Illinois fatcats discuss plan to sabotage state bond ratings in scheme to destroy pensions.
These days, many Americans walk around feeling like no matter how hard they work, how much they manage to save or how carefully they plan for the future, the game is rigged against them. They suspect that behind closed doors, CEOs and Wall Street honchos are eagerly scheming to rip them off.
Their worst fears of corruption and collusion just came true in Illinois, where corporate titans were caught red-handed in the act of Rigging the Game.
Let’s step inside a recent gathering of the corporate-backed Union League Club of Chicago, where former Illinois Attorney General Ty Fahner, who now leads a band of plutocrats known as the “Civic Committee of the Commercial Club of Chicago,” recently launched into an hour-long diatribe on the evils of state pensions.
Fahner, a top GOP fundraiser, can’t abide the notion that teachers, firefighters, nurses and other public workers in the state of Illinois can still expect a decent retirement. Not a luxurious retirement, mind you — the average pension is $32,000 a year, and most state employees will not receive Social Security. But even a modest retirement for hard-working people is too much for today’s fatcats.
Fahner is part of a virulent strain of public raiders and economic crackpots who have become dominant in the Republican Party (and increasingly among the Democrats, too) who are hell-bent on destroying unions and attacking public employees. Ultimately they wish to privatize everything and reduce their tax responsibilities down to nothing.
That’s why Fahner has declared war on pensions and is promoting a pension crisis in order to justify it. He has called for cost of living cuts, raising the retirement age, capping pension earnings and shifting the cost of the pension obligation of teachers to local school districts, many of which are too poor ever to pay. He styles himself as a savior who wants only to protect the public from debt, when in reality he is a brutal plutocrat who will stop at nothing to line his pockets at public expense and reduce his and his friends' taxes.
Illinois has real problems. However, Fahner desperately hopes the public will not catch on to the fact that states are having difficulty paying out pensions because of the lack of revenue caused by a Wall Street-driven financial crisis and the deep recession it set off, regressive taxes, and the myriad bond scams financiers have already inflicted on states, cities, towns, and municipalities which have triggered funding crises for pensions and other programs. (See "How Wall Street Fraudsters Plunder Public Finances, And 5 Ways to Fight Back.")
Fahner has tried a number of dirty tricks to attack pensions in his career. But his most recent admission is absolutely breathtaking in its brazenness: He boasted of working to scam the Illinois bond rating.
During Fahner’s talk to the Union League Club, an unidentified person in the audience suggested that pressuring credit agencies to rig the state bond ratings in order to attack pensions might be a jolly good idea. Fahner gleefully replied that he had already thought about that — and his group has tried it.
Audience member: “Maybe sometimes you gotta be irresponsible to be responsible. If a political solution really doesn’t produce a favorable outcome, maybe you really need a market solution. And a market solution, I don’t mean bankruptcy, I mean actually talking down the state rating even further so the state’s bonds essentially become below investment grade. And it drives up the borrowing cost to the state and all of us to a significant level enough that you really feel the public pressure…”
Fahner: “The Civic Committee, not me, but me and some of the people that make up the Civic Committee… did meet with and call – in one case in person – and a couple of calls to Moody’s and Fitch and Standard & Poors, and say, How in the hell can you guys do this?"
Fahner went on to take credit for downgrades to Illinois credit ratings, saying, "If you watch what happened in the last few years, it's been steadily down.”
Check out the video at minutes 46:30 to 49:43 for the full remarks on the ratings scam: “Fahner: Civic Committee helped jaw down state’s bond rating.”
As the audience member correctly adduced, pushing down the bond rating is a great way to screw workers, the state and taxpayers. Pension funds buy bonds, often from the state, to stay financially healthy. In order for the pension fund to buy the bond, it must have a passing grade. If the grade is lowered, say from A to B, the price of the bond goes down, and the pension fund will suffer a loss. If the bond rating is dropped below a minimum standard, then the pension fund must sell the bond, and take a much bigger loss.
Lowering the bond rating also has the effect of artificially inflating the interest rates that bond holders must pay on future bonds, making them more expensive to buy and reducing the state’s ability to borrow. The basic idea is to manufacture a crisis by financially starving pension funds. Fahner & Co. know this will put political pressure on Illinoisans to take away worker pension benefits.
In a nutshell, here’s what the video reveals:
- Corporate honchos — some of whom may have a vested financial interest in Illinois bonds — feel perfectly comfortable calling and exerting pressure on ratings agencies.
- Ratings agencies are political entities whose supposedly impartial research can be influenced and perhaps even bought.
- CEOs think nothing of willingly and knowingly screwing the bond rating and economic standing of their home state in order to enact their anti-worker philosophy and fatten their own bank accounts.
- Proclaiming you are “fixing” state fiscal problems is a great cover for potential insider self-dealing in the bond market.
- Committing economic treason against fellow citizens and taxpayers is simply a matter of course for today’s American plutocrats.
The We Are One Illinois union coalition has released a statement condemning Fahner and calling for an investigation into the matter:
"Ty Fahner and unnamed members of his corporate-backed committee have shown their true colors. Fahner bragged openly about joining members of the business-backed group, behind closed doors, in lobbying credit rating agencies to lower Illinois' bond ratings in an irresponsible and unethical attempt to put the state in an even more difficult position. They show total contempt for the taxpaying public, total disregard for the difficult fiscal challenges the state faces, and total hypocrisy over their alleged care for the working families of Illinois.”
In addition, a serious conflict of interest may exist if either these unnamed CEOs or the big corporations they control profited in any way from lobbying to make Illinois pay more interest on its bonds—bonds which they or their corporations may hold.”
All right. What the hell can be done about this shameless hustle?
The state attorney general should immediately open an investigation into whether any members of Fahner’s group sold bonds before the downgrades, based on their conversations. That is plainly insider trading. Everyone who held bonds at the time of the downgrades also took a loss. Attorneys general and treasurers in other states whose portfolios took a hit should also consider suing, given that political pressure seems to have played a role in causing their losses. Ditto for private holders and other unions—anyone who had the bonds at the time of the downgrade.
It’s time for the trustees of the pension funds to stand up for those whose interests they are charged with protecting, and not shrug off one more crime against the public interest that reduces pensions for working people.