Russell Moore: Magaziner Must Be Tough on Wall Street
Monday, January 05, 2015
Tomorrow, all the attention will turn to the inauguration of our next Governor, Gina Raimondo—and with good reason. After all, she’s smashed a glass ceiling in becoming the state’s first female Governor, and has all the characteristics and make up of a strong leader. Most importantly, she’s promised to make economic growth a key tenet of her administration—something RI needs like blood.
But while the attention and spotlight will deservedly be shining on Raimondo, there will be several other key office holders sworn into office and hold powerful positions. None will be more important than our next General Treasurer, Seth Magaziner.
Thanks to pension reform as well as the capability of state treasurers to become powerhouse fundraisers—the position of General Treasurer has risen to prominence, especially considering that Raimondo has used the position to springboard herself into the governorship.
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Further, Treasurer-elect Magaziner, who ran a tremendous campaign last autumn, has made some very large promises that undoubtedly raised the bar for him and almost assuredly helped him win the office. Given the size and scope of Magaziner’s promises, we can only hope that the new Treasurer delivers, because it will mean serious gains for all the citizens of Rhode Island particularly in three main areas: transparency, job creation, and pension fund investment returns.
But first thing is first, namely First Southwest. Magaziner said during the campaign that he would dismiss First Southwest as the state’s financial adviser considering that we’re suing that company for fraud over their involvement in the 38 studio’s fiasco. Magaziner wisely and prudently said he didn’t think we should retain that company, and we should expect him to fire that company straight away.
Transparency
On several occasions, Magaziner, to his credit, said that had he already been Treasurer during the last few years, he would have demanded more transparency from the hedge fund and private equity firms that are paid handsome fees by the state pension fund to manage the fund’s investments.
This became a big issue over the last several years because when Raimondo was Treasurer, she told The Providence Journal that she was unable to release the records detailing the agreements with hedge fund managers and the state of Rhode Island because it would give the managers a competitive disadvantage in the marketplace, and in some cases, money managers could even be subject to kidnapping if they were named.
Magaziner claimed during the campaign that he wouldn’t have agreed to keep the records secret when the deals were made with the money managers—a move that would have increased the transparency in Treasury.
Speaking of secrecy, it’s interesting that Magaziner spent more than $1 million on his campaign, with $800,000 of it being his own money. Yet he’s never told us where his money came from. To increase transparency, he can begin by telling us where that money came from.
Let’s take on the Hedge Fund Cowboys
Going forward, it will be interesting to see if Magaziner works to make those agreements public. Magaziner might find that he’s bound to honor the agreements that the previous Treasury administration agreed to, but the Treasurer should be able to pressure those Wall Street money managers to agree to open up those contracts to public if they ever intend on doing business with the state of Rhode Island again.
Yes, we need a Treasurer who will take on Wall Street with some tough talk! I’m looking forward to see just how aggressive Magaziner really is about transparency going forward and hoping it wasn’t just a campaign talking point. Magaziner the candidate never shied away from tough talk during the campaign, so we can expect the same now that he’s an office holder. Right?
Economic growth.
Magaziner also promised to use the Treasury as an engine for economic growth during the campaign as well. He claimed that as Treasurer, he’d work to create a “Green Bank”, which would be used to fund green energy projects that would put people to work as well as help the environment. The details, such as how the bank would be funded, have always been hazy, but if the idea is brought to fruition, it will undoubtedly decrease our high unemployment ranking. Ditto for an “investment bank”.
All those nice sounding campaign promises, if they really can be transformed into action, should have a remarkable effect on the state’s economy.
Last, but certainly not least, Magaziner spoke at length during the campaign about the need for the pension fund to deliver more solid return on investments. And let’s face it: who doesn’t want to see that? If the pension fund delivers more solid returns, that’s less pressure on the state budget to fund the pension system. Those savings can be used to cut taxes, on invest in government services that will improve the lives of Rhode Islanders.
Market Returns
Over the last 3 years, the pension fund has lagged behind the other state pension funds. If Magaziner can get the pension fund well above the median performing fund, we’ll all be better off as a result. It’s an ambitious goal, but let’s not forget: we’ve been promised big things.
Curiously, while Magaziner has complained that the pension fund returns haven’t been so great, he recently decided to keep Anne Marie Fink on as the state’s Chief Investment Officer. Yet, for some reason, nobody in the press has asked him about this strange decision that conflicts with his rhetoric.
A bright future
In any event, it will be interesting to follow Magaziner’s administration of the state Treasury given the fact that he is so well-polished, well-spoken, and demonstrates such a keen acumen of the world of finance. Rhode Islanders can’t be blamed for feeling like the Treasury will be in good hands under his stewardship.
Russell J. Moore has worked on both sides of the desk in RI media, for both newspapers and political campaigns. Follow him on twitter @russmoore713.
Related Slideshow: RI Public Pension Reform: Wall Street’s License To Steal
See the key findings from Forbes' columnist Edward Siedle, who unveiled his investigative report into the RI pension system, "License to Steal," in October 2013.
"The Employee Retirement System of Rhode Island has secretly agreed to permit hedge fund managers to keep the state pension in the dark regarding how its assets are being invested; to grant mystery hedge fund investors a license to steal, or profit at its expense using inside information; and to engage in potentially illegal nondisclosure practices," said Siedle.
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