The Alliance Between Wall Street and Public Unions

“It’s [private equity investments] generating real returns for our members, which is exactly what it’s supposed to do,” said Joe DeAnda, a CalPERS spokesman. “It’s real value that we don’t feel there’s another way to achieve.”
–  “Are private equity investments worth the risk?,” Los Angeles Times, November 14, 2015

The alliance between government unions and America’s overbuilt financial sector is one of the most unreported stories of our time. It is a story saturated in greed, drowning in delusion, smothered and marginalized by an avalanche of taxpayer funded propaganda. If this story were known and appreciated by the people most victimized by its effects, it would fundamentally shift the political landscape of the nation. The most obvious example of this alliance are the government worker pension systems, Wall Street’s biggest players, controlled by union operatives.

The problem with public sector defined benefit pensions can be boiled down to two cold facts: They are too generous, and they rely on rate-of-return assumptions that are too optimistic. The first is the result of greed, the second of delusion. To indulge these vices requires corruption, and it is a rot that joins public sector unions with the most questionable elements of that Wall Street machine they so readily demonize.

In an attempt to earn in excess of 7.0% per year, government pension systems have increasingly turned to hedge funds, whose charter, essentially, is to earn over-market returns. To do this, they do all the things that public sector unions are supposedly opposed to – opaque private equity deals, currency speculation, high-frequency trading – all those manipulative tools used by the super-wealthy, super empowered Wall Street players to siphon billions out of the economy. Except now they’re using tax dollars, channeled to them via government pension systems. And if it goes south? Taxpayers pay for the bailout.

Which brings us to sheer abuse of power. Hypocrisy aside – and how much more hypocritical can it be for union leaders to rhetorically demonize “profits,” yet ignore the fact that only profits can permit pension funds to appreciate at rates of 7.0% per year or more – it is raw power, sheer financial and legal might, that enables pension systems, with unions cheering them on every step of the way, to sue city after faltering city to ensure their “contracts” are inviolable, that relentlessly escalating pension contributions keep pouring in, even if it means raising taxes via court order, then selling the parks, selling the libraries, closing government offices and “furloughing” public servants, and giving raw deals to their new hires.

The alliance between Wall Street and public sector unions isn’t restricted to the over $4.0 trillion in government pension assets that they’ve wagered in a volatile investment market with taxpayers on the hook to guarantee perpetual winnings. The alliance extends to bond underwriters, who join with government unions to sell overpriced, often unnecessary projects to taxpayers, collecting billions in fees. It even extends to auctions of government permits to emit CO2, which when fully implemented will guarantee Wall Street firms a cut on virtually every energy transaction in America, while quietly pouring a huge portion of the proceeds into funding public sector jobs – redefined to meet “mitigation” criteria: code inspectors enforcing energy retrofits, entire cities who zone ultra-high density which presumably lowers transportation related emissions, bus drivers and other mass transit workers, police and fire agencies who confront higher crime rates and more wildfires during hot weather. And, of course, the bullet train.

Whether it’s financially unsustainable government pension systems, who are the biggest players on Wall Street, or financing overpriced public construction projects of dubious value, or imposing billions in hidden taxes on energy users to supposedly save the planet, public sector unions receive formidable political, legal and financial support from their partners in the financial sector, corrupt, crony capitalists who indeed give capitalism a bad name.

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Ed Ring is the executive director of the California Public Policy Center.

8 replies
  1. Avatar
    john m. moore says:

    To the contrary, look at the recent conduct of the BOS for Sonoma and Marin counties. In each county, grand juries produced evidence of criminal conduct to steal over a billion in pension benefits for unions and staff of each county. The attorneys purchased false and inaccurate legal opinions relied upon by the BOS in each county to ratify the thefts. In spite of the grand jury findings, neither the sheriff nor the district attorney even investigated the evidence. Were the grand juries simply engaged in a diatribe by revealing in precise detail the evidence of pension embezzlement? And where is the State Bar, the regulator of the practice of law? Every state and local law enforcement and discipline agency looks the other way; coincidently, they, like the BOS are beneficiaries of the illegally adopted pensions.

    The math clearly indicates that this crooked system will be less than 50% funded after 2015 (using a 4% income rate); CaLPERS admits that when the system is less than 50% funded, it cannot be revived because agencies don’t have the resources to pay the illegal pensions. To make matters worse, only palliative reforms are proposed.

  2. Avatar
    BOPRN says:

    This is an example of the reason I stopped taking Ed serious. ‘WOW’ is all one can say. The title “The Alliance Between Wall Street and Public Unions” just shows how far down the rabbit hole the crazies have gone. It is the same mentality (mental illness really) that gives us Trump. I would pity Ed, and his pal from NJ, but they have moved beyond pity to needing admission to a PUF facility via a 5150 ‘danger to self and others’ admission. Maybe down that ‘rabbit hole’ we can find their favorite dog and get it admitted too…

  3. Avatar
    Andy Frazer says:

    For the best example of the collusion between the financial sector and the public labor unions, just look at how CalPERS easily persuaded the California legislature and most California cities (and most counties) to retroactively increase pension benefits by 50% beginning in 1999.

    On behalf of the unions, CalPERS pretended to be a neutral party by producing financial projections that assured the legislature they could deliver 50% better payouts without costing the taxpayers a dime. However, there was no guarantee they could meet these returns. The unions pressured their elected officials to support it backed by CalPERS’ phone financial projections.

    When the legislature agreed to it, they stuck the taxpayers with their largest financial liability in the history of the state. And the counties’ (and the University of California’s) independent pensions funds followed along.

    Then CalPERS claims they can’t be held responsible if their returns did not meet their projections. And the unions claim it was CalPERS’ fault. In the end, it’s the private sector taxpayers who got burned, and both CalPERS and public sector retirees made out like bandits.

    It was actually a brilliant scheme.

  4. Avatar
    Rex the Wonder Dog says:

    It was actually a brilliant scheme.

    Actually it was straight up, text book fraud. CalTURDS withheld material information on SB400, the downside, while giving the very best scenario. Classic fraud. Happens everyday in real life, except when the perpetrators are CAUGHT hey go to prison.

    I have said it before, all it is going to take is ONE member muni of CalTURDS to sue on under RICO, using the predicate crime of wire fraud, and that entire SB400 scam will be blown out of the water.

  5. Avatar
    Fact Checker says:

    Rex – why not utilize your expertise to organize such a suit by whatever city you live in to do just that?

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