RHODE ISLAND CRASH AND BURN

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“We’re looking at a Ponzi scheme that would make Bernie Madoff look like a Boy Scout,” said Mr. Berto, a supply officer for the state.”

the nightmare scenario is that Ms. Raimondo has seen the future of America, and it is Rhode Island. As Wall Street fixates on the financial disaster in Greece, a fiscal wreck is playing out right here. And the odds are that it won’t be the last. Before this is over, many Americans may be forced to rethink what government means at the state and local level.”

EDITOR’S COMMENT: Here’s the Truth: As long as we let Banks control our government, as long we let them define our lives as economic slaves, as long as we let Banks intervene in virtually every transaction of every kind, whether they are helping or not, we have surrendered our freedom and our Republic.

Rhode Island is about to crash and burn. There is no hope for a recovery unless basic policy and expectations change. But they are already headed in the wrong direction. Austerity and cut-back of basic social services like fire, police, emergency services, social services does not and never did reduce costs. It merely shifts them in the eye of the public from the perception of an “entitlement” to creatively accounting for the expenses in other ways. The cost will still be there. If government can’t provide protection and the basics of services that we , as a society, expect as a benefit of being together rather than on our own, then government won’t be there either, but the the expense will still be there, shifted around in various deceptive ways, but the jobs are going to get done.

We have lifted the referees off the playing field and let the players take over. Wall Street does not know about self-restraint although they have long sold that story. Investment Bankers are there to create the movement of money, the creation of money and every time they do that, they make money in fees, and now on trading profits as they create instruments which only insiders understand. So they are able to create instruments, the working s of which are known only to the sellers. The sellers then go out with knowledge of the outcome and bet on that outcome. And the easiest outcome is to make sure the run is pulled out from under us and make money on the way down, and make more money as measures are taken to try and recover.

This is no diatribe against capitalism. It is a call to action to let capitalism work and control W all Street and stop them from cornering every market they touch. It is a call for accountability, and for reparations for those whom they injured when they knowingly deceived the world’s banks, governments, local, state and federal into an “understanding” that was a lie. Now we are financially embarrassed while Wall Street cleverly announces lower earnings and losses — much of which is fake.

They never had the prior earnings because that, in reality was simply theft and fraud proceeds. So the decrease is reflecting smaller opportunities to defraud others. And they never had the losses which are created by hiding the huge “trading profits” they stole out of the system when investors bought bogus bonds that were supposedly backed by debt when nothing was done to tie the bonds and the debt together.

There are answers to this mess, but the question is, are we willing to stop listening to the Banks for solutions? We are going to the perpetrators of crimes against humanity for solutions for the results of those crimes. Let’s stop that and listen to ourselves and each other.

The Little State With a Big Mess

By

CRANSTON, R.I.

ON the night of Sept. 8, Gina M. Raimondo, a financier by trade, rolled up here with news no one wanted to hear: Rhode Island, she declared, was going broke.

Maybe not today, and maybe not tomorrow. But if current trends held, Ms. Raimondo warned, the Ocean State would soon look like Athens on the Narragansett: undersized and overextended. Its economy would wither. Jobs would vanish. The state would be hollowed out.

It is not the sort of message you might expect from Ms. Raimondo, a proud daughter of Providence, a successful venture capitalist and, not least, the current general treasurer of Rhode Island. But it is a message worth hearing. The smallest state in the union, it turns out, has a very big debt problem.

After decades of drift, denial and inaction, Rhode Island’s $14.8 billion pension system is in crisis. Ten cents of every state tax dollar now goes to retired public workers. Before long, Ms. Raimondo has been cautioning in whistle-stops here and across the state, that figure will climb perilously toward 20 cents. But the scary thing is that no one really knows. The Providence Journal recently tried to count all the municipal pension plans outside the state system and stopped at 155, conceding that it might have missed some. Even the Securities and Exchange Commission is asking questions, including the big one: Are these numbers for real?

“We’re in the fight of our lives for the future of this state,” Ms. Raimondo said in a recent interview. And if the fight is lost? “Either the pension fund runs out of money or cities go bankrupt.”

All of this might seem small in the scheme of national affairs. After all, this is Little Rhody (population: 1,052,567). But the nightmare scenario is that Ms. Raimondo has seen the future of America, and it is Rhode Island. As Wall Street fixates on the financial disaster in Greece, a fiscal wreck is playing out right here. And the odds are that it won’t be the last. Before this is over, many Americans may be forced to rethink what government means at the state and local level.

Economists have talked endlessly about a financial reckoning for the United States, of a moment in the not-so-far-away when the nation’s profligate ways catch up with it. But for Rhode Island, that moment is now. The state has moved to safeguard its bond investors, to avoid being locked out of the credit markets. Last week, the General Assembly went into special session and proposed rolling back benefits for public employees, including those who have already retired. Whether the plan will succeed is anyone’s guess.

Central Falls, a small city north of Providence, didn’t wait for news from the Statehouse. In August, the city filed for bankruptcy rather than keep its pension promises to its retired firefighters and police officers.

Illinois, California, Connecticut, Oklahoma, Michigan — the list of stretched states runs on. In Pennsylvania, the capital city, Harrisburg, filed for bankruptcy earlier this month to avoid having to use prized assets to pay off Wall Street creditors. In New Jersey, Gov. Chris Christie wants to roll back benefits, too.

In most places, as in Rhode Island, the big issue is pensions. By conventional measures, state and local pensions nationwide now face a combined shortfall of about $3 trillion. Officials argue that, by their accounting, the total is far less. But with pensions, hope often triumphs over experience. Until this year, Rhode Island calculated its pension numbers by assuming that its various funds would post an average annual return on their investments of 8.25 percent; the real number for the last decade is about 2.4 percent. A phrase that gets thrown around here, à la Rick Perry describing Social Security, is “Ponzi scheme.”

That evening in September, Ms. Raimondo walked into the Cranston Portuguese Club to face yet another angry audience. People like Paul L. Valletta Jr., the head of Local 1363 of the firefighters union.

“I want to get the biggest travesty out of the way here,” Mr. Valletta boomed from the back of the hall. “You’re going after the retirees! In this economic time, how could you possibly take a pension away?”

Someone else in the audience said Rhode Island was reneging on a moral obligation.

Ms. Raimondo, 40, stood her ground. Rhode Island, she said, had a choice: it could pay for schoolbooks, roadwork, care for the elderly and so on, or it could keep every promise to its retirees.

“I would ask you, is it morally right to do nothing, and not provide services to the state’s most vulnerable citizens?” she asked the crowd. “Yes, sir, I think this is moral.”

FOR many Americans, the Ocean State conjures images of Newport mansions and Narragansett chic. The overall reality is more prosaic. Rhode Island today is a place where the roads and bridges rank among the worst in the nation and where jobs are particularly hard to find. Unemployment rose faster during the 2008-9 recession than in any other state. The official jobless rate is now 10.6 percent, versus the national average of 9.1 percent.

The textile mills and jewelry manufacturers that once employed thousands here have dwindled away. The big employers today are in health care and education, both of which rely heavily on government spending that has been drying up.

Many states and cities can credibly say their pension plans are viable, even when those plans are not fully funded. That is because state retirement funds, like Social Security, pay out benefits bit by bit, over many years.

But unlike, say, California, with its large, diverse economy, Rhode Island is so small that there is little margin for error. Leaving the state, to escape its taxes, is almost as easy as moving to the other side of town. Efforts to balance the state budget by shrinking the public work force have left Rhode Island with a problem like the one that plagues General Motors: the state has more public-sector retirees than public-sector workers.

More ominous still, in each of the last 10 years, the state pension fund paid more money to retirees than the fund collected from state employees and taxpayers combined. The fund is shrinking, even though the benefits coming due are growing.

For all the pain here, one important constituency — Wall Street — seems satisfied enough. To reassure its bond investors, Rhode Island passed a special law this year giving them first dibs on tax revenue. In other words, bondholders will be paid, whatever happens. Ms. Raimondo has at times been accused of selling out ordinary Rhode Islanders to Wall Street interests, but she says hard choices must be made.

Ms. Raimondo remembers better times in Rhode Island. She grew up in a suburb of Providence, rode public buses to public schools and played in public parks. Her grandfather, who arrived from Italy, studied English in the evenings at the Providence Public Library. (That library system lost its financing from the city in 2009, closed branches and shortened its hours. These days, it is seldom open after 6 p.m.)

But Ms. Raimondo also learned early on about economic forces at work in her state. When she was in sixth grade, the Bulova watch factory, where her father worked, shut its doors. He was forced to retire early, on a sharply reduced pension; he then juggled part-time jobs.

“You can’t let people think that something’s going to be there if it’s not,” Ms. Raimondo said in an interview in her office in the pillared Statehouse, atop a hill in Providence. No one should be blindsided, she said. If pensions are in trouble, it’s better to deliver the news and give people time to make other plans.

BY any standard, Ms. Raimondo is a high achiever. She graduated from Harvard, collected a law degree from Yale and attended Oxford as a Rhodes scholar. After a stint in New York in the venture capital business, she helped found Rhode Island’s first venture capital firm, Point Judith Capital.

Then, in 2009, with zero political experience, she ran for the state office of treasurer. Although she is a Democrat in a heavily Democratic state, she stood out because she refused to promise that state jobs and pension benefits would be protected no matter what. She won by a landslide, receiving more votes than any other candidate for any state office. Her long-term ambitions, in politics, business or both, are the subject of speculation in Providence.

No sooner had she been sworn in than the S.E.C. called. She learned that the commission was investigating the finances of various cities and states, including Rhode Island, to determine whether bond investors were receiving truthful information. At the heart of the S.E.C. inquiry were pension funds.

Ms. Raimondo said she wasn’t entirely surprised. When she disclosed the investigation, she said: “For months, Rhode Island has been listed among several states with precarious finances. This challenging position is, in part, due to our significant and growing unfunded pension liability.” Her first priority, she vowed, would be to ensure that the numbers were right.

Others made similar pledges before. Rhode Island has been trying to fix its pension system for years; it has announced four “reform” plans since 2005, each of which has claimed to reduce costs for the state and cities. It has raised minimum retirement ages, slowed accrual rates, capped cost-of-living adjustments — but always for the youngest or least senior public workers. Retirees, and workers poised to retire, were spared, even though the numbers clearly showed that reducing payments to retirees was the only sure way to fix things quickly.

In recent months Ms. Raimondo has crisscrossed the state in an attempt to sell a different remedy, one in which everyone takes a hit. Yes, it would hurt. But at least the state would avoid having to come up with yet another plan in a year or two. The defined-benefit structure, very popular with public employees, could survive. Still, the battle lines are clear. Eight public workers’ unions have already sued, saying the pension changes of 2009 and 2010 were illegal.

On a September evening out in North Scituate, at the historic Old Congregational Church, Ms. Raimondo told a crowd about what had happened in Vallejo, Calif. That city filed for bankruptcy in 2009 and, after grueling negotiations, left pensions intact but drastically cut bus service, police patrols and other government functions, along with the pay of the city workers who provide all those services.

“That’s not what we want for Rhode Island,” Ms. Raimondo said. “That’s not the future we want for our children.”

Others in the crowd had their own stories. Several retired teachers said they had played by the rules and sent a part of every paycheck to the pension fund, as required by law. One man demanded pension cuts for state troopers and judges. A woman said her aged father would be unable to buy medicine if the state stopped adjusting his pension for inflation.

“I feel your anger,” Ms. Raimondo told the crowd. “In many ways, I’m angry myself. Many of the shenanigans that went on in past years were just wrong.”

In some ways, the central question is not only what the government owes to pensioners but what citizens owe to one another. From the pews of the church, Cindy Gould, a fourth-grade teacher, said that under the current system, she had 11 years to go until retirement. Under Ms. Raimondo’s plan, she might have to work longer. But, Ms. Gould, 54, said she was willing to do so if that meant the elderly would get the medical care they need.

Since the last recession hit, states and cities around the country have embarked on pension changes, often following the Rhode Island pattern. Benefits for state employees who have not yet been hired are usually the first to be cut. Then come changes for those now on the payroll, often in the form of higher mandatory contributions.

Retirees have mostly been off-limits, until now. In many instances, laws or legal precedent shield them. In the corporate sphere, they are supposed to bear losses only in bankruptcy. But those rules do not apply to states, which may not declare bankruptcy in any case. If a government homes in on retirees, a lawsuit is sure to follow, and the resolution will take years. But Ms. Raimondo says Rhode Island doesn’t have years. This isn’t a question of politics or law, she says, but of simple math. To get the numbers right, Ms. Raimondo quickly assembled a panel of experts that included academics, mayors and union officials. The goal was to figure out what a public pension should be and what Rhode Island could afford. Inflation protection every year, for people who in some cases retired in their 40s, started coming into focus.

Analysts also took a close look at the projected long-term investment return for the pension system: 8.25 percent. Everything rested on hitting that target, but the state’s actuary said there was less than a 30 percent chance that would happen over the next 20 years. The board voted to lower the assumption to 7.5 percent. (Given the recent run in the financial markets, even that figure may seem optimistic.)

As a result of that change, the state’s pension shortfall instantly rose to $9 billion from $7 billion. The unions said Ms. Raimondo had manufactured a crisis.

She denied it. “This is about the truth,” she said, “and about doing the right thing.”

Then, as if on cue, Central Falls declared bankruptcy. The city’s pension fund wasn’t just underfunded. It was completely out of money. A receiver for the city sought court permission to reduce by as much as half the base pensions of retired police officers and firefighters.

Suddenly the pension crisis wasn’t an abstraction any more. The unthinkable had happened, and the odds were that it would happen again unless the state acted quickly.

Other mayors began stepping forward and warning that their communities were on the brink, too. Here in Cranston, Mayor Allan W. Fung said that unless things changed, he would have to eliminate trash collection, services to the elderly and recreation programs for children, as well as reduce the size of the police force and fire department.

Over in Woonsocket, John W. Ward, the president of the City Council, said that all summer parks programs had been eliminated and that teachers were working with larger classes than their contracts allowed. Half of Woonsocket’s streetlights were out because the city couldn’t afford to replace them. His son, daughter-in-law and granddaughter had moved to another state.

“To allow the pension system to remain largely unchanged will make it impossible for Woonsocket, and every other urban community, to survive,” Mr. Ward said.

AT the Portuguese Club in Cranston, José M. Berto raised his hand. At 62, he told Ms. Raimondo, he was on the cusp of retirement.

“We’re looking at a Ponzi scheme that would make Bernie Madoff look like a Boy Scout,” said Mr. Berto, a supply officer for the state.

He asked if Rhode Island’s pension problem was the worst in the nation.

Ms. Raimondo said it was.

“I don’t like her message,” Mr. Berto said after the session. “But she has been honest, forthcoming. We’re in trouble. We’re just in so much trouble.”

9 Responses

  1. too surreal as I watch the inevitable Fall…?everyone’s story is embedded with unique twists of fate and error,human beings make errors…Divine to forgive we’re told,and to be forgiven…where is a forgiving Bankster to be found?Legal fictions of state have no soul.Human beings at the least used to have…I just ran my head into another Wall impermeable….out of work (for pay that is) into the 5th month all savings depleted within 4 months nowhere to turn now;29 years all gone…Winter is bearing down fast now.I was told that the so-named “h-ome e-nergy a-ssistance p-rogram will not open until the 16th of November as NY State declares it not cold enough yet.It was 37 in the am three days ago.I keep it to 64 tops,run it to take off the damp one cycle.Gas stovetop,don’t dare to turn on a lamp/boil water.

    They told me that I could apply for a Loan some other program…the State that I paid into since I was 16,working after school&Saturdays,and many a year since:I am born here,I have not any recourse at this time.

    I truly apologize
    I DO feel suicidal I realize it an emotional reaction to
    open warfare upon my nation…

    we choose our battles
    unless they sweep over us…

    I am terrified now.

    Thanks for listening…car insurance was due yesterday,too.Can’t pay for refuse removal,it’s 3 months in advance;I’m 1.5 months past due now.Don’t have any out/answers…
    scared to death …it’s only getting worse,at least last Winter I had PT work,it was hell but we had that…
    my Dog senses this…

    my eldest Daughter lives here,she has only PT low wage position like so many
    she does what she is able.
    She doesn’t yet know how bad this looks like it is quickly about to get.

    Help us please…
    but how?
    I broke down into tears on the phone,the intake worker was understanding but could do nothing to help us…

    what do we pay taxes for?
    War.Bureaucracy.I am done for…really,let me not pretend …to normalcy…
    Just Prayed with my brother for God’s help.
    Made a call to our Rabbi,a Messianic Congregation.

    Delivered.
    Praise to my all knowing God.

    “Trust in God…not gov.”~seen on a bumper sticker@ Shabbot Service a few weeks past….

  2. EXACTLY Tim: http://www.getmoneyout.com

  3. Just getting the money out of politics would be a help!

  4. “Investment Bankers are there to create the movement of money, the creation of money and every time they do that, they make money in fees, and now on trading profits as they create instruments which only insiders understand.”

    I was an insider in the financial world from the limited perspective of working with/against investment bankers in setting up so-called structured financing arrangements that were core business-related to my employer–eg a financing lease on a production facility—a sale/leaseback of an office building–a REIT to own corp perated property-etc—the common thread is complex transactions designed to raise cash on the markets through a special purpose vehicle to get it off balancse sheet. Reason was to improve the profit/asset ration–pump the share price by multiplying leverage earnings

    This is cooking bioks to be sure–all allowable at the time—-and the investment bankers pop in with these gizmos—which i could see were bad fpr the company long term–usually losing the backend to the investm,ent banker———lot changed 86—–but bottom line was that the investment bankers come in with a combo of : spreadsheet showing transactional impact on cash flows for ROI–on balance sheet and P/L ——-and they almost always squeez 15 % on the front–30% longer term–near infinte return on their real investment—all scim no skin

    thesegizmos the create by lobbying and cajoling and bribing both congress and treasury—and acctg standards bd and sec–sarbox tried to limit it but the hedge funds are like wild beast that threw their riders and now run amock across the world—they are where the stolen money was parked—every trader on wall street was trying to start a hedge fund by 2007—a little late——–channels to steal money–then conduct raids from offshore—–shorting debt instruments—france next

  5. Yep. Rhodes Island is just a free sample. If we like it, we can get the real thing. By the way, what does that mean for a state to be “both” judicial and non-judicial? Is this one of those hybrid systems concocted by those Brown University Ivy Leagers?

  6. You’re perhaps being a bit too tough on our smallest state RI. I think it’s unique in that it’s the only state in the union that is an island. Oh wait…. uh….it’s not an island?

    Then we must help keep up the good work that all of those bright Rhodes scholars do for mankind, right? What? Oxford?

    Surely we’d all agree that Newport’s beautiful scenery would be wasted on commoners. Only the old money families should rightfully benefit from the sweeping ocean vistas available up and down this scenic coast. Sweeping views such as these along with their close proximity to Wall Street would be utterly wasted on anything less than granite and marble mansions. Any building under 60,000 square feet just wouldn’t do justice to the landscape. Suck it up people….THEY deserve this land, not the rest of us. What were you thinking? Canoe access?

    We must fight to defend this great state. How else would the elite gain access to political favors in the form of specialties that only RI can deliver like four digit license plates? And we all know it’s up to us to preserve and defend the elite with our very lives and properties. It’s the least we can do for the job creators in society.

    I tear up just thinking of how much they stand to lose with the unwashed hooligans dancing in the streets demanding equality. Ha! Let them try and own their own hedge fund…it’s not that easy you know! Let’s see them try and invest their inheritance wisely!

  7. Neil: Harrumph!

    Will any of us really miss either Providence or Rhode Island? As long as Newport doesn’t sink into the bay – I think that nothing will become Rhode Island in life so much as that state’s leaving of it.

  8. It’s very important to remember that in Erich Segal’s book “Love Story” that Boston Brahmin [sic] Oliver Barrett IV falls in love with Jennifer Cavalleri, from working-class Providence, RI.

    When Ali MacGraw dies, all of us, along with Ryan O’Neal, are very unhappy. But die she does, nonetheless.

    NB: Segal stole the whole story from Elizabeth Barrett Browning’s actual life story – sort of. Even Oliver Barrett IV was named after Browning’s father. Will somebody tell me if McGraw’s character’s family name Cavalleri is Italian or Portuguese.

  9. The future of America…

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