BlackRock good; public employee pensions bad

Mar. 21, 2012 — “Let us all give thanks to BlackRock, the giant Manhattan-based investment, asset, and risk management firm.” The pitch would have sounded strained if it had come from BlackRock’s advertising agency. That it was the message delivered by a front-page article in yesterday’s New York Times is simply bizarre.

BlackRock, it turns out, was hired last June by the Bank of Greece to evaluate the loan portfolios of 18 Greek banks and help determine the scope of the capital that needs to be raised to insure the financial soundness of those banks.

Nowhere in the article is there any exploration of BlackRock’s success or failure in performing similar work for Ireland — let alone what the measures of success ought to be.

And the work that BlackRock did for the U.S. Treasury to value assets being acquired in the 2008 bailouts of entities like AIG? Not assessed either.

There is brief mention of the criticism that BlackRock has generated in the U.S. for “buying and selling some of the same securities that its BlackRock Solutions unit is valuing for the government,” but the question of whether a government or a central bank should farm out its oversight responsibilities is never discussed.

BlackRock makes your pulse quicken

I think the the article's complete lack of critical inquiry was inescapable given the main point of the story: to have readers thrill to the size and ostensible expertise of the company. The Greek mission is a difficult job, but “BlackRock knows the stakes.” BlackRock is appealing for multiple reasons: it has the “size, systems and expertise” to do big jobs quickly; it can fly “beneath the public’s radar.”

BlackRock is exciting: its team — which “hired 18 armed security guards” — “even had a code name [Solar], leading some tenants in its building to think the team was a solar energy company.”

Let’s face it, the article tells us: “There is little disputing BlackRock’s rise as one of the world’s most influential players.”

BlackRock, it would appear, is a company that anyone would be happy to have around: “We have been conditioned to be ultraresponsive,” the article quotes Craig Phillips, the executive in charge of the Greek operation, as saying. Ultimately, who wouldn’t be seduced by the charm of BlackRock executive in charge of the operation?

Perhaps a newspaper that treated the question of who runs Greece as deadly serious business.

And in pension news…

If BlackRock can do no wrong, it seems like public employee unions can’t do anything right. This past Sunday, in yet another “sky is falling” article about the unaffordability of public pensions from a reporter who seems to be specialize in explaining why unions need to give up what they had bargained for, the target is Calpers, California’s enormous state pension system.

The poster child for illustrating Calpers’ intransigence is Stockton, California, a financially-pressed city that has already reduced services and that may bring the question of the inviolability of pension obligations to a head by going bankrupt.

Calpers — quite unreasonably, the article suggests — just refuses to understand that municipalities in California should be able to go back on their promises. Instead, it wants to bar municipalities from reducing pensions that have been negotiated with unions.

Even in “cases of severe financial distress”!

Even for workers who haven’t yet retired!

Even though workers in the private sector “have no comparable protection”!

Calpers won’t even be a good sport and behave like creditors are supposed to behave in cases of bankruptcy: “shar[ing] the losses equitably, for the sake of the greater good.”

What about the real questions?

The inadequacies of the article are especially dispiriting because there are supremely important questions that cry out to be discussed.

We are told that pension costs are growing quickly, and are becoming a “major drag” on the finances of local governments, but are not provided with any context as to other contributing factors. We are informed that all, across the country, people are “taxed-out,” but we are not given any supporting evidence for the contention, let alone any sense that the financial health of public pension systems varies considerably from jurisdiction to jurisdiction.

The fact that the current situation looks particularly grim in the aftermath of the Great Recession, and that revenues will increase as the economy begins to turn around is not mentioned, even though pension health is obviously something to be measured for the long term.

Most fundamentally, it seems to me, there are moral and structural questions that should never be avoided when treating this topic. When someone goes to work for any entity, including a public entity, there really is an agreement entered into. The employer induces the employee to set to work with this promise: if you agree to work for us, we will give you some of your pay now (your salary) and some of your pay later (your pension). Workers fulfill their end of the bargain. Why aren’t municipalities who seek to weasel out of the end of their deal being asked, “Whatever happened to sanctity of contract?”

If it were the case that pensions obligations had become too costly for municipalities, why not ask about options other than having workers pay the cost? Should the federal government not play a bigger role in supporting pensions, or, perhaps, are there other costs currently being borne on the local level that make more sense to be spread out nationally?

And if one is serious about talking about the consequences of “excessive” pensions, how can one avoid talking about the costs of inadequate pensions both for an individual worker and his family, and for the city or town that will be home to a retiree with a reduced ability to pump money into the local economy?

This story, like the BlackRock story, needs a do-over.