Due to the horrible events of last week, and particularly last Friday, I decided to freeze all entries on this blog at the very least until Dzhokar Tsarnaev was captured. The following piece was set to run last Friday morning:
Last week, I wrote an article about hedge fund king Dan Loeb's involvement with StudentsFirstNY, a group that lobbies against defined benefit plans in public-sector retirement funds. What made that story interesting was that Loeb takes money from defined benefit plans, so turning around and supporting a group that campaigns against guaranteed benefits for teachers and other public-sector workers seemed like a peculiarly ugly form of betrayal, particularly coming from someone who doesn't need to worry too much about his own retirement.
Entitled "Dan Loeb Simultaneously Solicits, Betrays Pension Funds," the article came out just before Loeb planned to speak before the Council of Institutional Investors, a major umbrella group representing, among others, public retirement funds.
The subtext to this entire situation was that a number of unions and retirement funds wanted to meet with Loeb before his CII speech to clarify his position on defined benefit plans and his relationship with SFNY. When we ran our piece, Loeb had already backtracked and decided not to meet with these union reps privately. But he was still scheduled to speak at CII, where a number of huge potential customers were in the audience, including groups like CalSTRS, the California Teachers' Union.
However, when the Stone piece ran, followed by a Washington Monthly article and then a scathing New York Post piece called "Flunk You, Loeb! Hedgie asks for Teacher $ but Battles Pensions," Loeb turtled. The hyper-sensitive billionaire abruptly canceled his CII appearance, fleeing the conference and pointing fingers in all directions on the way out.
Now, before writing about this, I'd reached out to Loeb. Who knew – maybe he really wasn't aware of SFNY's campaign against defined benefit plans. Or maybe there were other parts of the story that were wrong. Loeb blew me off, which I guess is to be expected. What was less expected was the sleazy way he turned around and complained of "incorrect" news reports when all of these articles came out and blew up in his face.
Among other things, Loeb wrote a wounded letter to CII Chair Anne Sheehan, bemoaning his mistreatment. "Over the past week," he wrote, "incorrect statements about my position on the issue of Defined Benefit Pension Plans (‘DB Plans') have been made in conjunction with my planned appearance at CII's conference." He added that, "I have never taken a position against DB Plans nor has any philanthropic organization I lead."
Again, I gave Loeb every opportunity to tell me what his real position on defined benefit plans is – and he didn't bother. I specifically asked him if SFNY's positions were in sync with his own opinions.
Secondly, you'll note that he doesn't say he supports DB plans. What he says is, I've never taken a position, and neither has any organization he "leads."
All of which is just silly semantic gymnastics. Loeb is on the board of an organization that unequivocally opposes those plans – in fact, he's frequently described as the "co-founder" of Students First New York. He's also a trustee of the Manhattan Institute, which is another right-wing think tank that believes governments "should take a page from the private sector and shift to defined contribution plans."
As for Loeb's actual personal feelings about DB plans, you can see them quite clearly in this passage from a letter he wrote to American Federation of Teachers president Randi Weingarten:
I know we share a passion for educational excellence, concern for families and children and profound respect for excellent teachers and administrators. I hope we also agree that we need a fair and sustainable policies regarding taxation and spending. Entitlement spending and ballooning liabilities are a growing part of state budgets and are crowding out spending on vital services including teaching.
I am not expert on the topic but look forward to hearing how maintaining defined benefit plans for state workers (virtually all private companies have gone to defined contribution) is part of your vision for sustainable economic policy.
Translation: Defined benefits are crushing the economy, virtually the entire private sector has abandoned them, I'm really concerned about "sustainable" policies, but if for some crazy reason you public-sector dinosaurs still think they're a viable option, you can go ahead and try to explain your reasoning to me.
Anyway, after fleeing the CII conference, Loeb also wrote this to CII Chair Sheehan: "My support for and contribution to DB Plans is demonstrated by maximizing returns for union members who rely on us to deliver their pension goals."
Translation: I support your DB plans by taking your money, earning (approximately) a 2 percent cut just to show up, earning another 20 percent on all the profits I make with your cash, and then paying a maximum tax rate of 15 percent on all of these fees. Then, in order to preserve this ludicrous government subsidy that I receive – allowing hedge fund managers to pay lower tax rates than teachers and secretaries costs the government well over a billion dollars a year – I'm going to turn around and campaign for cuts to government services to other people.
I get that a lot of these Wall Street hotshots think that earning high rates of return for their customers excuses any kind of behavior. But it doesn't. And beyond that, these guys don't always make such great returns.
A lot of teachers and public sector workers would do just as well to just dump their money on some plain-vanilla S&P index and not pay obscene tax-sheltered fees to arrogant jerks like Loeb. Not only would the returns probably be a wash or close to it, but retirees at least wouldn't be stripping themselves of their biggest asset – the political power their money represents.
Dan Loeb isn't the only hedge fund manager aligned with groups like Students First, the Manhattan Institute, or local anti-benefit lobbies like the Show-Me Institute (created by billionaire Rex Sinquefield to campaign against defined benefit plans in Missouri). There's actually a very long list of hedge fund behemoths from well-known funds who sit on the boards of these groups, people with names like Henry Kravis (of KKR; he's contributed to the Manhattan Institute), Michael Sullivan of SAC Capital (who joins Loeb on the board of SFNY) and Peter Kiernan of Kiernan Ventures (a director of Students First New York).
In the age of Citizens United, it's going to become more and more important for ordinary people everywhere to find out if their tax dollars or their retirement money is being used to fund political lobbying against their own interests. There are, after all, lots of people on Wall Street with obnoxious political interests who want to get their hands on your union or state retirement money, your federal social security benefits (just think of how screwed we'd all be now if they'd privatized Social Security before 2008), and, through bailouts, your tax dollars.
And now that some of them, like Loeb, have taken a hit for dabbling in politics while feeding at the retirement trough, Wall Street is panicking and crying foul. An editorial in the Wall Street Journal this morning stooped to accusing the American Federation of Teachers of "bullying hedge funds to cut off funding for kids in Harlem," as if terminal greed patients like Dan Loeb or the editorial board of the Wall Street Journal gave even half a shit about kids in Harlem. They should be ashamed of themselves for even thinking about going there.
This whole thing gets to a bigger issue. The people who run Wall Street have extraordinarily outsized political influence. They decide elections and they dominate the regulatory process. But this influence comes mainly from managing money that belongs to millions of people outside lower Manhattan. What this Loeb episode proves is that with the right kind of organization, these people can be forced to choose between the money and the political influence.
In the end, of course, they'll all take the money.