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* The story about members of the Civic Committee apparently trying to jaw down the state’s bond rating is picking up a little traction. Illinois Radio Network…
Anders Lindall of the American Federation of State, County and Municipal Employees believes those business leaders were attempting to force Illinois into making steeper cuts on state workers’ pensions.
“These powerful CEOs and lobbyists are going behind closed doors to try and drive down the state’s credit rating,” said Lindall, “and drive up the state’s borrowing costs.”
Lindall says an investigation is warranted in case any members of the committee stood to profit from higher interest yields that would result from a lowered bond rating for the state.
“They may very well themselves own Illinois bonds,” Lindall said. “If that’s the case, then by pushing to drive down the state’s credit rating and drive up costs to taxpayers, they’re funneling more money into their own pockets.”
I just don’t know if this is a legal scandal. It’s not like these guys did this to pad their pockets off profits from the bonds, if they even had any. Maybe there was some incidental overlap, but was that their intent? Highly doubtful.
Their intent was to punish Illinois taxpayers in order to force pension reform. That may not be a crime, but it’s still unconscionable.
posted by Rich Miller
Thursday, Jul 25, 13 @ 10:15 am
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===Their intent was to punish Illinois taxpayers in order to force pension reform.===
Agreed, but I’d add that they were pushing their version of pension reform, which relies primarily on teachers, public employees and the retirees to eat the bulk of the cost. I think all of us in Illinois want “pension reform,” but there are several ways to achieve it in a fair and balanced way.
Comment by 47th Ward Thursday, Jul 25, 13 @ 10:23 am
Every side of this issue is pushing the buttons that they have at their disposal. Not too conscientiously either as you point out Rich. They’ve all gone nuts, marching past each other, trying to outwit each other, and generally running away from any intersection where agreement can be reached. Whatever solution comes about seems to be an imposition more than an agreement. Too Bad.
Comment by A guy... Thursday, Jul 25, 13 @ 10:32 am
Do we also get to probe all of the off the books meetings the leadership of AFSME has had with the Democratic party leadership crafting new and innovative ways to add to the benefit packages of their membership?
Comment by Plutocrat03 Thursday, Jul 25, 13 @ 10:35 am
I hope this exposure of the Civic Committee will finally get them out of the political arena. They shouldn’t have been sponsoring legislation and giving presentations at legislative committees in the first place. Many had already written them off as political extremists. These latest shenanigans should convince the rest of the people to not pay any attention to their legislative recommendations.
Comment by Joe M Thursday, Jul 25, 13 @ 10:37 am
hmmmm….stirring up the hornets nest there Plutocrat.
Comment by the unknown poster Thursday, Jul 25, 13 @ 10:37 am
The rating agencies should have laughed Ty and his buddies out of the room. Unfortunately, they have potential financial clout to impact the agencies’ revenues, so I doubt that happened.
Don’t forget Rutherford publicly badmouthed Illinois bonds with rating agencies, for political purposes, while our elected State Treasurer. At least it apparently wasn’t in direct communications behind closed doors.
I was and remain shocked by Rutherford’s unnecessary statements. He disqualified himself from further support or consideration for any Illinois public position, IMO. (Too bad; I liked him.)
Comment by walkinfool Thursday, Jul 25, 13 @ 10:40 am
Who made the calls? That is the question. If it was Mr. Rauner now there is some traction that does not need a legal justification.
Comment by Obama's Puppy Thursday, Jul 25, 13 @ 10:42 am
Yes, as a retired state worker I want pension reform. To me pension reform is making the system solvent for the long haul. This must be done within the bounds of our constitution and a just plain decent sense of fairness. I beleive small changes should be made to those who have already retired. Slightly larger changes can be made to those with several years left and slightly larger changes yet to those with many years left to retire. The tier II system is a good example of how one starts to fix the pension system in a legal an fair way. Legal measured steps and shared sacrifice. We all know that if lawmakers had put the dollars ino the pension system instead of spending them on state programs we would not have a pension problem. SB 1 is shamefull both legaly and moraly. Much of the reason that some want the benifits of those already retired to be reduced so much is to either avoid being responsible for the mess they created or avoid paying higher taxes to put the dollars that had been spent on them back into the pension system. This is either by way of protecting tax loopholes or by the dollars spent on state programs without the needed tax increase.
Comment by facts are stubborn things Thursday, Jul 25, 13 @ 10:43 am
Maybe they didn’t profit directly by purchasing higher yielding Illinois bonds, but the do stand to profit by keeping Illinois (regionally) low flat rate income taxes where they are , or by getting the “temporary” tax increase lifted. One big way to do that is to take away benefits from retirees. So yes , there is a huge incentive to dropping the states bond ratings for these “civic minded” CEO’s.
Comment by Roadiepig Thursday, Jul 25, 13 @ 10:44 am
Isn’t the whole push by the civic committee to pay the backlog of bills and not have to issue bonds or borrow money?
Maybe the pension crisis can be solved by directly issuing bonds to state workers. If you’re 45 y.o. or younger, you’ll now recieve a pension I.O.U. in the form of a state bond.
Although I doubt the accuaries would like a fixed rate of return.
Comment by Pete Thursday, Jul 25, 13 @ 10:48 am
We cannot know if there was insider trading going on as a side activity without an investigation. Everyone involved is innocent of such dealings until proven otherwise, but this unusual event certainly raises suspicions that cannot be ignored.
Tax-free bonds are extremely popular with high net worth individuals to round out investment allocations. With the higher interest rate returns on Illinois bonds, they were extremely popular this last go-around, with demand far exceeding the amount available.
It would be easy to engage in arbitrage if you had the power to manipulate the bond interest rates or have high confidence of them occurring in advance.
As expected, the mainstream media conglomerates are remaining silent on the subject. The government must step in to assure the citizens that there is still a justice system out there somewhere.
Comment by Cod Thursday, Jul 25, 13 @ 10:52 am
Please enough with the crude “probe” jokes! You are better than that!
Comment by William j Kelly Thursday, Jul 25, 13 @ 10:53 am
Plutocrat
These so called meetings are what is generally known as contract negotiations. They occurred under leadership of both parties.
If what you are implying is correct, why do Madigan & Bayer hate each others guts ? Also, why did MJM propose a likely unconstitutional raid of employee pensions, and completely block a union backed compromise ? Also, why did MJM boycott the union sponsored pension summit in February ?
“Do we also get to probe all of the off the books meetings the leadership of AFSME has had with the Democratic party leadership crafting new and innovative ways to add to the benefit packages of their membership?”
Comment by AFSCME Steward Thursday, Jul 25, 13 @ 11:08 am
“Do we also get to probe all of the off the books meetings the leadership of AFSME has had with the Democratic party leadership crafting new and innovative ways to add to the benefit packages of their membership?”
Uh oh, do as AFSCME says, not as they do, right? Did AFSCME whine this loudly to investigate exactly how IFT’s Preckwinkle and Piccioli got their pensions for one day of substitute teaching?
Legal but unconscionable is just business as usual in Illinois. We’d all be better off if both AFSCME and the Civic Committee stayed out of politics completely.
Comment by Jeff Trigg Thursday, Jul 25, 13 @ 11:10 am
Hopefully, more Illinoisans will come to realize that the big money guys hiding behind the banner of the “Civic Committee” are just pretending to pursue the common good in this state. They are really just another “Club for Greed” on a mission to destroy the middle class, which happens to include a number of government employees and retirees. Their actions are disgraceful and they should be publicly held up for the scorn they so richly deserve.
Comment by kimocat Thursday, Jul 25, 13 @ 11:14 am
Rich: I am a reader and not a commenter, but I respectfully disagree with you:
Their intent was to punish Illinois taxpayers in order to force pension reform. That may not be a crime, but it’s still unconscionable.
Cod writes:
It would be easy to engage in arbitrage if you had the power to manipulate the bond interest rates or have high confidence of them occurring in advance.
Here’s an example:
I listened to Ty Fahner and decided to sell my existing Illinois municipal bonds before the rating downgrade. The $1,000,000 bonds sold for one million. Then the downgrade and they are worth 800,000 (these numbers are only for illustration). I can now buy the same bonds back after following the rules of a wash sale, profit $200,000 (not a bad profit of 20% X 12 or 240%). I can make a reasonable assumption that the ratings agencies will follow the “suggestions,” since the CEOs and others have a prior relationship with the rating agencies concerning their corporation bonds. Just think of what happened to the bond market recently when Bernanke whispered about raising interest rates.
Cod also writes:
As expected, the mainstream media conglomerates are remaining silent on the subject. The government must step in to assure the citizens that there is still a justice system out there somewhere.
The Chicago Tribune is no surprise, but many do not know many papers are owned by the 1%ers. I think the least we can ask for is a statement from the Commercial Club, rating agencies, individuals involved and their corporations, and state government. Although the statements will be well prepared denials, that is the least that should be asked for.
I think this was a two-fer, where some individuals could strike a blow to state pensions and make money. So the question I have is how much of this goes on behind closed doors?
Comment by dontknowit all Thursday, Jul 25, 13 @ 11:20 am
wakinfool wrote:
Don’t forget Rutherford publicly badmouthed Illinois bonds with rating agencies, for political purposes, while our elected State Treasurer. At least it apparently wasn’t in direct communications behind closed doors.
Rutherford as a politician can say ANYTHING he wants and is protected by Illinois law.
Comment by dontknowit all Thursday, Jul 25, 13 @ 11:27 am
If anything illegal like this happened, I would think it should be fairly easy to track the sales and/or re-purchasing of bonds, correct?
Comment by CharlieKratos Thursday, Jul 25, 13 @ 11:32 am
I’d like to hear from the rating agencies as to why they were taking these meetings.
What standing do these CEOs have?
The rating agencies tout their transparent process and extensive criteria for setting ratings. I don’t see anything on their websites about jawboning with CEOs with an ax to grind.
The state pays for the ratings, it has a right to know what’s going on.
Comment by wordslinger Thursday, Jul 25, 13 @ 11:40 am
==Do we also get to probe all of the off the books meetings the leadership of AFSME has had with the Democratic party leadership crafting new and innovative ways to add to the benefit packages of their membership? ==
That’s a silly comparison. Not even close to the same thing. That is the legislative process and any benefit changes were voted on by the General Assembly. Take it up with your legislator if you don’t like it.
Comment by Demoralized Thursday, Jul 25, 13 @ 11:41 am
It is unconscionable and I have lost respect for Fahner and the Civic Committee. I’m still note sure it warrants a criminal investigation. Maybe if we have a legal expert on the blog who could provide some insight?
Comment by Ahoy! Thursday, Jul 25, 13 @ 11:46 am
“That may not be a crime, but it’s still unconscionable. ”
Yeah! That’s Springfield’s job!
Comment by Anonner Thursday, Jul 25, 13 @ 11:47 am
Securities Exchange Act of 1934 was enacted after the crash of 1929. This act addresses insider trading and includes stocks, bonds, etc. Did you have the information to arbitrage Illinois bonds?
Comment by dontknowit all Thursday, Jul 25, 13 @ 12:08 pm
Ahoy
There is no way to know if anything illegal transpired without an investigation. So, investigate! Remember this though, conspiracy laws are such that in many cases the fact that they conspired or attempted a fraudulent or illegal act would be sufficient to bring charges. Like it or not whether they were successful or not in their efforts may not matter!
As to Fahner’s status as a private citizen. He is not just another ‘citizen’, he is a former state officer and a member of the Illinois bar. He would appear to be very close to violating a number of statutes if he did indeed engage in some of the alleged activities. At the very least this is poor judgement and even worse politics.
As to the ratings agencies……let the SEC deal with them but this will surely raise more questions about their actions in Illinois and other states.
Comment by Old and In The Way Thursday, Jul 25, 13 @ 12:21 pm
===As to the ratings agencies……let the SEC deal with them but this will surely raise more questions about their actions in Illinois and other states.===
And makes especially relevant the unusually low Illinois bond rating when compared to a similarly indebted province of Ontario, CA (thanks for that, Rich). Definitely deserves to be investigated.
Comment by PublicServant Thursday, Jul 25, 13 @ 12:45 pm
The financial press mentions Illinois in negative terms almost every day. The rating agencies probably get lots of calls from interested parties besides the Civic Committee to ensure the debt is properly rated. Illinos debt tends to be one of the top ten holdings in most high yield municipal closed end funds. I’m sure the managers of these funds have a hot line to Moody’s and the rest as part of their management obligations of such speculative and deteriorating securities.
All Mr. Fayner did was fan the flames of class warfare in Illinois, which means the political class vs the rest of us that are expected to pay for it’s excessives.
Comment by Cook County Commoner Thursday, Jul 25, 13 @ 12:46 pm
What’s missing are statements from the ratings agencies that they didn’t listen to the CC lobbyists but instead based their decision on hard economic data.
Comment by In_The_Middle Thursday, Jul 25, 13 @ 12:50 pm
Plot twist: I personally believe that retirees and public employees should be paid every penny they have earned.
And that both bills under consideration at the close of session are unconstitutional.
Comment by Formerly Known As... Thursday, Jul 25, 13 @ 12:52 pm
Dontknowitall: I in no way was implying Rutherford did or said anything illegal. He can say what he wants.
But, we should expect better from anyone in the State Treasurer role.
Comment by walkinfool Thursday, Jul 25, 13 @ 2:00 pm
This fits in nicely here too…
former employee of SAC Capital Advisors’ Chicago office was once part of an “insider trading group” at a rival hedge fund, according to an indictment filed today against SAC.
A source familiar with the matter said the hedge fund was Citadel. A Citadel spokeswoman said there was no such “insider trading group” at the firm.
Charges filed in U.S. District Court in New York today against prominent hedge fund manager Steven A. Cohen’s SAC Capital said his former employee, Richard Lee, moved from a firm identified only as “Hedge Fund A” to SAC, despite a warning that Lee “was known for being part of Hedge Fund A’s ‘insider trading group.’”
The source familiar with the matter said “Hedge Fund A” is Citadel, the Chicago-based firm founded by Kenneth Griffin. Citadel managed roughly $13.3 billion at the end of 2012, according to a regulatory filing. Citadel was one of several hedge funds subpoenaed by federal authorities in 2010 as part of the government’s broader insider trading investigation.
Comment by CircularFiringSquad Thursday, Jul 25, 13 @ 2:04 pm
Looks like AFSCME will have even more fodder against the Chicago plutocrats with that story today about Ken Griffin (another civic committee member) and his hedge fund Citadel being accused of having a rival insider trading group in todays SAC Capital insider trading indictment.
What does Bruce Rauner (recipient of $10,000 from Ken and his wife) think about this?
Comment by hisgirlfriday Thursday, Jul 25, 13 @ 2:24 pm
Friday, re-read those SEC charges.
That’s not even close to what was alleged. The SEC alleges that SAC hired one person (with a hinky background in trading) from Citadel knowing he was hinky. That’s a long way from “having a rival..group” inside a shaky firm.
No dog in the race here, but let’s keep the story straight.
Comment by Arthur Andersen Thursday, Jul 25, 13 @ 4:43 pm
I made two posts in sequence, one at 12:50 and one at 12:52. It looks like the 12:50 post may not be showing up, so if anyone finds it confusing or random that’s because it doesn’t make much sense without the 12:50 one. Just to clarify.
Comment by Formerly Known As... Thursday, Jul 25, 13 @ 5:03 pm
We need a RICO act for zillionaires.
Comment by Flan Thursday, Jul 25, 13 @ 6:05 pm
same strategy?
http://chicago.cbslocal.com/2013/07/19/civic-federation-citys-credit-downgrade-extraordinary/
Comment by annonymist Thursday, Jul 25, 13 @ 6:10 pm
@Arthur Andersen:
I haven’t had time to read the indictment yet. I was referring to the Reuters article about Citadel’s connection to the SAC indictment.
http://www.reuters.com/article/2013/07/25/us-sac-fund-citadel-idUSBRE96O0W420130725
Comment by hisgirlfriday Thursday, Jul 25, 13 @ 6:53 pm
Friday, we’re actually both right and wrong if you get into the details.
That’s why it’s good to have more than one person read this stuff.
Your point about Rauner, $$$$, and the underlying issues is on point.
Comment by Arthur Andersen Thursday, Jul 25, 13 @ 7:09 pm
I’m glad to see the Civic Committee didnt follow my sarcastic recommendations on Chicago Tonight. They didn’t appear at all, they just issued a statement which sounded like canned lawyer denial (the “baseless” thing) on the segment which starts about 4 or 5 minutes into the show.
It will be rebroadcast at midnight, or online at their website.
I am in awe of the show’s indepenence, given their reliance on the donations of the Civic Committee members. Kudos are due.
Our own favorite blog host Rich Miller, who broke and pursued this story on this very site, wrote an excellent Sun Times article on the subject today.
Comment by Private Citizen Thursday, Jul 25, 13 @ 7:31 pm
Thanks for covering this issue. I don’t know if any criminal connection can be found. But it is clear to me the motive of this committee is not to solve a pension funding crisis. The motive is to destroy defined-benefit pensions so that they can get their hands on what retirement money is left when state employees are forced to try to fund their retirement with investment in their stock through 401k style retirement plans.
Comment by Madiganistan Thursday, Jul 25, 13 @ 8:48 pm