and investing coupled with sustainable benefits. However, when alternative investment managers take control of a state pension and recklessly dump pension assets into high-cost, high-risk alternative investments, while they slash workers’ benefits, that’s no reform. Call it what it is: a money grab.

David Segal of RIFuture.org said that Raimondo had “convinced Wall Street’s 1% to pay for a secretive propaganda campaign to advocate for deep cuts in the state pension system. Doing so garnered her effusive praise from right-wing stalwarts: from the Wall Street Journal’s editorial page, to the National Review, to Rhode Island’s own tiny Tea Party, which congratulated Raimondo for her ‘true leadership’ as General Treasurer.”

Segal said “Raimondo’s ‘true leadership’ consisted of slashing benefits even for already-retired seniors on fixed incomes while sending millions of Rhode Island taxpayer dollars to pay the bloated fees demanded by her hedge fund manager friends…”

Back in 2011, Raimondo informed the people of Rhode Island that in order to avoid shortfalls in the state’s pension fund, “modifications” had to be made to the cost-of-living-adjustments (COLA) that had been promised to retired state workers. She said that “real sacrifices” would be required in order to “fix” the pension.

From the website of Rhode island State Treasurer Gina Raimondo:

Cost-of-living adjustment (COLA)
The COLA is one of the most expensive aspects of the current pension system (continuing to pay out a COLA may eventually deplete the pension fund if the 7.5 percent investment return assumption is not achieved).

From David Sirota’s The Plot against Pensions:

Rhode Island:

Reviewing the state’s new hybrid plan that involves a 401(k)-style defined contribution program,

Forbes’ Ted Siedle found that the system is “unprecedented in public pension history” in that it is “just a blatant Wall Street gorging” that “will inevitably dramatically increase both risk and fees paid to alternative investment managers, such as hedge funds and private equity firms.” Siedle noted that the cut to retirees’ cost-of-living adjustments ended up “going into the already-stuffed pockets of Wall Street’s most highly-compensated gamblers—almost dollar-for-dollar,” with $2.3 billion in cost-of-living-adjustment savings going to finance $2.1 billion in fees…paid by the pension to hedge, private equity and venture capital tycoons. The Economic Policy Institute followed up with a report showing the program “actually increases costs to state and local governments and taxpayers while making retirement incomes less secure.

So…this is Raimondo’s plan for pension reform: Cut retirees’ benefits to save the state money. Then use the money saved by cutting retirees’ benefits to pay huge fees to hedge funds. Does that sound like fiscal responsibility? What kind of pension reform is that?

Matt Taibbi wrote that state workers are being required “to subsidize their own political disenfranchisement, coughing up at least $200 million to members of a group that had supported anti-labor laws.” What’s just as bad is that Raimondo claimed she didn’t know how much the state was paying in hedge fund fees when asked by Edward Siedle. Later, Raimondo told the Providence Journal that she was “contractually obliged to defer to hedge funds on the release of ‘proprietary’ information.

Matt Taibbi on How Wall Street Hedge Funds Are Looting the Pension Funds of Public Workers

In Rhode Island Treasurer Misleading Public Is Worse Than Withholding Hedge Fund Information (Forbes), Siedle told of how interested groups were demanding information from the treasurer’s office regarding Raimondo’s refusal to disclose hedge fund records to the Providence Journal:

In their letter released today four open-government groups – Common Cause Rhode Island, the state’s chapter of the American Civil Liberties Union, the Rhode Island Press Association and the League of Women Voters of Rhode Island have voiced legitimate concerns regarding Rhode Island treasurer Gina M. Raimondo’s strategy of withholding hedge fund records from the local paper, the Providence Journal. The groups were reacting to a Sunday story in the Journal about the state’s $1 billion investment in hedge funds.

These groups may be surprised to learn that the Journal was neither the first nor the only party to request reports detailing the state’s hedge fund operations and fees. The American Federation of State County and Municipal Employees and I, as well as others (including individual participants in the pension), have been requesting information regarding hedge fund and other alternative managers at least since the beginning of 2013. We’ve all been provided even less information than the Providence Journal.

Further, we’ve been told that we would have to pay—which the Journal did not—for the information the treasurer provided to the Journal for free. We were also warned that there was no assurance, even if we did pay thousands of dollars, that we would receive any of the details (documents without redactions) we sought.  

Matt Taibbi explains why hedge funds may not want the public to know what fees they charge:

They’re insanely expensive. The typical fee structure for private hedge-fund management is a formula called “two and twenty,” meaning the hedge fund collects a two percent fee just for showing up, then gets 20 percent of any profits it earns with your money. Some hedge funds also charge a mysterious third fee, called “fund expenses,” that can run as high as half a percent…

Matt Taibbi often describes the financial screwing of the average American by Wall Streeters and their henchmen best:

This is the third act in an improbable triple-f*cking of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.

Today, the same Wall Street crowd that caused the crash is not merely rolling in money again but aggressively counterattacking on the public-relations front. The battle increasingly centers around public funds like state and municipal pensions. This war isn’t just about money. Crucially, in ways invisible to most Americans, it’s also about blame. In state after state, politicians are following the Rhode Island playbook, using scare tactics and lavishly funded PR campaigns to cast teachers, firefighters and cops – not bankers – as the budget-devouring boogeymen responsible for the mounting fiscal problems of America’s states and cities.

~ Elaine Magliaro


Looting the Pension Funds: All across America, Wall Street is grabbing money meant for public workers (Rolling Stone)

The Plot Against Pensions (Institute for America’s Future)

Rhode Island Treasurer Misleading Public Is Worse Than Withholding Hedge Fund Information (Forbes)

Rhode Island Public Pension ‘Reform’ Looks More Like Wall Street Feeding Frenzy (Forbes)

Rhode Island Pensioners 3% COLA Will Go To Pay Wall Street 4%+ Fees (Forbes)

Educating Gina Raimondo, Rhode Island’s Wall Street-Friendly State Treasurer: Rhode Island’s State Treasurer Needs to Learn More About How Wall Street Conflicts of Interest, High Investment Fees and Risky Hedge Funds Harm Pensions (Forbes)

Matt Taibbi on How Wall Street Hedge Funds Are Looting the Pension Funds of Public Workers (Democracy Now!)

Raimondo raises support, while protesters raise their voices/ Poll (Providence Journal)

Former SEC watchdog Edward Siedle criticizes Rhode Island treasurer’s pension strategies (Providence Journal)

In hedge fund world, transparency takes a hit (Providence Journal)

Raimondo’s Wall Street campaign for Governor: Raimondo, American LeadHERship PAC: ‘hundreds of Joe Mollicones’ (Progressive Charlestown)

New study by ALEC praises Raimondo for pension changes (WPRI)

Gina Raimondo Biography (Wikipedia)

Two And Twenty (Investopedia)

74 thoughts on “A Glimpse of Public Pension Reform in Rhode Island: Who’ll Lose Benefits? Who’ll Get Rich?”

  1. There is surprisingly little mathematical analysis in this group think blog …I had hoped to find any new , convincing and realistic presentation of facts….but alas more conspiracy theory, greedy public unions try to exploit the private sector workers for their comfort in retirement. Perhaps when the 1% is referred to ,it should most properly be affixed to the public union elites.

  2. Elaine,
    TIAA’s senior economist co-authored with a vice-president of the Arnold Foundation, an Oct. 2013, paper on pensions. The paper’s content, if believed, would erode legislative support for public pensions. (If you’d like a copy, let me know.) The website Truthout explains the paper’s significance.
    There is evidence that since 2010, TIAA has been a presence in the pension “Crisis” discussion. In 2010, TIAA management was quoted, I paraphrase, the type of hybrid retirement plans they offered “would provide more security and political cover than abandoning pensions entirely.” (p. 7, Aug. 24, 2010, Josh Keller, “As Pensions Costs Rise Colleges Pay the Price”, in the Chronicle.) The same TIAA vice-president, quoted later in the article, was a guest at a Ky. Pension Task Force meeting, as was a Pew representative. American City and County posted opinions from a TIAA vice-president in 2012 and 13. In the first he says, something must be done (about pensions) …with measured expediency. Then, in 2013, he described hybrid retirement systems. Back in 2010, in a paper titled, “Trouble Brewing, The Disaster of California State Pensions”, released by the Foundation for Educational Choice, the article author, Stuart Buck states, “California Could Shift to a TIAA-CREF style hybrid plan.” No other provider of plans was mentioned.
    Prior to the pension paper, TIAA research from its Institute, was posted at State Budget Solutions, which until a couple of weeks ago identified itself as a partnership with ALEC and the Franklin Center, both Koch-backed organizations. The paper listed benefit cuts/payroll tax increases for Social Security, without identifying alternative suggestions like those posed by Sen. Sanders and Brown.
    David Halperin, reported at Huffpost (10-15-2013) that TIAA owned 386,000 shares of Corinthian College, a for-profit college, under investigation.
    TIAA’s CEO, Roger Ferguson, was identified in the media, as Wall Street’s fantasy for head of the Federal Reserve.
    Many professors are invested with TIAA. Like me they may be uninformed about the current issues involving TIAA.
    I’d like to think that, with enough participants contacting the TIAA Boards, management would distance themselves from Arnold and make overtures to the National Protect the Pensions Coalition. The only way to reach the Board is through snail mail.
    Thank you for your attention.

  3. The debate over Rhode Island’s pensions
    By Cate Long
    OCTOBER 18, 2013

    Rhode lsland eliminated cost-of-living adjustments (COLAs) for public pensions and moved all new employees out of traditional pensions and into defined contribution plans. These changes have been challenged in state court.

    Perhaps the most anti-union move made by the state was a law that required local government bondholders to be repaid in full in a municipal bankruptcy. During the bankruptcy proceeding of Central Falls, Rhode Island, bondholders were repaid 100 cents on the dollar, while pension holders in the city took haircuts of up to 45 percent. Rhode Island is the only state with this type of law. Public unions have a right to question information about their pensions.

    There are some instances of states granting special privacy rights to hedge funds and alternative investors. From a piece by David Sirota and Matt Taibbi

    “In more than a dozen states, legislators have enacted exemptions for hedge funds and other alternative investments to laws such as the Freedom of Information Act. Other states simply fail the transparency test.”

    Then they nail Treasurer Raimondo:

    “Rhode Island illustrates what that kind of thing means in practice. There, state Treasurer Gina Raimondo cited the need to protect Wall Street’s proprietary information as a justification to hide the cost estimates of the new pension system she championed in 2012 [2011].

    “Only after that system was ratified by the state Legislature did former Securities and Exchange Commission lawyer Ted Siedle estimate that the reforms will take the roughly $2.3 billion cut to workers’ cost-of-living adjustments over 20 years and use it to pay roughly $2.1 billion in new hedge-fund fees. Raimondo later relented and disclosed at least $70 million in fees for next year alone.”

  4. Rhode Island Public Pension Reform: Wall Street’s License To Steal
    By Edward Siedle

    The Employee Retirement System of Rhode Island has secretly agreed to permit hedge fund managers to keep the state pension in the dark regarding how its assets are being invested; to grant mystery hedge fund investors a license to steal, or profit at its expense using inside information; and to engage in potentially illegal nondisclosure practices.

    (The following is a summary of a four-month, 106-page forensic investigation my firm, Benchmark Financial Services, Inc. was retained by Rhode Island Council 94 of the American Federation of State, County and Municipal Employees, AFL-CIO, to provide of the Employee Retirement System of Rhode Island and contains findings which have been referred to the U.S. Securities and Exchange Commission for further investigation and appropriate action.)

    Two years ago, Rhode Island’s state pension fund fell victim to a Wall Street coup. It happened when Gina Raimondo, a venture capital manager with an uncertain investment track record of only a few years—a principal in a firm that had been hired by the state to manage a paltry $5 million in pension assets—got herself elected as the General Treasurer of the State of Rhode Island with the financial backing of out-of-state hedge fund managers. Raimondo’s new role endowed her with responsibility for overseeing the state’s entire $7 billion in pension assets.

    In short, the foxes (money managers) had taken over management of the henhouse (the pension).

    For Raimondo, a 42 year-old Rhode Island native, serving as state treasurer represents a major career boost. It also has presented her with an opportunity to enrich herself and her hedge fund backers at the expense of the state’s pension fund, the public workers who are counting on it to finance their retirements and the taxpayers who could be stuck for millions, or billions, of dollars if it’s mismanaged.

    Further, a significant portion of the Treasurer’s wealth and income relates to shares she owns in two illiquid, opaque venture capital partnerships she formerly managed at Point Judith Capital—one of which she convinced the state to invest in on different, less favorable terms. Unlike the state which paid millions for its shares in one of the Point Judith funds, the Treasurer was granted shares in both of the venture capital funds for free.

    Worse still, the venture capital industry is noted for its lack of transparency and once the Treasurer assumed office she refused to disclose virtually any information regarding the investment fund in which she and the state pension remain co-investors.

    For example, the Treasurer refused to release documents which would reveal whether she (or any other investor) had been granted any special rights more favorable than those granted to the state, or other limited partners in the fund.

    Point Judith Capital, the Treasurer’s former employer, is a firm which is substantially funded by Tudor Investment Corp., a multi-billion dollar private equity and hedge fund conglomerate controlled by the secretive billionaire Paul Tudor Jones. Without Tudor as a strategic partner possessing a substantial investment performance history, Raimondo’s Point Judith would not have been a contender for a $5 million venture capital commitment from the state.

    In a very real sense, today Rhode Island’s leading investment fiduciary is largely compensated by an out-of-state hedge fund investor—worse still, she is paid indirectly and secretly. The myriad unique conflicts of interest and risks related to this unprecedented state of affairs have not been thoroughly investigated or addressed.

    Transparency and accountability have suffered as the pension has increased its allocation to hedge, venture capital and private equity funds to almost $2 billion or 25 percent and the Treasurer has withheld most information about these high-risk, high-cost investments from both the State Investment Commission, a 10-member volunteer body that is chaired by the General Treasurer and oversees the investments of the state pension, and the general public. Ironically, in Rhode Island, limitations on public access to records have grown in the Information Age.

    The Treasurer has emerged as the leading national advocate of a disingenuous form of public pension “reform” which involves slashing worker’s benefits and thwarting public access to information regarding the riskiest of pension investments while, in secret, dramatically increasing the risks to retirement plans and the fees they pay to Wall Street. A report she produced in 2011 titled “Truth in Numbers: The Security and Sustainability of Rhode Island’s Retirement System” made a stark case for the pension overhaul and benefits cuts she envisioned, while notably omitting details regarding the greater costs and risks related to her plans for restructuring the Fund’s investment portfolio.

  5. Since we are an Exceptional country, I’m going to predict a long and glorious career for Gina.

    Now I’ll be back in a moment. I need to get some Good News for a change. Perhaps we will have managed to default.

    BTW. My very serious call is for Obama to raise the ceiling himself. Let them impeach. Two Democratic presidents in thirty years and BOTH impeached? One for b***j***, and one for being blah. That should enhance the Republicans reputation.

  6. Monique Morrissey: R.I.’s pension reform hurts taxpayers, workers
    June 30, 2013

    Rhode Island General Treasurer Gina Raimondo is building a political career on the strength of the pension reform she spearheaded in 2011, which she has touted as a model for other states to follow. But here’s something you probably don’t know about the new hybrid retirement plan for teachers and other government workers: it actually increases costs for taxpayers even as it cuts benefits for most workers.

    The Rhode Island Retirement Security Act drastically cut traditional pension benefits and introduced a new 401(k)-style defined contribution plan. The latter, though presented as part of a cost-saving strategy, is actually less cost-effective than the pension it partly replaces, according to an Economic Policy Institute analysis by Robert Hiltonsmith.

    It’s true that RIRSA did save taxpayers money, but not from switching to a hybrid system. Rather, the savings come from cutting accrued benefits workers were promised — suspending the cost-of-living adjustment and making it contingent on investment returns. RIRSA also appeared to cost less because Raimondo conveniently overcame her earlier objections to paying down the state’s unfunded liability over a longer period.

    Why introduce a hybrid plan that costs more without benefiting workers? It’s hard to say, since the rationale has shifted over time. Raimondo initially sold the defined-contribution component as having the supposed advantages of a 401(k): employee control over contributions and investment strategies. She later changed tack, dismissing the 401(k) as “just a savings plan” and emphasizing that contributions to the new plan would be mandatory and that the goal was a dependable stream of income to replace part of a worker’s salary in retirement.

    In other words, the hybrid is supposed to look like a pension and act like a pension, except that it costs more, provides lower average benefits, and shifts risk onto workers. While the average career worker will see a 14 percent benefit cut, those who retire in the wake of down markets will fare much worse. In contrast, traditional pensions pool risk, smoothing market outcomes over time and delivering a reliable benefit.

    Rhode Island pension benefits were modest to begin with: the cost for benefits was lower than the average for state and local government plans, and employees picked up most of the tab. However, the plan was significantly underfunded, not just because of the recent financial crisis, which pummeled pensions and 401(k)s alike, but also because the state neglected to make proper contributions over the first several decades of its existence.

    Rather than simply pay off the legacy cost of workers who retired long ago, Raimondo cut benefits for current workers and retirees. This came on top of earlier pension cuts. By my estimate, a prototypical career worker in Rhode Island government has seen a 34 percent reduction in benefits since 2005, with some workers experiencing cuts of 40 percent or more. By gutting employee-pension benefits, RIRSA has eliminated the state’s most effective tool to recruit and retain good teachers, firefighters, and other workers. Because it is unlikely that school systems, fire departments and other government employers will be able to attract and retain skilled workers without offsetting RIRSA’s benefit cuts with pay increases, the hybrid plan — already projected to cost more — will be even more expensive in the long run.

    If replicated across the country, the 401(k)-ification of public pensions would be a disaster for workers but a boon to the financial-services industry. This may explain why Raimondo, a former venture capitalist, is such a successful fundraiser. She is also a media darling, with many journalists accepting the idea that reneging on pension promises takes courage, even if the cuts forestall higher taxes on the wealthy, who have outsized political clout.

  7. pdm,

    Sorry. I could only make a guess at what pension reform “unwinding” is. It sounds as if it might mean a restitution of some retirement benefits.

  8. Barro asked the right question (there’s hope! a real journalist) I wonder if Chafee is still thinking about an answer…

    Elaine, I’m almost afraid to ask. Do you know anything about pension reform “unwinding” that is mentioned? I wonder if it re-instates some lost compensation or if it is a further screwing.

  9. Chafee’s Confusion About Moral Obligation
    By Josh Barro
    May 1, 2013

    I had an odd conversation with Rhode Island Governor Lincoln Chafee this week.

    Chafee has been in the job since 2011. During that time, Rhode Island has endured some of the most intense fiscal stresses of any state. Several decades of economic underperformance have led to severely underfunded state and local public employee pension systems. The economic crisis of the last few years, which hit Rhode Island exceptionally hard, exacerbated those pressures.

    Under Chafee, Rhode Island has drawn national attention for two major fiscal events. First, the state legislature passed (and Chafee signed) the country’s most sweeping public employee pension reform. The measure included a provision discharging about $1 billion in existing pension liabilities by freezing retirees’ cost of living adjustments (COLAs) for 15 years. This wasn’t a small cut; by the time the freeze is over, many retirees’ payments will be one-third smaller than initially promised.

    Second was the implosion of 38 Studios, former Red Sox pitcher Curt Schilling’s video game enterprise. Rhode Island offered the company a loan guarantee to relocate from Massachusetts. Now, the venture is bankrupt, and the state is on the hook to bondholders for $112 million.

    The 38 Studios guarantee took the form of a “moral obligation” on a bond issuance, meaning the state doesn’t have an actual legal obligation to make bondholders whole. Bondholders were paid a higher interest rate to compensate them for a risk of nonpayment that exceeded the typical risk of a general obligation bond. But Chafee and other political leaders in Rhode Island have been resolute: the state will pay.

    That raises a question that many state residents — especially retired employees — would like to see answered: If Rhode Island can’t afford to keep its promises to retirees, how can it afford to keep its promise to the 38 Studios bondholders? Chafee isn’t prepared to answer.

    In an interview at Bloomberg News’s New York bureau on Monday, the governor dismissed out of hand the idea that defaulting on the 38 Studios bonds might be in the state’s best interest. To him, this is a simple moral issue.

    “Even if the cost-benefit showed that, to the penny, we were better off defaulting, I’d consider it not honorable and damaging to our reputation,” he said. “I don’t know if you can factor that in as dollars and cents.”

    Later, he added “The words moral obligation speak for themselves.”

    But aren’t the pensions a moral obligation, too? After all, people spent their careers working for state and local governments in exchange for specific pension benefits. I asked Chafee, why it was acceptable to freeze the COLAs and unacceptable to break the moral obligation on the bonds.

  10. Regarding Dan Loeb whose Third Point Capital was given $66 million by Gina Raimondo:

    Dan Loeb Simultaneously Solicits, Betrays Pension Funds
    By Matt Taibbi

    There’s confidence. There’s chutzpah. And then there’s Dan Loeb, hedge fund king extraordinaire and head of Third Point Capital, who’s getting set to claim the World Heavyweight Championship of Balls.

    On April 18, Loeb will speak before the Council of Institutional Investors, a nonprofit association of pension funds, endowments, employee benefit funds, and foundations with collective assets of over $3 trillion. The CII is an umbrella group that represents the institutions who manage the retirement and benefit funds of public and corporate employees all over America – from bricklayers to Teamsters to teachers to employees of Colgate, the Gap and Johnson and Johnson.

    Loeb is going to be, in essence, pitching his services to these institutional investors. He already manages the money for several public funds, including the Ohio Public Employees’ Retirement System, the New Jersey State Investment Council, the Sacramento County Employees’ Retirement System, and the City of Danbury Retirement System. To give you an idea of the scale, New Jersey alone has $100 million invested with one of Loeb’s funds.

    When he comes to speak at CII, Lobe will almost certainly be seeking new clients. There will be some serious whales in these waters: For instance, CalSTRS, the California State Teachers’ Retirement System, will definitely be represented (Anne Sheehan, the director of corporate governance for CalSTRS, will be moderating Loeb’s panel).

    But here’s the catch. Dan Loeb, who isn’t known as the biggest hedge-fund asshole still working on Wall Street (only because Stevie Cohen hasn’t been arrested yet), is on the board and co-founder of a group called Students First New York. And the national Students First organization has been one of the leading advocates pushing for states to abandon defined benefit plans – packages which guarantee certain retirement benefits for public workers like teachers – in favor of defined contribution plans, where the benefits are not guaranteed.

    In other words, Loeb has been soliciting the retirement money of public workers, then turning right around and lobbying for those same workers to lose their benefits. He’s essentially asking workers to pay for their own disenfranchisement (with Loeb getting his two-and-twenty cut, or whatever obscene percentage of their retirement monies he will charge as a fee). If that isn’t the very definition of balls, I don’t know what is.

  11. Elaine and Lottakatz. Thanks for hangin’ in there. Elaine, I apologize for “photobombing” your excellent post. It is a subject that means a lot to me and I have had it with anecdotes being served as truth and the broadcasting of untruths as argument.

    Everybody makes mistakes, that’s ok. Sometimes the same mistakes are repeated. That’s ok, too. But to aggressively, continuously, and rudely deny facts while armed with only anecdotal STORIES and protests as to one’s personal Lincolnesque qualities is not ok.

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