Sunday, October 23, 2016

Will Hillary Help Blackstone Manage Your Mandatory Retirement Savings Account?

Blackstone's Tony James e-mailed John Podesta in January regarding a "Retirement Savings Plan" for all Americans, which Blackstone wants to put to work for its considerable fees.


Teresa Ghilarducci passed along your interest in our Retirement Savings Plan. We've spent considerable time researching and thinking about this issue and believe we have some ideas that offer an immediate, sustainable, low cost and politically viable solution to help tackle a looming crisis. If we don't act, our country will see poverty rates and downward mobility of middle class elderly people not seen since the great depression. It is projected that 16 million retirees will be living in or near poverty by 2022 and 25 million by 2050. If we do nothing, 39 percent of all older workers will be poor or near poor at age 65, so the need is real and imminent. The strain this newly poor population will place on our social safety net will devastate federal, state and local budgets for decades. Our goal was to devise a politically feasible solution that addresses the problem now without worsening the national deficit.

We do not believe the problem can be solved by making Social Security better funded and/or adding a higher minimum benefits for several reasons.

First, expanding Social Security would help to take care of the very poorest members of society - but expanding Social Security doesn't help middle class people very much. Social Security was designed as a safety net for those facing poverty in old age. It was never meant to be a vehicle to guarantee a middle class retirement. Social Security is an entitlement, where savings are redistributed based on income. This is a worthy goal in and of itself, but not the focus of our plan. In contrast to Social Security, with a Guaranteed Retirement Account, you get back what you put in, plus investment earnings. These accounts build on the money people put into their own accounts, giving back even more. In other words, raising SS payments above the poverty line isn't the same as guaranteeing widespread retirement security.

Second, unlike Social Security, this is actual cash in each person's individually owned retirement savings account. Because it is real capital that can be invested well (like a DB plan), the higher returns (6-8% per year) finance a lot of the future needs without requiring larger contributions or adding to the deficit in the future. You don't get investment returns filling a lot of the funding gap with Social Security since it is unfunded.

Third, increasing Social Security would mean adding to FICA taxes. This plan is easier on workers because half comes from employers (offsetting other costs), so only 1.5% from workers. And for the 50% of Americans below median income, that "cost" is offset by a federal tax credit. This tax credit is deficit neutral because we are doing away with the 401k deductions, which benefit primarily the affluent.

Finally, Social Security is such a fraught issue with people so dug in, we worried that opening it up for fundamental change was not implementable from a pragmatic standpoint. So we decided to build on Social Security as is. With our plan, the Guaranteed Retirement Accounts are individually owned and controlled and will not require an additional or larger entitlements which would have obvious appeal to the other side of the aisle.

We looked beyond Social Security and propose individually funded add-on accounts. In this way, all Americans can save more and invest more effectively over a longer period of time to support their retirement. All Americans need well-managed, diversified retirement accounts they can contribute to for their entire career.

We are happy to talk these through with you at any point, but here are the basic principles:

Universal Coverage: Every American who works without a pension plan would automatically have their own Guaranteed Retirement Account (supplemental to Social Security and any individual retirement savings). Individuals accumulate funds in their own accounts and retain full control. Upon retirement, they receive guaranteed payments for their lifetime.

Cost Neutral for Workers AND Taxpayers: Savings are mandatory but cost neutral for almost all Americans who earn below median income. We've calculated that workers and their employers need to contribute an annual 3% to close the retirement savings gap (1.5% each). And a tax credit to offset this contribution for families at or below the median income will be paid for by removing existing deductions that overwhelmingly favor the wealthy, making the plan deficit neutral.

Redistributes Government Support to Those Who Need It Most: The refundable tax credit is a positive change from the current subsidies that favor high earners. In 2014, federal and state governments spent $120 billion to subsidize workers' pensions. But these tax benefits are regressive and do little to benefit workers most at risk. In 2014, the most affluent Americans received over 79% of the benefit from retirement tax deductions. The Retirement Savings Plan remedies that by redeploying existing government support from wealthy retirees to those who need it most.

Individually Owned, Effectively Invested: Unlike Social Security, workers maintain ownership over their account through a transparent investment process. Their assets will be pooled and invested in long-term, low-fee strategies that generate higher returns (6-8% per year) than current 401(k) plans, building on the amount invested and giving back even more.

Guaranteed Lifetime Income: Though privately managed, funds will have a government guaranteed return of 2%. Upon retiring, savings will be returned through annuitized payments. This guarantees a continuous standard of living for as long as retirees live.

Federal Plan; Nationally Mandated: A federal program will provide coordinated collection, record-keeping and payments, as well as better negotiated fees for asset management. And by integrating the payment system seamlessly into Social Security's existing infrastructure, we avoid the need for additional bureaucracy and create efficiencies and savings over time. In addition, only through a Federal plan can we create the tax credit that mitigates the cost for families below median income by redeploying 401k deductions.

Incents Desiring Americans to Work Longer: Workers decide when they retire and begin collecting their savings. This will help Americans to work longer if they wish, which has proven to have significant economic (as well as mental and physical) benefits.

Bi-Partisan Appeal: The GRA model avoids larger entitlement conversations by keeping accounts under individual's control and redistributing savings based on the amount invested, not based on income. And it does so without impacting the budget or raising taxes. From the many conversations we've had with members of Congress from both sides of the aisle, our sense is that it's politically viable. This plan intentionally does not touch or attempt to alter Social Security, address underemployment, mitigate the wealth disparity, or raise stagnant middle class incomes. However, it provides an actionable solution to an impending crisis. And this solution will have resounding impact on more than one half of all working Americans. It will relieve our welfare programs from undue strain and free up revenue for other pressing needs.

This will all be fully fleshed out in a white paper we are releasing in a few weeks. We are happy to make time available to discuss these ideas at your convenience.

Our recent NYT op-ed:

Tony and Teresa


This e-mail communication is intended only for the addressee(s) named above and any others who have been specifically authorized to receive it and may contain information that is privileged, confidential or otherwise protected from disclosure. Please refer to for important disclosures regarding this electronic communication, including information if you are not the intended recipient of this communication.


IB Times reported how Blackstone could benefit, in James own words:

“Managing the Guaranteed Retirement Accounts in a pooled fashion would let them leverage that scale to pay lower fees,” James said. “They would also have access to [the] highest quality managers who could adopt long-term investment horizons and invest in less liquid, but higher returning, asset classes that are more appropriate for retirement funding.”

In the blueprint of the plan, James lamented that 401(k) systems “don’t invest in longer-term, illiquid alternatives such as hedge funds, private equity and real estate,” and said the new program could invest in “high-yielding and risk-reducing alternative asset classes.” In a CNBC interview, James said he wants the billions of dollars of new retiree savings to be invested “like pension plans.” He noted that in “the average pension plan in America, about 25 percent is invested in stuff we do, in alternatives, in real estate and private equity and commodities and hedge funds.”
Neera Tanden of the Center for American Progress wrote John Podesta about Mr. James saying:

"He's a really good guy. And given he will take over Blackstone, one to develop a real relationship with. And he's really nice!"
 Nice is not the first word that comes to mind for the greed and leverage boys. 

Who Would You Clawback?

Consider the following scenarios where people received bonuses as a result of fraud:

1)  Short of troops to fight in Iraq and Afghanistan a decade ago, the California National Guard enticed thousands of soldiers with bonuses of $15,000 or more to reenlist and go to war.  Audits reveal widespread bonus overpayments by the California Guard at the height of the wars.  Investigations determined that lack of oversight allowed for widespread fraud and mismanagement by California Guard officials under pressure to meet enlistment targets.  Army Master Sgt. Toni Jaffe, the California Guard’s incentive manager, pleaded guilty in 2011 to filing false claims of $15.2 million and was sentenced to 30 months in federal prison. Three officers also pleaded guilty to fraud and were put on probation after paying restitution. (sourceLos Angeles Times)

2)   For years, mortgage giant Fannie Mae has produced smoothly growing earnings. And for years, observers have wondered how Fannie could manage its inherently risky portfolio without a whiff of volatility. Now, thanks to Fannie's regulator, we know the answer. The company was cooking the books. Big time.  Fannie set aside an artificially large cash reserve. And -- presto -- in any quarter its managers could reach into that jar to compensate for poor results or add to it to dampen good ones. This ploy, according to Ofheo, gave Fannie "inordinate flexibility" in reporting the amount of income or expenses over reporting periods.  This flexibility also gave Fannie the ability to manipulate earnings to hit -- within pennies -- target numbers for executive bonuses.  In one particularly volatile year  target EPS for maximum payout was $3.23 and Fannie reported exactly . . . $3.2309. This bull's-eye was worth $1.932 million to then-CEO James Johnson, $1.19 million to then-CEO-designate Franklin Raines, and $779,625 to then-Vice Chairman Jamie Gorelick.  (sourceWall Street Journal)

Here's what our government did.  In the case of Fannie Mae it identified $10.6 billion in fraudulent accounting motivated by greed, executive's desire to receive maximum bonuses. The report showed over $87 million in bonus payouts during the period of accounting fraud by "arrogant and unethical executives."

James Johnson, the recipient of nearly $2 million in fraudulent Fannie Mae bonuses in the report, helped Democratic Presidential Candidate Barack Obama pick his running mate.  Johnson received much of the blame for Fannie Mae's collapse in the 2008 financial crisis, according to two investigative reporters.

Fannie Mae Vice Chair Jamie Gorelick garnered nearly $4.5 million in fraudulent bonuses.  She went to work for the law firm that defended Fannie's fraudulent accounting, WilmerHale.  She led the BP Deepwater Horizon Oil Spew defense team.

Executive Vice President for Law/Policy Tom Donilon defended Fannie Mae by going after the investigating agency.  Donilon received nearly $3 million in ill begotten gains from his time as a Fannie Mae executive.  He became President Barack Obama's National Security Advisor.  Currently Donilon is Vice Chair of O'Melveny, a giant law firm, and Senior Director, BlackRock Investment Institute.  BlackRock featured Donilon in a Russia-Ukraine scenario planning section of a 2014 investment report.

The government let Johnson, Donilon and Gorelick keep every penny of their fraudulent gains.  That same government is going after 10,000 soldiers who received re-enlistment bonuses as a result of Pentagon incompetence or malfeasance:
Nearly 10,000 soldiers, many of whom served multiple combat tours, have been ordered to repay large enlistment bonuses — and slapped with interest charges, wage garnishments and tax liens if they refuse — after audits revealed widespread overpayments by the California Guard at the height of the wars last decade.  

Roughly 9,700 current and retired soldiers have been told by the California Guard to repay some or all of their bonuses and the recoupment effort has recovered more than $22 million so far. 

There are two systems of justice in our country.  Rules for the politically connected, the "Just Us" crew, are far different from those for common folk.  The soldier bonus clawback is but one example.

Thursday, October 20, 2016

Carlyle's Marchick in Podesta e-mails

The Carlyle Group is renowned for its Red and Blue political connections.  This is but one of many blue team connections.

On Feb 18, 2015 2:14 PM, "David Marchick" wrote: > 

Enjoy your downtime and good luck with Hillary. Let me know how I can help.

(Link to source)

Tuesday, October 18, 2016

Gates First Guest for Billionaire TV

Bloomberg's new Billionaire Television kicks off with an interview with the world's richest man, former Microsoft CEO Bill Gates.  The net worth of two hundred Bill Gates equals the annual U.S. GDP. 

Host David Rubenstein co-founded The Carlyle Group, which invests money on behalf of family foundations.  It was nice of Bloomberg to give Rubenstein a forum to sell his private equity underwriter (PEU) services. 

The producer might want to review the IMF tape on inequality, where Mr. Rubenstein closed the hour long panel with a nearly four minute PEU infomercial

Monday, October 17, 2016

Bloomberg Launches Billionaire TV

Bloomberg launched its latest show starring billionaire Carlyle Group co-founder David Rubenstein.

Renowned financier and philanthropist David Rubenstein travels the country talking to leaders to uncover their stories and their path to success. Each episode features an interview with one business leader.
Oddly, Bloomberg did not cite Rubenstein's primary job as a private equity underwriter (PEU).  Five years ago an ex-Bloomberg reporter wrote:

There are very few people out there who will talk and write honestly about private equity. I know from personal experience that the financial press is so eager to break news on "deals" that reporters (who are increasingly compensated on the number of "market moving stories" they write) can't afford to be critical of Carlyle, KKR and Blackstone, and risk losing access to people at those firms.
I have seen so many people -- particularly those in their 50s - 70s -- taken apart by what has happened in their industry as greed has hollowed out the economy. These are people took pride in their jobs and held themselves to this invisible standard that we all just took for granted, but is being wiped out.
The reporter cited the new host of Bloomberg's Billionaire Television:

The Carlyle Group scares me more than anything I've ever seen on Wall Street. It seems to exist to corrupt politicians and it's hard to know who they even represent.

I watched a video interview of (David) Rubenstein and his arrogance is really beyond tolerance. He was going on about the debt ceiling problem and how there would need to be cuts in services and higher taxes. When the reporter asked him about tax on carried interest he turned really disdainful and said that this "only" amounted to $22 billion over some number of years and this was not serious money. Boy, nothing like everybody doing their small part to save the country from oblivion!
Bloomberg's host personally lobbied Congress each time elected officials considered changing private equity's preferred carried interest taxation  Rubenstein won every time.

Carlyle's co-founder no longer has to shun enterprising business reporters probing shady PEU business practices.  He gets to frame the questions to maximize Carlyle's image.  If you doubt this assertion watch his private equity infomercial at the end of an IMF panel on inequality.

At 55:35 Rubenstein dubbed himself moderator and offered the "Private Equity Answer" for investors seeking out-sized returns in a low interest rate environment.  The Carlyle infomercial lasted three minutes and virtually closed the session on inequality.  Frankly, it couldn't have ended on a worse note.

The rise of private equity corresponds with the rise in income inequality
And that's why a PEU is hosting Billionaire TV. 

Friday, October 14, 2016

Sisters of Providence Must be Horrified

Saint Vincent Hospital in Worcester, Massachusetts removed a kidney from the wrong patient.  The AP reported:

The surgeon in July was supposed to remove a kidney with a tumor from a patient at St. Vincent Hospital in Worcester, but instead removed a healthy kidney from a different patient with the same name.

Authorities say the hospital failed to follow proper patient identification protocols by checking birth dates. The patients were several years apart in age.
The AP did not report St. Vincent's ownership history:

In January 2005, Vanguard Health System purchased the facility. In 2013, Tenet Healthcare acquired Vanguard and continues to follow the longstanding Catholic tradition of quality care first established by the Sisters of Providence.
I'd venture the Sisters knew their patients well enough to not perform a procedure on the wrong patient. 

Given the hospital's for-profit status I'll venture the wallet biopsy was successfully done on the right patient.  Time will tell if other Sisters will regret their decision to sell to the greed and leverage boys.

Thursday, October 13, 2016

Carlyle Working with Former BP CEO Tony Hayward on Colombian Oil

Sky News reported:

Sky News has learned that Mr Hayward, who stepped down from the top job at BP soon after the Gulf of Mexico Deepwater Horizon oil disaster in 2010, is seeking to identify oilfields to purchase in countries including Colombia and Argentina.

If successful, Mr Hayward is expected to be paid a fee by The Carlyle Group for introducing the deal to the firm, although it is not clear whether he would have an ongoing role in the management of the new venture.

The former BP chief is understood to have lined up a team of oil executives to run the business under Carlyle's ownership.
If Argentina hated hedge funds they won't like private equity underwriters (PEU) like Carlyle.  Colombians learned what private equity can do from The Clinton Foundation, which owns PEU Acceso.  One Colombian citizen stated The Clinton Foundation has done "nothing for workers."

Another local fish merchant took out a large loan and later experienced Clinton bait and switch:

Instead, she would sell her fish directly to Acceso — at sharply reduced prices — and Acceso would resell them. In other words, the Clinton Foundation would act as a middleman and profit from margins supplied by the people it was supposed to be helping.
That's the PEU way.

South Americans should know this isn't the first time Carlyle worked with a BP merchant of death.  Lord John Browne headed BP when its Texas City refinery exploded, killing fifteen workers and injuring 180.  Tony Hayward's Deepwater Horizon explosion also killed fifteen people.

The Carlyle Group's LifeCare Hospitals had 26 deaths in the toxic aftermath of Hurricane Katrina.  That's nearly the combined death toll of the two BP explosions.

It's fitting that Tony Hayward is working with The Carlyle Group.  They are cut from the same greedy cloth.  Based on their prior experience I imagine Colombians get nervous when Western billionaires come snooping for their next profitpalooza.