Matt Taibbi’s Deceptive Hatchet Job on Gina Raimondo
Wednesday, October 02, 2013
Omitting the Facts
First, who was responsible for Rhode Island’s 2011 pension reform? Taibbi spews forth a fountain of leftist shibboleths like venture capitalist, Goldman Sachs, Bain Capital, hedge funds, Enron, AIG, 501(c)4, the Koch brothers, “Republican-controlled state assembly” (of Ohio), etc. But one word never appears in the piece: Democrat.
Gina Raimondo is a Democrat - as is a large majority of the state legislature that approved the plan. Rhode Island is state of the deepest blue and not exactly a bastion of influence by the array of people from the free market right Taibbi lists. Raimondo is hardly alone among Rhode Island Democrats in pushing pension reform. Providence Mayor Angel Taveras – likely Raimondo’s key opponent in the 2014 Democratic gubernatorial primary – also reformed and reduced pensions. But since he never worked on Wall Street, did reform through negotiation with the unions, and doesn’t believe in investing pensions in hedge funds, Taibbi conveniently omits this part of the Ocean State story.
So step one for Taibbi is to obscure the severity of America’s municipal pensions crisis by portraying reform efforts as driven by right-wing ideology, not legitimate concerns. Hence he has to disguise the fact that many serious mainstream Democrats are facing up to this very real issue.
Where's the Evidence?
Next Taibbi suggests that reform is driven by a desire to enrich financiers, and in fact is actually a nefarious plot cooked up by Wall Street. He directly says that “the dynamic young Rhodes scholar [Raimondo] was allowing her state to be used as a test case for the rest of the country, at the behest of powerful out-of-state financiers with dreams of pushing pension reform down the throats of taxpayers and public workers from coast to coast.” He calls this “a scam of almost unmatchable balls and cruelty.” And also says that “states all over the country are claiming they not only need to abrogate legally binding contracts with state workers but also should seize retirement money from widows to finance years of illegal loans, giant fees to billionaires like Dan Loeb and billions in tax breaks to the Curt Schillings of the world.”
Where is Taibbi’s evidence for this? Somewhat curiously, he has none. He simply throws stuff at the wall to see what sticks, ranging from an ill-considered foray into coin investing by Ohio (prominently labeled as Republican, of course) to the AIG bailout. What any of these have to do with Rhode Island is a mystery.
He only makes two actual attempts to link Raimondo to a hedge fund plot. One is by noting campaign contributions to her from Wall Street linked people and organizations. True enough, money buys influence in politics. But there’s no evidence of a quid pro quo. And if that’s the standard, Taibbi perhaps should have investigated the money trail of the public employee unions, who are a formidable political force in Rhode Island. If he’d done that he’d have discovered that they backed many of the same politicians he berates for failing to fund pensions, and even many of the legislative leaders who voted for Raimondo’s plan, as well as pension reformer Taveras. By Taibbi’s standards, we’d have to conclude that in fact the unions actually did it mostly to themselves.
The second is to juxtapose the amount saved from freezing pension cost of living adjustments to an estimate of fees to be paid to the hedge funds Raimondo invested 14% of the state’s pension assets with. He then quotes a third party to make the link so he doesn’t have to personally make an unjustifiable claim. Taibbi notes, “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.”
Missing the Big Picture
Taibbi seems to think if the government is spending money on anything he doesn’t like, from hedge fund fees to the bone-headed state investment in video game company 38 Studios, then the state cut the pensions specifically to fund those bogus expenditures. Spending needs to be scrutinized to be sure, and I’m delighted to see Taibbi taking that on, but the logic works in the other direction too. Why not link cutbacks in services to the ever-expanding appetite of pensions for public funds? In this case, the state would be making its own innocent children suffer in order to keep giving annual raises to retirees, many of whom are now living in comfort out of state. But you won’t see Taibbi make that kind of link.
I agree with Taibbi that having pensions invest in hedge funds is a dubious practice, though I could quibble with his method of using simply fees paid as reason why it’s bad. But that misses the much bigger issue, which is that cutting pension liabilities actually reduces, not increases, the justification for investing in hedge funds.
Taibbi rightly shows how governments systematically underfunded pensions for years and then attempted to deal with the resulting deficits through high risk investment strategies like hedge funds. But if you reduce the liability, you reduce the incentive to gamble with the funds. So it’s absolutely anti-sensical to suggest anyone acting at the behest of peddlers of such risky plans would take action to reduce the very liability that gives any sort of a fig leaf to investing in them. His central thesis is a complete non-sequitur.
Taibbi makes a lot of good and valid points about various abuses and boondoggles in pensions over the year, but nothing that actually supports the main thrust of his piece. It’s deceptive through and through. There’s plenty of blame that should rightly be assigned for how we got in this mess, but in it we are. And serious Democrats and Republicans across the country both get that. Sadly, Taibbi does not.
Aaron M. Renn an opinion-leading urban affairs analyst, entrepreneur, speaker, and writer on a mission to help America’s cities thrive in the 21st century. In his blog, The Urbanophile, he has created America’s premier destination for serious, in depth, non-partisan, and non-dogmatic analysis and discussion of the issues facing America’s cities and regions in the 21st century. Renn’s writings have also appeared in publications such as Forbes, the New York Times, and City Journal. Renn is also the founder and CEO of Telestrian, a data analysis platform that provides powerful data mining and visualization capabilities previously only available in very expensive, difficult to use tools at a fraction of the cost and with far superior ease of use.
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