DownWithTyranny!: A Clear Primary Choice In Rhode Island: Angel Taveras Is The Best Opportunity Progressives Have To Prevent A Raimondo Disaster

The race to be the next Governor of Rhode Island is really a battle between two people: a true progressive leader and his fake-Democrat Wall Street opponent. I want to explain why Blue America is lining up behind Angel Taveras, the bold progressive in this race.

The other candidate in the race is known for one thing: having put out a "for sale" sign to Wall Street:. That's EMILY's List's supposed Democrat, Gina Raimondo. Raimondo, who spent her career as a venture capitalist before being elected General Treasurer, is grabbing cash out of Wall Street firms as fast as she can before anyone can notice.

Why is Wall Street so excited to get her elected? Because Raimondo sold out the working men and women of Rhode Island by using her Koch brothers scare tactics to slash pensions for state workers. And these union busters want to prop up this nominal “Democrat” as a model for more union-busting around the country.

In 2011, Raimondo scared everyone into believing that if the General Assembly didn’t vote for her plan, the state would go under. She set up a Koch brothers secret 501c(4) attack machine to put the other politicians in line and funded it through her high-powered big-money friends, including an ex-Enron hedge fund billionaire from Texas.

Then she took a billion dollars of pension dollars and put it into hedge funds, jacking up their fees from $16 million to over $70 million.

Now comes Raimondo’s pay day, grabbing unseen amounts of cash from the same type of fat cats she gave Rhode Isalnd's pension dollars.

But here’s the kicker-- before running for Treasurer she won a $5 million dollar investment of state pension dollars to be managed by her venture capital fund, Point Judith Capital Partners. Even today, she is still managing her own money. And she gets paid whether the state makes money or not. She is receiving hundreds of thousands in personal income off the money she is managing.

In Raimondo’s world, if you are part of a working family, your pension can be slashed at a moment's notice, but if you are a hedge fund... you have never seen a better day.

Why would she do the right thing after getting elected governor and sell off her stake? So far, she has had no problem making money off public dollars she was trusted to manage on behalf of taxpayers and the state workers she burned in the first place.

And when the ACLU, Common Cause, and other good government groups wanted Ramiondo to share the public contract that she was the architect behind, they got a slammed door in their collective faces. [Remember, she claims she;s a Democrat, not a Republican.] She has gone to great lengths to hide the specifics of the deal she constructed to get rich.

She is running against the Mayor of Providence, Angel Taveras. Angel is a true progressive who has been getting national recognition for his work in early childhood education. He's a neighborhood kid who grew up in public housing, and he was raised by a single mother who worked in factories to raise her kids. He went from Headstart to Harvard and came back to Providence to do right by his community.

As Mayor, he inherited a similar $1 million dollar contract from Point Judith Capital. Now he is fighting to make public the crappy deal that Raimondo pitched. Raimondo designed the contract with Providence, which says that if the city wants to break the deal, they get pennies on the dollar before its ten-year limit is up. Another great example of how Raimondo knows how to stack the deck in her favor-- and in favor of her wealthy funders and against ordinary Rhode Islanders.

Raimondo's response to the Mayor’s efforts? He should focus on slashing more on pension dollars from city workers than question her Point Judith contract. Last September, writing in Rolling Stone, Matt Taibbi exposed Raimondo as the kind of crook Wall Street and EMILY's List easily come together on, Looting The Pension Funds.

The American Federation of Teachers this spring released a list of financiers who had been connected with lobbying efforts against defined-benefit plans. Included on that list was hedge-funder Loeb of Third Point Capital, who sits on the board of StudentsFirstNY, a group that advocates for an end to these traditional plans for public workers-- that is, pensions that promise a guaranteed payout based on one's salary and years of service. When Rhode Island union rep Reback complained about hiring funds whose managers had anti-labor histories, she was told the state couldn't make decisions based on political leanings of fund managers. That same month, Rhode Island moved to disinvest its workers' money from firearms distributors in the wake of the Sandy Hook shooting.

Hedge funds have good reason to want to keep their fees hidden: 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-- Loeb's Third Point, for instance, charged Rhode Island just more than half a percent for "fund expenses" last year, or about $350,000. Hedge funds will also pass on their trading costs to their clients, a huge additional line item that can come to an extra percent or more and is seldom disclosed. There are even fees states pay for withdrawing from certain hedge funds.

In public finance, hedge funds will sometimes give slight discounts, but the numbers are still enormous. In Rhode Island, over the course of 20 years, Siedle projects that the state will pay $2.1 billion in fees to hedge funds, private-equity funds and venture-capital funds. Why is that number interesting? Because it very nearly matches the savings the state will be taking from workers by freezing their Cost of Living Adjustments-- $2.3 billion over 20 years.

"That's some 'reform,'" says Siedle.

"They pretty much took the COLA and gave it to a bunch of billionaires," hisses Day, Providence's retired firefighter union chief.

When asked to respond to criticisms that the savings from COLA freezes could be seen as going directly into the pockets of billionaires, treasurer Raimondo replied that it was "very dangerous to look at fees in a vacuum" and that it's worth paying more for a safer and more diverse portfolio. She compared hedge funds-- inherently high-risk investments whose prospectuses typically contain front-page disclaimers saying things like, WARNING: YOU MAY LOSE EVERYTHING-- to snow tires. "Sure, you pay a little more," she says. "But you're really happy you have them when the roads are slick."

Raimondo recently criticized the high-fee structure of hedge funds in the Wall Street Journal and told Rolling Stone that "'two and twenty' doesn't make sense anymore," although she hired several funds at precisely those fee levels back before she faced public criticism on the issue. She did add that she was monitoring the funds' performance. "If they underperform, they're out," she says.

And underperforming is likely. Even though hedge funds can and sometimes do post incredible numbers in the short-term-- Loeb's Third Point notched a 41 percent gain for Rhode Island in 2010; the following year, it earned -0.54 percent. On Wall Street, people are beginning to clue in to the fact-- spikes notwithstanding-- that over time, hedge funds basically suck. In 2008, Warren Buffett famously placed a million-dollar bet with the heads of a New York hedge fund called Protégé Partners that the S&P 500 index fund-- a neutral bet on the entire stock market, in other words-- would outperform a portfolio of five hedge funds hand-picked by the geniuses at Protégé.

…Once upon a time, local corruption was easy. "It was votes for jobs," Doughty says with a sigh. A ward would turn out for a councilman, the councilman would come back with jobs from city-budget contracts-- that was the deal. What's going on with public pensions is a more confusing modern version of that local graft. With public budgets carefully scrutinized by everyone from the press to regulators, the black box of pension funds makes it the only public treasure left that's easy to steal. Politicians quietly borrow millions from these funds by not paying their ARCs, and it's that money, plus the savings from cuts made to worker benefits in the name of "emergency" pension reform, that pays for an apparently endless regime of corporate tax breaks and handouts.

A notorious example in Rhode Island is, of course, 38 Studios, the doomed video-game venture of blabbering, Christ-humping ex-Red Sox pitcher Curt Schilling, who received a $75 million loan guarantee from the state at a time when local politicians were pleading poverty. "This whole thing isn't just about cutting payments to retirees," says syndicated columnist David Sirota, who authored the Institute for America's Future study on Arnold and Pew. "It's about preserving money for corporate welfare." Their study estimates states spend up to $120 billion a year on offshore tax loopholes and gifts to dingbats like Schilling and other subsidies-- more than two and a half times as much as the $46 billion a year Pew says states are short on pension payments.

The bottom line is that the "unfunded liability" crisis is, if not exactly fictional, certainly exaggerated to an outrageous degree. Yes, we live in a new economy and, yes, it may be time to have a discussion about whether certain kinds of public employees should be receiving sizable benefit checks until death. But the idea that these benefit packages are causing the fiscal crises in our states is almost entirely a fabrication crafted by the very people who actually caused the problem. It's like Voltaire's maxim about noses having evolved to fit spectacles, so therefore we wear spectacles. In this case, we have an unfunded-pension-liability problem because we've been ripping retirees off for decades-- but the solution being offered is to rip them off even more.

Everybody following this story should remember what went on in the immediate aftermath of the crash of 2008, when the federal government was so worried about the sanctity of private contracts that it doled out $182 billion in public money to AIG. That bailout guaranteed that firms like Goldman Sachs and Deutsche Bank could be paid off on their bets against a subprime market they themselves helped overheat, and that AIG executives could be paid the huge bonuses they naturally deserved for having run one of the world's largest corporations into the ground. When asked why the state was paying those bonuses, Obama economic adviser Larry Summers said, "We are a country of law. . . . The government cannot just abrogate contracts."