Thursday, January 27, 2011

How unions took the fall for NJ's pension scandals

New Jersey's bombastic governor Chris Christie doesn't like to point fingers at the real perps behind the state's pension fund problems. He prefers to blame government workers instead of bankers and governors. Christie is taking a page from New York Post publisher Rupert Murdoch, who wrongly accused New York City's sanitation workers for slow snow removal over Christmas instead of the city's vacationing (in Bermuda) billionaire mayor.

Here's Christie talking to the Wall Street Journal recently about reforming pensions:
The ultimate reform is to move to a 401(k)-style [public pension] plan that provides transparency to taxpayers while allowing government employees -- not politicians or union bosses -- to control their retirement savings with individual accounts. How to enact such reform in New Jersey? You get a Republican legislature, that's how you do it. I'm dealing in a context where the Democratic Party in my state has been ruled by the public-sector unions.
Christie tipped his hand here, revealing that his fight over pensions is really a fight to eliminate his political enemies -- government unions. And it's nonsense because the government unions weren't the ones with their hands in the state's pension kitty for the last 15 years.

New Jersey's pension problems result from theft, fraud and mismanagement by banks and government officials.  The incomparable Bob Herbert says it all began with former Gov. Christie Todd Whitman's "buy-now, pay-later" economic policy. Fifteen years ago, Herbert predicted that New Jersey would pay the price for Whitman's pension shenanigans.
The pension obligations at some point will come due and future generations will have to meet them. Not only will the money have to be made up, but future taxpayers will be deprived of the income that the money -- if properly invested now -- would be expected to generate.
New Jersey is now at that point. Here's how it got there: Whitman diverted billions of dollars that should have gone into the pension funds to the state budget. Christie did that again last year, by the way. He called the $3.1 billion diversion a "reform."

There was also mismanagement and fraud. Fortune reported on a brilliant move by Whitman that was supposed to save taxpayers $45 billion. It cost them instead. Under Whitman, New Jersey in 1997 sold $2.75 billion of bonds that it paid 7.6 percent interest on. It invested that $2.75 billion in a fund that earned less than 6 percent annually. Banks, not government unions, received income from those transactions. Those transactions wouldn't have happened in the first place if the books hadn't been cooked. (Note: it wasn't the unions that cooked the books.)

firedoglake reported on yet another scandal that cost union retirees $115 million. A New Jersey pension fund overseer named Orin Kramer in 2006

...successfully pushed to shift a huge chunk of the state’s $72 billion pension fund to private money managers rather than state employees. Kramer was the "prime architect of the diversification strategy"  that saw union retirees pick up the tab for $115 million in Lehman Brothers losses on money invested shortly before the firm’s collapse.  (Lehman Brothers, you will recall, is the firm that Ohio's new union-busting governor John Kasich worked for.)
Last year, the SEC accused New Jersey of lying about its pension fund assets. The New York Times reported that the state had diverted billions of dollars from its pension fund for teachers, using "unorthodox transactions authorized by the Legislature and governors from both political parties."

New Jersey settled the case last year without admitting wrongdoing. There was no fine, no accountability. As the Times reported in August, the SEC issued a "cease and desist" order but didn't name
...any individual state officials, nor the bond underwriters and other professionals whose job it was to vouch for the state's financial statements. New Jersey's largest bond underwriters during the period in question include Citigroup, J. P. Morgan Securities, Morgan Stanley, Bank of America, Merrill Lynch, Goldman Sachs and Barclays Capital...
Actually, it's the unions that are wrongly being held accountable for New Jersey's mess. The Naked Capitalist has some good advice for the Garden State's unions:
...the unions need to find a way to regain the moral high ground. New Jersey, one of the richest states in the US, has mismanaged its way into this mess. That fact needs to be hammered hard, and the unions also need to put forward a realistic plan in which they make concessions provided upper income earners do their part to address the budget shortfalls...
Don't look now, but Christie will probably again veto a proposed tax on the millionaires who benefited from the looting of the state's pension funds.