Political Polling: Making Money Without

In 1968, 1,300 sanitation workers in Memphis went on strike. The Rev. Martin Luther King, Jr. came to support them. That was where he lost his life. Eventually Memphis heard the grievances of its sanitation workers. And in subsequent years millions of public employees across the nation have benefited from the job protections they've earned.

But now the right is going after public employees.

Public servants are convenient scapegoats. Republicans would rather deflect attention from corporate executive pay that continues to rise as corporate profits soar, even as corporations refuse to hire more workers. They don't want stories about Wall Street bonuses, now higher than before taxpayers bailed out the Street. And they'd like to avoid a spotlight on the billions raked in by hedge-fund and private-equity managers whose income is treated as capital gains and subject to only a 15 percent tax, due to a loophole in the tax laws designed specifically for them.

It's far more convenient to go after people who are doing the public's work -- sanitation workers, police officers, fire fighters, teachers, social workers, federal employees -- to call them "faceless bureaucrats" and portray them as hooligans who are making off with your money and crippling federal and state budgets. The story fits better with the Republican's Big Lie that our problems are due to a government that's too big.

Above all, Republicans don't want to have to justify continued tax cuts for the rich. As quietly as possible, they want to make them permanent.

But the right's argument is shot-through with bad data, twisted evidence, and unsupported assertions.

They say public employees earn far more than private-sector workers. That's untrue when you take account of level of education. Matched by education, public sector workers actually earn less than their private-sector counterparts.

The Republican trick is to compare apples with oranges -- the average wage of public employees with the average wage of all private-sector employees. But only 23 percent of private-sector employees have college degrees; 48 percent of government workers do. Teachers, social workers, public lawyers who bring companies to justice, government accountants who try to make sure money is spent as it should be -- all need at least four years of college.

Compare apples to apples and and you'd see that over the last fifteen years the pay of public sector workers has dropped relative to private-sector employees with the same level of education. Public sector workers now earn 11 percent less than comparable workers in the private sector, and local workers 12 percent less. (Even if you include health and retirement benefits, government employees still earn less than their private-sector counterparts with similar educations.)

Here's another whopper. Republicans say public-sector pensions are crippling the nation. They say politicians have given in to the demands of public unions who want only to fatten their members' retirement benefits without the public noticing. They charge that public-employee pensions obligations are out of control.

Some reforms do need to be made. Loopholes that allow public sector workers to "spike" their final salaries in order to get higher annuities must be closed. And no retired public employee should be allowed to "double dip," collecting more than one public pension.

But these are the exceptions. Most public employees don't have generous pensions. After a career with annual pay averaging less than $45,000, the typical newly-retired public employee receives a pension of $19,000 a year. Few would call that overly generous.

And most of that $19,000 isn't even on taxpayers' shoulders. While they're working, most public employees contribute a portion of their salaries into their pension plans. Taxpayers are directly responsible for only about 14 percent of public retirement benefits. Remember also that many public workers aren't covered by Social Security, so the government isn't contributing 6.25 of their pay into the Social Security fund as private employers would.

Yes, there's cause for concern about unfunded pension liabilities in future years. They're way too big. But it's much the same in the private sector. The main reason for underfunded pensions in both public and private sectors is investment losses that occurred during the Great Recession. Before then, public pension funds had an average of 86 percent of all the assets they needed to pay future benefits -- better than many private pension plans.

The solution is no less to slash public pensions than it is to slash private ones. It's for all employers to fully fund their pension plans.

The final Republican canard is that bargaining rights for public employees have caused state deficits to explode. In fact there's no relationship between states whose employees have bargaining rights and states with big deficits. Some states that deny their employees bargaining rights -- Nevada, North Carolina, and Arizona, for example, are running giant deficits of over 30 percent of spending. Many that give employees bargaining rights -- Massachusetts, New Mexico, and Montana -- have small deficits of less than 10 percent.

Public employees should have the right to bargain for better wages and working conditions, just like all employees do. They shouldn't have the right to strike if striking would imperil the public, but they should at least have a voice. They often know more about whether public programs are working, or how to make them work better, than political appointees who hold their offices for only a few years.

Don't get me wrong. When times are tough, public employees should have to make the same sacrifices as everyone else. And they are right now. Pay has been frozen for federal workers, and for many state workers across the country as well.

But isn't it curious that when it comes to sacrifice, Republicans don't include the richest people in America? To the contrary, they insist the rich should sacrifice even less, enjoying even larger tax cuts that expand public-sector deficits. That means fewer public services, and even more pressure on the wages and benefits of public employees.

It's only average workers -- both in the public and the private sectors -- who are being called upon to sacrifice.

This is what the current Republican attack on public-sector workers is really all about. Their version of class warfare is to pit private-sector workers against public servants. They'd rather set average working people against one another -- comparing one group's modest incomes and benefits with another group's modest incomes and benefits -- than have Americans see that the top 1 percent is now raking in a bigger share of national income than at any time since 1928, and paying at a lower tax rate. And Republicans would rather you didn't know they want to cut taxes on the rich even more.

Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.

Banks increased fees for initial share sales by 62 percent to 5.63 percent
from the lowest level on record, even as the amount that U.S.
companies raised from IPOs decreased by almost half to $16.4 billion
this year, according to Bloomberg data. While the biggest surge
in stocks since the Great Depression revived the IPO market and helped
enrich bankers, almost 40 percent of offerings sold by underwriters in
the second half of 2009 have left buyers with losses, the data show.

… Crunch the numbers: at a $50
billion valuation, with Goldman in the box seat as lead banker to an
IPO and at the rates quoted in 2009, then it could pocket $2.8 billion
gross in fees. And that’s on top of whatever it creams off the $1.5
billion fund it is creating as part of the deal that sees it currently
investing $450 million. Assuming an IPO in the next 12 months then by
my reckoning, Goldman’s ‘investment’ nets a 6x return.

If Goldman is successful (and
remember that the Special Purpose Vehicle covering the $1.5 billion has
to get past the SEC first but honestly – do they care?) then what
happens to the Twitter’s of this world? Does its investors start
clamoring for an exit? You bet.

That can only spell one thing: bubble times are here again.

Ya Damn skippy, sailor. Howlett hit it right on the head. What type
of revenues, profits and growth justify a $50 billion valuation for a
very young, private company with sparse net cash flows? The type that
are marketed by those who are doing God’s work! now, let’s build on Mr.
Howlett’s and Dignan’s ideas the BoomBustBlog way. We shall begin with
the $1.5 billion dollar fund that Mr. Howlett alleges GS is creating
around the Facebook cash injection. Yesterday’s BoomBustBlog rticle, Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private!
clearly detailed why and how many of these private equity and client
funds routinely gut investors (we’re talking up to 92% in losses!) while
Goldman (and other GPs) still walk away with profits (see Even With Clawbacks, the House Always Wins in Private Equity Funds). I have posted the model that illustrates this bank wins, investor loses phenomenon as a live spreadsheet online for all paying BoomBustBlog subscribers
to use at will. It’s quite the comprehensive model and allows for the
user to run a myriad of their own assumptions using any inputs they
please. As subscribers will see, it is nearly impossible for Goldman to
lose money on their Facebook private fund, no matter how badly Facebook
shares perform. Please beware that is unlocked and fairly complex, so
please do not make any formulae changes to it for it corrupts the
experience for other users. Here is an excerpt for those who do
subscribe to our research and services, YET!

Even with the fund taking 45%+ losses and the LP (limited partners,
ex. Goldman’s clients) losing every last single dime, Goldman easily
pulls a 33% return. God forbid Facebook share actually do well,
Goldman’s numbers look… Well… Damn near illegal! Almost as if they can
pump up a price without any fundamental justification or public
disclosure of financials and still sell it retail to the public. Of
course, such a thing could and would never occur – not with the every
vigilant SEC to take our backs. Excuse me while a cough a up a lung from
laughter…

You see, this is the dirty little secret of private equity funds.
They are not in the business of investing money for client’s maximum
risk adjusted return. They are in the business of collecting fees. Those
poor innocent (or not so, particularly when they are investing their
clients monies, hence are in the same business) souls that actually
believe as the commenter above quoted “Wow!!! If Goldman is putting their money in this, it must be serious!”simply
the lamb being led to the private equity/IPO slaughterhouse. You see,
there is no loss to GS – no matter how high they bid up the valuation
nor how hard it comes crashing down. This gives them the incentive to
shoot for the sky with the private equity deal, because when the IPO
breaks, its bonuses bigger than nearly any have ever seen. Facebook
makes and excellent marketing story as well. Boy Wunderkind CEO, a
product nearly everyone uses and loves, and a mysterious dearth of
business model to give it a mystical effect. Don’t forget the
involvement of the “cream of the crop” of Wall Street banks, whose
bankers, traders and analysts are all so much smarter than us guys from
Brooklyn. Add this up, and you get “Wow!!! If Goldman is putting their money in this, it must be serious!”.

I will continue this in a few hours via my next article that
illustrates an actual Facebook offering, complete with valuations –
which should be a doozy, Wait until we get to add up all of those
Goldman fees – Facebook investors win or lose. Just to be clear, this is
not hate for Goldman, but elucidation and clarification regarding
exactly what business Goldman, et. al. are actually in and how they are
able to generate the profits that they do. Many think that Goldman is
the best and brightest on the Street. Those guys went to the same
schools, studied under the same teachers, graduated and employed using
the same strategies trading the same products as everybody else. Get
over the mysticism marketing bullshit and you just have a politically
connect, very well marketed investment bank that was just bailed out by
the government. The same as every major IB in this country. I have no
hate (nor love, for that matter) for Goldman but I am about setting the
record straight. If you really think Goldman is really that good at
anything outside of raking profits off the back of their clients, I
suggest you take a long, strong look at their track record versus mine - Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?

Monday, January 10, 2011

Making Money Without

No comments:

Post a Comment

Followers

Blog Archive

About Me