Most Dangerous Jobs

[source, source]

Risky Business

The Journal Sentinel is promoting, again, venture capital.

"The State of Wisconsin Investment Board (SWIB) said it will commit as much as $80 million to Danville, Calif.-based Northgate Capital. This is the first time the $85 billion public pension fund has had the opportunity to invest with the top venture capital pools, which are willing to take public funds' money because the weak economy has made it more difficult for the funds to lure private investors."

"We believe the current venture environment offers an unprecedented opportunity to access top-tier funds and invest into a climate with favorable valuations," Chris Prestigiacomo, SWIB portfolio manager, said. "Both should translate into higher future returns that meet SWIB's fiduciary duty to the Wisconsin Retirement System beneficiaries."

All of this reminded me of a great article, The Looting of America: How Wall Street Fleeced Millions From Wisconsin Schools.

The Whitefish Bay school district's trust fund (along with 4 other districts) wanted to 'get a piece of the action' and leverage funds with some Wall Street high-rollers, with the hopes of cashing in. 

"So an old-fashioned financial romance began: Supply (Wall Street’s hottest financial products) met Demand (school districts seeking to build up their OPEB trust funds). It looked like a perfect match."

"Their trust fund for retirees’ benefits could accumulate almost $9 million in seven years by borrowing and investing $80 million. These CDOs would pay them over 1 percent more than what it would cost to borrow the money. The more the schools borrowed, the more they would make. It was practically free money. What was not to like?"

It didn't quite work out that way. The Wall Streeters made their money; Whitefish Bay, not so much.

"Whitefish Bay and the other school districts got something substantial too: nearly all of the risk. The school districts are about to lose all of their initial $37.3 million. They will also lose another $165 million of the money they’d borrowed from Depfa. As soon as the default rate is reached, $200 million will go to pay insurance claims to the Royal Bank of Canada. And the schools still will owe the full $165-million Depfa loan, and they will still owe on the bonds they had issued to raise much of their $37.3 million in collateral. The risk of reaching total default currently is so high that Kenosha’s entire piece of the CDO investment ($35.6 million) was valued at only $925,000, as of January 29, 2009—a decline in value of $36,575,000. Now the school districts are paying hefty fees not just to bankers but also to lawyers, as they sue to unwind the deal and recover damages."

We've been warned.

Weekend Reading

Choice schools not outperforming MPS

As economy sputters, a timid Fed

How Bill Gates misinterprets education facts

Just say no to voucher expansion

Rule tying executive compensation to risk

When standardized test scores soured in D.C., were the gains real?

Private Gain, Public Pain

Two recent articles [below] highlight the misguided efforts of entrepreneurializing government and public agencies. If we all act like a business, worship the market, and strive for bloated profits, all will be right with the world.

This snake-oil has caused us to believe public goods and infrastructure no longer matter. Everyone and everything must compete.

And, for some reason, we keep banging our collective head against this wall even though it has increased volatility and risk, while concentrating gains among a select few and leaving the increasing loses the responsibility of the taxpayers.

For Further Reading:
Public Benefits, Taxpayer Pain
The New Threat From Wall Street

The Nationalization of Risk

Supply-side economics and the accompanying policies of the last thirty years have produced great returns for Wall Street-ers while devastating the real economy and the folks on Main Street.

As the financial sector has become a larger portion of the economy (representing somewhere between 15 to 20 percent of total sales, receipts, and shipments), market volatility has increased, which has led to a precarious existence for most Americans. Yet cranks preached these financial changes as increasing efficiency, improving liquidity, lowering rates...all of which would supposedly help retirement accounts, grow the economy faster, create jobs, and on and on. As empirical evidence of the last thirty years shows, this is a total fabrication.

The odd part of this story is that these supposed free marketeers want Government out of their way and off their back, and blame public sector regulation for any blips in the market, yet when their mismanagement and overly-risky investment strategies go belly-up and risk collapsing the whole economy, then Government must step in to save the day. Economists call this phenomenon moral hazard.

The really strange part of all this is the same characters that established the corrupt financial practices that led to the current mess are the same people offering advice and looking to make a profit off "fixing" the problem.

Robert Kuttner details the problems of deregulation and offers some necessary reforms.

With regards to the 2008 Presidential election: "McCain voted for abolishing all of the significant rules put in place at the time of the Great Depression designed to prevent a repeat," as Robert Scheer reports.

And, there is a need for prosecution of some sort for this corruption, malfeasance, lack of ethics and deceitfulness that has taken place.

Also, finally, rather than continuing to "bail out" the causes (corrupt businesses that are too big to fail) of these financial meltdowns, why not just provide a real stimulus check to every working-aged man and woman in the country? If we must nationalize businesses, let's at least do this alongside reforms to the financial system (reimplementing a 2008 version of the Glass-Steagall Act), and with language that assures a portion of the profits made from selling off the assets of these mismanaged corporations goes toward Social Security, pension & retirement plans, energy independence, public works infrastructure programs, etc. Or to at least assure that whatever amount we decide we must spend on bailouts, an equal dollar amount will go toward those aforementioned public concerns. As long as we're pumping all this money into the economy, we might as well get all the bang for the buck we can and also initiate a new New Deal.

For Further Reading:
A Crash Course in Economic Crashes
Big Rate Cuts and Fiscal Stimulus
Biggest Corporate Bailouts
Bush's Disastrous Rescue of the Finance Industry
Financial Crisis: Time for a Citizens Plan
Financial Meltdown Continues
Gaining With Trade
History of US Government Bailouts
NAFTA at Ten: The Recount
Paulson Bailout Plan a Historic Swindle
Progressive Conditions for a Bailout
Time to Take a Second Look at Our Free Trade Agreements