Pensions and Private Equity – A Letter to the New York Times Editor

The ongoing racket between private equity firms and public pension funds in which they work together to earn billions of dollars in excessive fees at the expense of retirees across the country has been a key theme at Liberty Blitzkrieg this year. My most recent piece on the topic was published last week and titled, Another Pension Scandal – The Crony Love Affair Between North Carolina, Credit Suisse and Erskine Bowles.
Here’s an excerpt:
When it comes to how the U. S. economy of fraud functions in 2014, the following article has it all. A government official, a global investment bank and a businessman/politician, all working together to enrich themselves at the public’s expense. It demonstrates how big bucks are really earned by insiders in the new American Dream, characterized by extreme cronyism and corruption.

This post was published at Liberty Blitzkrieg on Oct 26, 2014.

Back To The Future Was Right: Hoverboards Are Just Around The Corner (video)

We are now less than a year away from the day when Robert Zemeckis and Michael J. Fox inspired an entire generation to expect nothing less from 2015 than flying cars. Sadly, as a result of the past 6 years of human “progress” being redirected to finding creative ways of preserving crony capitalism, the failed way of Keynesian life and masking insolvent banks as lipsticked pigs, the only automotive question we have of 2015 is whether there are any GM cars that haven’t been recalled; cars which one hopes will neverbe airborne. And yet, there is one aspect of 2015 that the Back to the Future trilogy may have gotten correct: that “other” thing which every 80’s kid wants to have more than anything: hoverboards.
As a recent Kickstarter campaign by Los Gatos, CA company Hendo claims, a campaign which has already raised well over $100,000 more than its goal of $250,000, the company is preparing to introduce “the world’s first REAL hoverboard and hover developer kit.”

This post was published at Zero Hedge on 10/25/2014.

Another Pension Scandal – The Crony Love Affair Between North Carolina, Credit Suisse and Erskine Bowles

In North Carolina, managing the retirement savings of teachers, police officers, firefighters and other public employees is big business. As the sole fiduciary of the state’s $90 billion pension fund, Treasurer Cowell, a Democrat, was recently named the world’s 18th most important institutional investor by the Sovereign Wealth Fund Institute. The State Employees Association of North Carolina (Seanc) estimates that North Carolina is on track to spend a billion dollars a year of retirees’ pension money on fees to private financial firms. Roughly half of all North Carolina pension deals involve placement agents, and Seanc estimates that has generated roughly $180 million in placement agent fees – costs that are effectively paid by the pension fund, according to critics.
Credit Suisse’s own internal regulations say the company aims to ‘establish a management organization that avoids the creation or appearance of conflicts of interests.’ But the North Carolina agreement (the provisions of which were secret until Seanc’s open records request earlier this year) explicitly allows Credit Suisse to engage in ‘actual and potential conflicts of interest.’ The agreement noted Credit Suisse could receive ‘placement fees’ from the firms in which it invests North Carolina pension money.
– From David Sirota’s excellent piece in Investors Business Daily: Pension Deal Spotlights ‘Placement Agent’ Business, Raises Conflict-Of-Interest Questions
When it comes to how the U. S. economy of fraud functions in 2014, the following article has it all. A government official, a global investment bank and a businessman/politician, all working together to enrich themselves at the public’s expense. It demonstrates how big bucks are really earned by insiders in the new American Dream, characterized by extreme cronyism and corruption. As might be expected, this post highlights another excellent piece by David Sirota, who has been doing the best investigative journalism on the topic of public pension corruption. In this article, he zeros in on what’s known as ‘placement agents,’ which are often large financial firms with connections across the political spectrum, and are often money managers themselves, such as private equity giant Blackstone. However, they don’t need to have any expertise in financial matters, they simply need to be connected. As such, placement agents are sometime even former NFL stars.
These agents are paid by money managers to recommend their funds to huge pools of capital, such as public pension funds. In this article, global investment bank Credit Suisse plays the role of placement agent. The investment pool is played by the North Carolina state pension fund, led by Janet Cowell, while the asset manager looking to earn pension fund fees is played by Carousel Capital, a firm run by Erskine Bowles.
As a refresher, Janet Cowell is no stranger to this site. I covered her cronyism back in June in the post, Meet Janet Cowell – The North Carolina Treasurer Desperately Pushing to Keep Criminal Public Pension Fees Secret. Here’s an excerpt:

This post was published at Liberty Blitzkrieg on Oct 22, 2014.

LOSING $1 BILLION IN A DAY

It couldn’t happen to a bigger prick. It’s actually better. Good old Warren has lost $2.1 billion in this investment since April. Poor guy. I’m sure CNBC will roll out the doddering old fool to be interviewed by his designated soft ball pitcher – Becky ‘not so’ Quick so he can pump up the stock with some gibberish. This guy is the ultimate crony capitalist sellout. They rolled him out last week to try and stop the market meltdown.

This post was published at The Burning Platform on 20th October 2014.

Kudos To Herr Weidmann For Uttering Three Truths In One Speech

Once in a blue moon officials commit truth in public, but the intrepid leader of Germany’s central bank has delivered a speech which let’s loose of three of them in a single go. Speaking at a conference in Riga, Latvia, Jens Weidmann put the kibosh on QE, low-flation and central bank interference in pricing of risky assets.
These days the Keynesian chorus in favor of policy activism is so boisterous that a succinct statement to the contrary rarely gets through – -especially at Rupert Murdoch’s Wall Street yarn factory. But here’s what penetrated even Brian Blackstone’s filters:
‘The biggest bottleneck for growth in the euro area is not monetary policy, nor is it the lack of fiscal stimulus: it is the structural barriers that impede competition, innovation and productivity,’ he said.
Needless to say, that is not only the truth but its one that is distinctly unwelcome to the policy apparatchiks in Brussels and the politicians in virtually every European capital. Self-evidently, printing money and running up the public debt are pleasurable and profitable tasks for agents of state intervention. But reducing ‘structural barriers’ like restrictive labor laws, private cartel arrangements and inefficiency producing crony capitalist raids on the public till are a different matter altogether. In the political arena, they involve too much short-term pain to achieve the long-run gain.

This post was published at David Stockmans Contra Corner on October 17, 2014.

297 Congress Members Have Earmarked $3.8 Billion for Organizations Tied to Them or Family Members

Remember back when Democrat Congressman Jim Moran, U. S. Representative for Virginia’s 8th congressional district gave an interview where he said that Congress is underpaid at $174,000 a year and needs a raise because Americans need to understand that Congress is ‘the board of directors for the largest economic entity in the world’?
Well, check out what the ‘board of directors’ has been up to.
According to watchdog groups Legistorm and CREW – Citizens for Responsibility and Ethics in Washington – a total of 297 members of Congress have earmarked $3,776,001,807 for organizations that are connected directly to them or to their family members.
For just one example of how this works, check out this research into the conflicts of interest and crony dealings of Dem. Rep. Rosa DeLauro here – and she’s just one example.
Other interesting tidbits:

This post was published at The Daily Sheeple on October 11th, 2014.

Meet The World’s First “Undercover, Super-Secret Central Banker”

First a secret “Doomsday book“, and now this?
Flash back to those days in September 2008 when the financial system was on the verge of collapse and when first Lehman failed and then AIG was knocking on heaven’s door. While the story of the former has been written, it is the still incomplete history of the latter that is the reason why Hank Greenberg, the largest shareholder of AIG at the time, is suing the US government for bailing out AIG, alleging the US exorted shareholders when it provided a $182 billion bailout to the insurance company whose Joseph Cassano had seemingly sold insurance on every insolvent mortgage-related security: a strategy which worked in a rising market and led to a near systemic catastrophe when the market crashed.
We won’t debate the merits of Greenberg’s lawsuit, which is currently raging in court under STARR INTERNATIONAL COMPANY V. UNITED STATES, U. S. Court of Federal Claims 11-cv-00779 (it should be painfully clear by now that neither AIG nor crony capitalism as it exists now would have survived had Goldman and its NY Fed branch not extended several trillion in taxpayer funds to preserve the status quo), however we will note one thing: recall that when the terms of the AIG bailout first made waves in 2010 courtesy of Darrell Issa we found out something pecliar: none of the members of the Fed had any intentions on making their procedure public.
As Reuters reported back then:

This post was published at Zero Hedge on 10/09/2014.

Crony Capitalism Is Kryptonite to Democracy and the Real Economy

When the machinery of governance is ruled by the highest bidders, democracy is dead.
Last week I described the sources of America’s America’s terminal political dysfunction. The engine of this terminal dysfunction is crony capitalism, the incestuous and oh-so-profitable marriage of the Central State and monied Elites.
Gordon T. Long and I continue our discussion of the perverse incentives and consequences of crony capitalism in a 25-minute video program.
Gordon argues that America’s Crony Capitalism closely resembles the Roman Tribute System, an arrangement that skims wealth and concentrates it at the top of the power pyramid.
Vast financial crimes are met with fines. Guilty parties do not go to jail but rather the corporation pays a fine. Billion-dollar crimes are assessed million-dollar fines– a percentage that closely mirrors a Tribute System. The government makes money through enforcement but not prevention. Corporations make illicit fortunes with the confidence that the government will settle for a small slice of the wealth stripmined from the people.
The fines for financial skimming operations act as a form of tribute to the Central State: the State and its corrupt elected officials and regulators turn a blind eye to the pillage of the citizenry via financialization schemes, and then skim a tribute via fines and campaign contributions.


This post was published at Charles Hugh Smith on SUNDAY, OCTOBER 05, 2014.

Sports Stadiums: Temples to Crony Capitalism

The NFL is running one of its own games on the public, and as one of the most subsidized non-profit organizations in American history, the NFL excels at tackling the American taxpayer. It should be of no surprise that with its religious-like following, the NFL receives the same tax-exempt status as a church, exempted under the IRS 501 (c) 6 code from paying federal taxes. The legislation puts the NFL as a non-profit trade association which it has been under since 1942.
But over the past twenty years, 101 new sports facilities have opened in the United States – a 90-percent replacement rate – and lately there has been a rising tendency for renovation costs to skyrocket into the hundreds of millions, which, according to Harvard University urban planning professor Judith Grant Long, the taxpayer foots on average 70 percent of the bill, with often not a penny coming out of the pockets of the team or its owners. The rest of the funding comes from tax-exempt municipal bonds supported under the G4 stadium loan program, which provides loans in return for revenue generated from ticket sales and premium seating.
As is the case with ‘too big to fail’ financial institutions, the NFL is given politically-favored status, and protected by a trench of antitrust exemptions. But unlike the overpaid (read: taxpayer-subsidized) CEOs of Goldman Sachs and Chase Bank, NFL commissioner Roger Goodell earns twice as much as them, thanks to an NFL flush with taxpayer cash. Goodell earned more than $44 million in 2013, and in the past five years he has made over $105 million.

This post was published at Ludwig von Mises Institute on Friday, October 03, 2014.

Kudos To Judge Lamberth: Bubkis Hedge Fund Claims Against Freddie/Fannie Get Heave-Ho

During the last year or two a passel of crony capitalist hucksters led by hedge fund operatives Bruce Berkowitz and Bill Ackman have been attempting to pilfer upwards of $40 billion from US taxpayers via a raid on Fannie Mae and Freddie Mac. Kudos to US District Judge Lamberth whose Tuesday ruling stopped them cold.
And don’t shed a tear for the hedge fund boys. Notwithstanding the collapse shown below, the FNMA stock plunge still has more to go; its real value is bubkis – just like their claims.

FNMA data by YCharts
Like in so many other cases during the post-crisis aftermath, these hedge funds scooped-up the worthless preferred and common stock of Freddie and Fannie – -expecting these penny stocks to soar as the Fed’s tsunami of liquidity rekindled speculative appetites and its free carry trade financing buoyed the markets for risk assets. In this particular case, the potential jackpot was to be powerfully augmented by an expected legislative or judicial ruling that owners of these beaten down equities were entitled to their pro rata share of the surging but entirely phony profits of Freddie and Fannie.
To its credit, the Obama administration had previously recognized that absent Uncle Sam’s bailout of the roughly $6 trillion of Freddie/Fannie mortgage guarantees and debentures, the junior equity securities in their capital structures would have been worthless. In fact, at the time Freddie/Fannie were essentially nationalized by the Bush Administration in September 2008, the thin layer of equity represented by these shares had been leveraged at approximately 100X, and would have been obliterated in a proper bankruptcy. Accordingly, the Obama folks had simply decided to treat the remnants of Freddie/Fannie as a wholly owned government investment fund, and swept 100% of the book profits posted each quarter.

This post was published at David Stockmans Contra Corner on October 2, 2014.

Is the UK a ‘Nation by Consent’?

From the Editors:
Today Scotland votes on a referendum concerning political independence from the United Kingdom.
For libertarians, the politics surrounding both sides of the vote are suspicious. The globalist banking class, ever fearful of decentralization of power, warns that Scotland needs Westminster’s economic assistance (read: welfare), Westminster’s military might, and Westminster’s currency. The largely socialist Scots, meanwhile, argue for a more ‘egalitarian’ society administered by Holyrood and a new alliance with their more enlightened fellow travelers in Brussels – leaving one master for another.
As always, libertarians should focus on first principles. Murray Rothbard’s 1993 essay,’Nations by Consent: Decomposing the Nation-State,’ does just that.
Rothbard asks the correct questions: What is a nation? What makes a nation legitimate? Are nation-states needed for collective security? When is secession allowed? Should open borders and open immigration be allowed? How should citizenship and voting rights be conferred? How would a completely private, anarcho-capitalist country operate?
These are the questions we must ask and answer as we argue against the state, against central banks, and against an increasingly global crony political class.
Nations By Consent: Decomposing the Nation-Sate
Libertarians tend to focus on two important units of analysis: the individual and the state. And yet, one of the most dramatic and significant events of our time has been the re-emergence – with a bang – in the last five years of a third and much-neglected aspect of the real world, the ‘nation.’ When the ‘nation’ has been thought of at all, it usually comes attached to the state, as in the common word, ‘the nation-state,’ but this concept takes a particular development of recent centuries and elaborates it into a universal maxim. In the last five years, however, we have seen, as a corollary of the collapse of communism in the Soviet Union and in Eastern Europe, a vivid and startlingly swift decomposition of the centralized State or alleged nation-State into its constituent nationalities. The genuine nation, or nationality, has made a dramatic reappearance on the world stage.

This post was published at Ludwig von Mises Institute on September 18, 2014.

The thriving cronyism of the stock market: 81 percent of stock market wealth held in the hands by 10 percent of the population. Housing also being snatched from middle class families.

Most Americans are confronting a system where the deck is stacked against their interests. Most Americans saw the true colors of the system during the Great Recession panic when government joined forces with Wall Street to essentially fire the middle class with explicit and hidden bailouts. There is unfortunately a large amount of cronyism embedded in the current system. Most Americans have very little in stock market wealth. Over 81 percent of stock wealth is held by the top 10 percent of the population. This is why for most, retirement is largely one pipe dream. Yet the problem of the bailouts was the split of corporate welfare for connected institutions and austerity measures for the rest of the country. Wall Street is driven by profits and companies were able to slash their way into profitability while boosting earnings and using large safety nets and golden parachutes for those at the top. Banks that should have failed survived thanks to the too big to fail mantra. This is why, after a record stock market run since 2009 many Americans still view the economy as performing poorly. For them it is. You also have Wall Street invading the one asset where Americans used as a forced savings account, housing. Even in this one asset class Americans are being pushed out.
Not buying the stock market rally
The data is clear in that very few Americans own any substantial amount in stock wealth. 81 percent of stock wealth is held with 10 percent of the population. The recent rally was driven by slashing wages, cutting benefits, leveraging bailout funds, and ultimately using the recession as proof that labor was fully disposable. The days of corporatism are gone and now the reality of company loyalty is long gone. The government and lobbyists will assist those at the top but for most middle class Americans, the game is over.
This is how you can have a stock market peak with such poor sentiment:

This post was published at MyBudget360 on September 10, 2014.

Why Has Classical Capitalism Devolved to Crony-Capitalism?

The money-shot: “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.”
Here is the quote that perfectly captures our era: “People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.” (John Kenneth Galbraith) The trick, of course, is to mask the unspoken second half of of that statement: everybody else gets destroyed along with the Elites when the system implodes. Union pension funds: toast. Government employees’ pension funds: toast. 401Ks: toast. IRAs: toast. The echo-bubble in housing: toast. The Fed’s favorite PR cover to cloak the enrichment of their financier cronies, the wealth effect:toast.
The primary tool the Elites use to mask the risk of complete destruction is magical thinking–specifically, that “given enough time, the system will heal itself.”
That’s rich, considering that the Elites’ primary tool of avoiding destruction is crippling the market’s self-healing immune system: price discovery. Thanks to ceaseless interventions by central banks, the price discovery mechanism has been shattered: want to know the price of risk? It’s near-zero. Yield on sovereign bonds? Near-zero. And so on.

This post was published at Charles Hugh Smith on WEDNESDAY, SEPTEMBER 10, 2014.

Government Health Care Inc : The Chart Which Explains The Whole Medical Mess

Our crony-capitalist driven health care system is devouring the American economy, and the data which proves that baleful trend could not be more dispositive. In 1960, national health expenditures amounted to $150 per capita and hardly 5% of GDP. By the year 2000, these figures had grown to $5,000 per capita and 13.8% of GDP. Today health care devours nearly $9,000 per capita and more than 18% of GDP.
Needless to say, America did not turn into a giant sick bay during the last 55 years. Instead, the health care delivery system was virtually stripped of any semblance of market prices, consumer choice and economic discipline and efficiency. As a practical matter, out-of-pocket payments for health care – unlike almost all other consumption goods – -virtually disappeared from the system.
As a consequence, health care has been essentially transformed into a free good at the point of use. In turn, this has spawned massive over-utilization, gross inefficiency and economic rent extraction by the cartels which dominate the system – – hospital chains, insurance companies, HMOs, Big Pharma, medical equipment and prosthetic vendors, etc.
The chart below explains how this breakdown happened. In a word, the massive expansion of government financed health care after 1965 in the form of Medicaid, Medicare and related programs induced a huge expansion of price-insensitive demand that drove medical prices skyward. In response, both government recipients and employer plan beneficiaries demanded to be shielded from rampant medical cost inflation via more comprehensive coverages and a relentless reduction of out-of-pocket costs for deductibles and co-pays at the point of service.

This post was published at David Stockmans Contra Corner on September 10, 2014.

It’s Not Just Politics That’s Broken–The Status Quo’s Model of “How the World Works” Is Broken

The Status Quo is dysfunctional because its model of how the world works is broken.
Much has been written about the dysfunction in Washington D. C. Pundits have been wringing their hands for years over the rise of bitter partisan politics and the resulting gridlock. The impact of this–what I have termed profound political disunity–extends beyond the narrow confines of domestic politics, a reality reflected in Foreign Affairs new survey of our winter of political discontent, Dysfunction Junction.
But all these discussions of our dysfunctional politics ignore the larger truth, which is the entire model of the Status Quo is broken. Even if reformers succeeded in ridding the political system of cronyism and favors-for-campaign-contributions–two essentially impossible reforms, given the legalistic cover provided for cronyism and bought and paid for representatives, the basic model of “how the world works” that dominates the world-view of leaders across the political spectrum would remain broken. There are only three alternatives: 1. The current gridlock continues, and the policies in place grind on with minor tweaks.
2. The Democrats win a sweeping victory and are able to unilaterally impose their reforms.
3. The Republicans win a sweeping victory and are able to unilaterally impose their reforms.

This post was published at Charles Hugh Smith on MONDAY, AUGUST 25, 2014.