Risking Public Money: California Charter School Fraud
Executive Summary
In 1992, California became the second state in the nation to pass legislation authorizing the creation of charter schools. Since the law’s passage, which originally...
In 1992, California became the second state in the nation to pass legislation authorizing the creation of charter schools. Since the law’s passage, which originally authorized 100 charter schools, the number of charter schools in California has grown rapidly. Today, California is home to the largest number of charter schools in the country, with over 1100 schools providing instruction to over half a million students. In the 2013-14 school year, California charter schools received more than $3 billion in public funding.
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Despite the tremendous investment of public dollars and the size of its charter school population, California has failed to implement a system that proactively monitors charters for fraud, waste and mismanagement. While charter schools are subject to significant reporting requirements and monitoring by oversight bodies, including chartering entities, county superintendents and the State Controller, no oversight body regularly conducts audits.
In 2006, California took a step in the right direction by amending the Charter Schools Act to permit county superintendents who suspect fraud or mismanagement at charter schools to request an “extraordinary audit” from the Financial Crisis and Management Assistance Team (FCMAT), a state agency charged with helping local educational agencies fulfill their financial and management responsibilities. Although FCMAT only conducts an audit when requested to do so, its findings reveal internal control deficiencies and various forms of mismanagement ranging in severity and form—from inappropriate self-dealing by charter school staff to the spending of thousands of public dollars without documentation. Even after 2006, charter schools in California continue to operate year in and year out without regulator-level audits that are designed specifically to determine whether the public dollars funding these privately managed schools are being spent properly. This lack of appropriate government audits is a problem, especially given the findings of FCMAT’s audits.
The number of instances of serious fraud uncovered by whistleblowers and the FCMAT suggests that the fraud problem is likely not isolated to the charter operators that have been caught. In fact, California’s charter oversight system’s deficiencies suggest that the $81,400,000 in fraud, waste and abuse by charter operators that has been uncovered to date is likely just the tip of the iceberg. Based on conservative estimates, California stands to lose more than $100 million to charter school fraud in 2015. The vast majority of this fraud perpetrated by charter officials will go undetected because California lacks the oversight necessary to identify the fraud. In this report we describe three fundamental flaws with California’s oversight of charter schools:
Oversight depends heavily on self-reporting by charter schools or by whistleblowers. California’s oversight agencies rely almost entirely on audits paid for by charter operators and complaints from whistleblowers. Both methods are important to uncover fraud; however,neither is a systematic approach to fraud detection, nor are they effective in fraud prevention. General auditing techniques alone do not uncover fraud. The audits commissioned by the charter schools use general auditing techniques rather than techniques specifically designedto detect and uncover fraud. The current processes may expose inaccuracies or inefficiencies; however, without audits targeted at uncovering financial fraud, state and local agencies willrarely be able to detect fraud without a whistleblower. Oversight bodies lack adequate staffing to detect and eliminate fraud. In California, the vast majority of charter schools are authorized by local school districts that lack adequate staffing to monitor charter schools and ferret out fraud. Staff members who are responsible for oversight often juggle competing obligations that make it difficult to focus on oversight and identify signs of potential fraud and abuse.To address these serious deficiencies in California’s system, we recommend the following reforms:
Mandate Audits Designed to Detect and Prevent Fraud
Charter schools should be required to institute an internal fraud risk management program, including an annual fraud risk assessment. Charter schools should be required to commission an annual audit of internal controls over financial reporting that is integrated with the audit of financial statements charter schools currently commission. These integrated audits should require auditors to provide an opinion on the quality of internal controls and financial statements. Oversight agencies, such as the State Comptroller’s Office and Fiscal Crisis and Management Assistance Team (FCMAT), a state agency, should conduct audits on charter schools once every three years. Auditing teams should include members certified in Financial Forensics trained to detect fraud.Increase Transparency & Accountability
Oversight agencies should create a system to categorize and rank charter audits by level of fraud risk they pose to facilitate public engagement. Oversight agencies should post the findings of their annual internal assessments of fraud risk on their websites. Oversight agencies should determine what steps charter school nonprofit governing boards and executives have taken to guard against fraud over the past 10 years and issue a report to the public detailing theirs findings and recommendations. Charter school authorizers should take fraud risk assessments into account when evaluating whether to renew a school’s charter. Until the state implements the oversight mechanisms described above, authorizers should only approve new charters that commit to the fraud controls recommended above.Given the rapid and continuing expansion of the charter school industry and the tremendous investment of public dollars, California must act now to reform its oversight system. Without reform, California stands to lose millions of dollars as a result of charter school fraud, waste, and mismanagement.
Download the full report here.
Amazon’s ripple effects: Six things that might happen if Pittsburgh gets HQ2
Amazon’s ripple effects: Six things that might happen if Pittsburgh gets HQ2
Sarah Johnson, the Local Progress Director for national advocacy group Center for Popular Democracy, said she doesn’t expect Amazon to change how it operates.
...
Sarah Johnson, the Local Progress Director for national advocacy group Center for Popular Democracy, said she doesn’t expect Amazon to change how it operates.
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The Problem With Bernie Sanders’ Bold Plan To Aid Puerto Rico
The Problem With Bernie Sanders’ Bold Plan To Aid Puerto Rico
Democratic presidential candidate Sen. Bernie Sanders, I-Vt., holds a town hall meeting at the Luis Muñoz Marin Foundation in Trujillo Alto, Puerto Rico, Monday, May 16, 2016. Sanders arrived in...
Democratic presidential candidate Sen. Bernie Sanders, I-Vt., holds a town hall meeting at the Luis Muñoz Marin Foundation in Trujillo Alto, Puerto Rico, Monday, May 16, 2016. Sanders arrived in Puerto Rico on Monday to talk about the U.S. territory's worsening debt crisis ahead of the June 5 primary.
The race for the Democratic nomination is in its final throes, and Sen. Bernie Sanders (I-VT) and Hillary Clinton are fighting it out for every last remaining delegate. Puerto Rico’s June 5 primary — in which 67 delegates are up for grabs — will carry more political weight than usual, and the campaigns are lavishing attention on the island.
As he campaigned in the territory’s capital on Monday, Sanders laid out a bold proposal to help Puerto Rico dig itself out from $72 billion dollars in debt, but economists and former government officials tell ThinkProgress the plan is legally impossible.
Both Sanders and Clinton have urged Congress to pass a bill giving Puerto Rico the ability to declare bankruptcy and restructure its debt. But Sanders went further this week, demanding that the Federal Reserve act unilaterally to help the island if Congress continues to drag its feet on a bill to restructure the massive debt the Puerto Rican government says it cannot pay.
Ironically, the reforms Congress passed to rein in Wall Street following the 2008 financial crisis — reforms Sanders supported — are part of why the Federal Reserve can’t do what Sanders is now demanding.
“If the Federal Reserve could bail out Wall Street, it can help the 3.5 million American citizens in Puerto Rico improve its economy and lift its children out of poverty,” he said. “Under current law, the Federal Reserve has the authority.”
Some progressive groups, like the Center for Popular Democracy, are voicing support for Sanders’ plan. In an e-mail to ThinkProgress, the director of the CPD’s “Fed Up” campaign said that if the U.S. government could find a way to prop up Wall Street during the 2008 crash, it can do the same for Puerto Rico.
“When the financial crisis hit Wall Street, they used all of their most creative legal minds and institutional power to design solutions that would protect the big banks from collapse; if they wanted to, Fed officials could similarly find appropriate solutions here.”
But other economic experts and former Federal Reserve board members told ThinkProgress that Sanders is mistaken. Ironically, the reforms Congress passed to rein in Wall Street following the 2008 financial crisis — reforms Sanders supported — are part of why the Federal Reserve can’t do what Sanders is now demanding.
“The type of assistance Senator Sanders is asking the Fed to provide would not be legally possible,” said Donald Kohn, who served on the Federal Reserve’s Board of Governors from 2002 to 2010. “[It is] not what the Congress intended. Among other things, [the law] requires that any facility be broadly based and not intended for a particular troubled borrower.”
The reforms in the 2010 Dodd-Frank bill sharply curtailed the central bank’s ability to make emergency loans to struggling banks, partnerships, or corporations in order to keep them afloat. While questioning whether the Puerto Rican government counts as a bank, partnership, or corporation in the first place, Kohn also cited another section of the law saying the Federal Reserve must “prohibit borrowing from programs and facilities by borrowers that are insolvent,” as Puerto Rico will soon be, and that emergency lending powers are “not to aid a failing financial company.”
The Federal Reserve has given Congress the same message, and other fiscal policy experts agree. University of Pennsylvania professor Peter Conti-Brown, an expert on the Fed’s legal authority, told the Washington Examiner that Dodd-Frank “specifically forbids this kind of targeted bailout,” while Cato Institute director of financial regulation studies Mark Calabria added that “the intent and clear language forbids ‘one-off’ rescues to single entities.”
Warren Gunnels with the Sanders campaign argued in an e-mail to ThinkProgress that because only a fraction of Dodd-Frank’s reforms have been finalized and implemented, the Federal Reserve can still step in. “The Federal Reserve has the authority to facilitate an orderly restructuring of Puerto Rico’s debt through a reverse auction process that will lead to major haircuts for Wall Street vulture funds,” he said.
Still, most experts say it falls on Congress to act to rescue Puerto Rico. House Republicans introduced a bill this week that would allow Puerto Rico to restructure its debt, but would also implement an un-elected control board to oversee the island’s budget and cut the minimum wage from $7.25 to $4.25 an hour for workers under 25.
We don’t need more austerity for children in Puerto Rico who are going hungry.
Sanders blasted the proposal as undemocratic and a further burden on the poor. “We need austerity for billionaire Wall Street hedge fund managers who have exacerbated the financial crisis in Puerto Rico. We don’t need more austerity for children in Puerto Rico who are going hungry,” he said.
Regardless of the feasibility of Sanders’ Federal Reserve proposal, his pro-sovereignty and anti-austerity message resonated with Puerto Ricans on and off the island. Two prominent officials, including the mayor of the capital of San Juan, rescinded their endorsements for Hillary Clinton after Sanders’ visit, while other community leaders sang his praises.
“Bernie Sanders is the only candidate dedicated to the people of Puerto Rico,” said Jose Nicolas Medina, an attorney in San Juan. “Much of our problems are due the policies of Clinton. As first lady and as Senator, Hillary did nothing to help the situation of Puerto Rico. So we punish the Clintons with our votes.”
Others watching Sanders’ speeches told ThinkProgress they were inspired by his promise to allow Puerto Ricans to vote for either independence or statehood during his first year in the White House, and his characterization of the current U.S.-Puerto Rican relationship as “colonial-like treatment.”
“To have a candidate for president finally admit that Puerto Rico is a colony is historic,” said Phillip Arroyo, the former chair of the Young Democrats of America’s Hispanic Caucus and a Puerto Rican living in Florida. “He has planted a seed in the mind of the new generation. It will ultimately bear fruit regardless of whether he’s elected.”
BY ALICE OLLSTEIN
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Fraud and Financial Mismanagement in Pennsylvania's Charter Schools
Charter school officials have defrauded at least $30 million intended for Pennsylvania school children since 1997. Yet every year virtually all of the state’s charter schools are found to be...
Charter school officials have defrauded at least $30 million intended for Pennsylvania school children since 1997. Yet every year virtually all of the state’s charter schools are found to be financially sound. While the state has complex, multi-layered systems of oversight of the charter system, this history of financial fraud makes it clear that these systems are not effectively detecting or preventing fraud.
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Indeed, the vast majority of fraud was uncovered by whistleblowers and media exposés, not by the state’s oversight agencies. In this report we identify two fundamental flaws with Pennsylvania’s oversight of charter schools:
General auditing techniques alone do not uncover fraud. Pennsylvania oversight agencies rely on general auditing techniques, but not those specifically designed to uncover fraud. The current processes may expose inaccuracies or inefficiencies; however, without audits targeted at uncovering financial fraud, state agencies will rarely be able to detect fraud without a whistleblower. Adequate staffing is necessary to detect and eliminate fraud. Pennsylvania inadequately staffs its charter-school oversight agencies. In order to carry out high-quality audits of any type, auditors need enough time. With too few qualified people on staff, and too little training, agencies are unable to uncover clues that might lead to fuller investigations and the discovery of fraud.To address these two fundamental flaws, we propose targeted reforms of the existing oversight structure:
Mandate Audits Designed to Detect and Prevent Fraud
Charter schools should institute an internal fraud risk management program, including an annual fraud risk assessment, and audits that specifically investigate high-risk areas. Existing oversight bodies should perform targeted fraud audits focused on areas of risk or weakness through the annual fraud risk assessments. Auditing teams should include members certified in Financial Forensics trained to detect fraud.Increase Transparency & Accountability
All annual audits and fraud risk assessments should be posted on authorizers’ website; Charter authorizers should create a system to categorize and rank charter audits by the level of fraud risk they pose to facilitate public engagement. Charter schools should voluntarily make the findings of their internal assessments public. Charter school authorizers should perform comprehensive reviews once every three years rather than once every five years as is current law. The Attorney General’s office should conduct a review of all charter schools in Pennsylvania to identify potential fraud or inadequate school oversight by boards of directors or executives and publicize the findings.Improve Protections against Future Fraud
The state should enact other legal protections such as a statewide False Claims Act that encourage whistleblowers to report instances of fraud. The state should impose a moratorium on new charter schools until the state oversight system is adequately reformed.Pennsylvania cannot afford to wait. Since 2000, charter school enrollment in the state has doubled three times and Pennsylvania’s students, their families, and taxpayers cannot afford to lose another $30 million misspent or misdirected within the charter school system. While the reforms proposed will require additional resources, they represent a smart investment in our communities and in our future.
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Milestone charter's credit fraud has produced no criminal charges
Milestone charter's credit fraud has produced no criminal charges
Milestone Academy is the latest New Orleans–area charter school where theft has gone unpunished for months after it was discovered. No one has filed charges against former chief executive D'Juan...
Milestone Academy is the latest New Orleans–area charter school where theft has gone unpunished for months after it was discovered. No one has filed charges against former chief executive D'Juan Hernandez for putting $13,000 of personal expenses on a school credit card, according to an audit released Monday (April 18).
Hernandez quit in June 2014. The audit covers only the rest of that calendar year, but new Milestone chief executive LaKeisha Robichaux said Monday nothing had changed. In addition, Jefferson Parish clerk records showed no case against Hernandez.
This is hardly the first time that it's taken months for local charter school employees to face criminal charges for alleged financial crimes. Typically, lax oversight lets a member of the finance team profit from wrongdoing until someone notices odd gaps in the reports.
Ten months after someone stole almost $70,000 from the KIPP charter network, a criminal investigation was still underway.
Someone stole almost $26,000 from Lake Area New Tech High in 2014; more than a year later, police had not found a culprit.
New Orleans Military/Maritime Academy employee Darral Sims took $31,000 during the 2011-12 school year but had not been charged as of early 2013.
Lusher accountant Lauren Hightower had not been charged with a crime more than a year after she paid herself $25,000.
The Center for Popular Democracy issued a report in 2015 blaming Louisiana state education officials for cutting corners on oversight.
At Milestone, the theft followed a tumultuous year. The governing board dropped its for-profit management company only a couple of months before school was to start. Hernandez, the board attorney, stepped in to run the school. The school also struggled to improve long-languishing academic results and faced losing its Old Jefferson campus. It has since moved to Gentilly.
Hernandez quit in June, saying he was sick of a power struggle that also resulted in the departure of the principal. A month later, the financial wrongdoing emerged.
The board withheld $13,000 from Hernandez' $135,081 pay to cover the loss. It also "contacted the applicable law enforcement agencies regarding the unauthorized credit card usage," auditors from Hienz and Macaluso wrote. "However, as of the date of the audit report the school is not aware of any charges being filed in this matter. This was due to the lack of proper policies and procedures governing the acquisition and use of credit cards by the school."
Auditors said the school has since restricted credit card use to key employees. Under the new policies, no one may obtain a school credit card without written approval from the board's finance committee. All purchases "must have the same level of support as any other disbursement," auditors wrote. And school credit cards may not be used for personal purchases, cash advances or alcohol.
However, further conversations Monday showed the wheels of justice often did turn eventually:
The KIPP employee was prosecuted, spokesman Jonathan Bertsch said Monday. He added that although criminal charges took time, the charter group detected the crime within weeks.
Simms was convicted and paid restitution, Military/Maritime Academy Principal Cecilia Garcia said. The case went to court in late 2014 and early 2015. However, Simms has since had his record at least partially expunged, according to Garcia and Orleans Parish sheriff's records.
Hightower was prosecuted and convicted, Lusher spokeswoman Heather Harper Cazayoux said. Hightower's LinkedIn account indicates that she now works as a florist at a Harvey Winn-Dixie.
Former Arise Schools employee Quinton Barrow pleaded guilty on May 7, 2015, to stealing $9,000. He was ordered to pay restitution but then failed to appear to pay in June, according to Orleans Parish sheriff's records.
And the biggest local charter school crime resulted in serious jail time: Langston Hughes Academy's financial manager was sentenced to five years in federal prison for stealing about $660,000.
An employee stole about $2,000 from Lake Forest Charter in 2013. As of early 2015, the school's board president would not identify the employee or say whether anyone had been charged. School leaders did not immediately respond to a request for an update.
By Danielle Dreilinger
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Community Organizing Can Deliver Jobs and More Jobs
Huffington Post - December 22, 2014, by Ana Garcia-Ashley - It was heartening to see Missouri's Attorney General finally take action by...
Huffington Post - December 22, 2014, by Ana Garcia-Ashley - It was heartening to see Missouri's Attorney General finally take action by suing at least 13 municipalities due to their excessive court fees last week.
As the ACLU and the NAACP target the Ferguson Florissant school district to get more diverse representation on their school board, which is heavily white, we see progress on that front as well.
Gamaliel affiliate MCU and its allies are working to get County Executive-elect Steve Stenger to hold a county-wide summit of law enforcement officials and local mayors to promote community policing and an end to racial profiling and excessive court fees. So far, Stenger has agreed in principle to the summit, but a date has not been secured.
We believe it is essential to take a long hard look at what works in the long term in communities of color. In our more than 20 years of organizing, we have found that nothing works better than jobs at getting people off the street and putting money into low-income neighborhoods.
We must put in place criminal justice reforms, but we must put equal attention toward creating more and better jobs as a key long term solution. For that, we must continue our advocacy and organizing efforts.
What we found in our new study, "Jobs and More Jobs" was that in 2012 and 2013, among our 43 affiliates and across 16 states, the Gamaliel network won public policy campaign victories worth more than $13 billion, creating more than 450,000 jobs and generating more than a $17 billion increase in the gross domestic product. The victories ranged from transit access to criminal justice and even included food justice wins. The key takeaway of Jobs and More Jobs is this: organizing creates jobs.
Organizing creates the public space in which real people come together around a shared set of values to build powerful coalitions that improve the civil, social and economic conditions of their communities and it develops leaders who effectively wage and sustain long-term campaigns around the issues they face.
All community organizers have a similar impact -- not just Gamaliel. We urge our colleagues to assess their own impact. Center for Popular Democracy, DART, Casa de Maryland and others could post similar results.
In the end, we know what works post-Ferguson - jobs. We also know how to get there -- organizing. As Margaret Mead said; "Never believe that a few caring people can't change the world. For, indeed, that's all who ever have."
The 25 page study, called "Jobs and More Jobs," is available for download.
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Black Students in Milwaukee Are Demanding Change to Racist Discipline In Public Schools
Black Students in Milwaukee Are Demanding Change to Racist Discipline In Public Schools
A report released Tuesday by the Center for Popular Democracy and the Milwaukee youth group Leaders Igniting Transformation paints a much more troubling picture.According to the report, in the...
A report released Tuesday by the Center for Popular Democracy and the Milwaukee youth group Leaders Igniting Transformation paints a much more troubling picture.According to the report, in the 2016-2017 school year, Milwaukee Public Schools suspended 10,267 students, including one of every three ninth-graders. The Milwaukee Police Department has 12 dedicated officers assigned to public schools and another six deployed on the streets to take truant students into custody. That’s in addition to 269 school safety assistants, the city’s version of school resource officers. That deployment costs Milwaukee taxpayers more than $15 million a year, but it comes at an even greater social cost.
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Trump’s Replacement for Janet Yellen as Fed Chair Should Follow Her Lead, Economists Say
Trump’s Replacement for Janet Yellen as Fed Chair Should Follow Her Lead, Economists Say
Not everyone was so optimistic in Powell. Sam Bell—a research adviser at Fed Up, a campaign to encourage the central bank to keep interest rates low, as Yellen did—also criticized the Powell pick...
Not everyone was so optimistic in Powell. Sam Bell—a research adviser at Fed Up, a campaign to encourage the central bank to keep interest rates low, as Yellen did—also criticized the Powell pick.
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How Bad Are Waste and Fraud at Charter Schools? This Bad.
NEA Today - May 14, 2014, by Tim Walker - Lax oversight and limited accountability has led to a shocking misuse of taxpayer funds by charter schools nationwide, according to...
NEA Today - May 14, 2014, by Tim Walker - Lax oversight and limited accountability has led to a shocking misuse of taxpayer funds by charter schools nationwide, according to a new report from the Center for Popular Democracy and Integrity in Education.
“We expected to find a fair amount of fraud when we began this project, but we did not expect to find over $100 million in taxpayer dollars lost,” said Kyle Serrette, the Director of Education Justice at the Center for Popular Democracy. “That’s just in 15 states. And that figure fails to capture the real harm to children. Clearly, we should hit the pause button on charter expansion until there is a better oversight system in place to protect our children and our communities.”
The report, “Charter School Vulnerabilities to Waste, Fraud, and Abuse,” examined representative charter school data from 15 states and found instances of charter operators using charter funds for personal use; school revenues being used to illegally support charter operator businesses; mismanagement that put children in potential danger; charter executives illegally inflating enrollment to boost revenues; and charter operators mismanaging their schools.
While many of the instances of fraud and abuse noted in the report resulted from charter school administrators pilfering funds and misrepresenting their successes—a comparatively small number when compared to the national total of charter schools—it should be pointed out that limited oversight has helped foster an atmosphere where these kinds of problems are more commonplace. And much of this hands-off practice stems from the way charter schools have evolved over the ensuing years since their initial conception.
“To understand why there are so many problems in the charter industry, one must understand the original purpose of charter schools,” the report says. “Lawmakers created charter schools to allow educators to explore new methods and models of teaching. To allow this to happen, they exempted the schools from the vast majority of regulations governing the traditional public school system.”
So even as the number of charter schools increases, along with the funding that they receive, accountability measures have been slow to keep pace.
“Despite rapid growth in the charter school industry, no agency, federal or state, has been given the resources to properly oversee it,” the report noted in its introduction. “Given this inadequate oversight, we worry that the fraud and mismanagement that has been uncovered thus far might be just the tip of the iceberg.”
So what are some of the common-sense laws and oversight methods that the report suggests? For starters, establishing an office dedicated to managing and overseeing charters on the state level will help maintain performance standards and temper instances of fraud and abuse. Greater transparency on the part of charters, including independent audits available to the public and easy access to the charter agreements and other pertinent documents, will create a sustainably open atmosphere. And expanding many of the requirements for public schools to charter schools, including non-discrimination and transparency requirements, will narrow the divide in terms of oversight.
“Our school system exists to serve students and enrich communities,” says Sabrina Stevens, Executive Director of Integrity in Education. “We need to have rules in place that can systematically weed out incompetent or unscrupulous charter operators before they pose a risk to students and taxpayers.”
If so-called reformers are so determined to tout charter schools as a panacea for traditional public schools, then at the very least they can be held to the same standards of accountability, oversight, and scrutiny that public schools must take for granted.
“School funding is too scarce as it is; we can hardly afford to waste the resources we do have on people who would prioritize exotic vacations over school supplies or food for children,” Stevens adds. “We also can’t continue to rely on the media or isolated whistleblowers to identify these problems.”
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Neel Kashkari Named Next Minneapolis Fed President
Neel Kashkari, a former financier who managed the U.S. Treasury’s $700 billion rescue of banks in the 2008 crisis, was named the next president of the Federal Reserve Bank of Minneapolis.
...Neel Kashkari, a former financier who managed the U.S. Treasury’s $700 billion rescue of banks in the 2008 crisis, was named the next president of the Federal Reserve Bank of Minneapolis.
Kashkari’s resume includes stops at Goldman Sachs Group Inc. and Pacific Investment Management Co., and a failed run for governor of California last year. At the Treasury, he was Secretary Henry Paulson’s key aide in overseeing the Troubled Asset Relief Program, or TARP. Kashkari will take over from Narayana Kocherlakota on January 1, 2016, according to a statement Tuesday from the Minneapolis Fed.
“He has a little bit of all the pieces you’d want in a Fed president,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in Stamford, Connecticut.
As head of one of 12 regional Fed banks, Kashkari will join the Federal Open Market Committee, the central bank’s policy making panel. The Fed is weighing ending a seven-year era of near-zero interest rates, with investors betting it will move next month. Kashkari is not scheduled to vote on policy decisions until 2017. Kocherlakota, as is customary for outgoing FOMC members, will not attend the December meeting.
QE ‘Morphine’
Kocherlakota is one of the Fed’s most dovish policy makers who has argued it should keep rates on hold into next year. Kashkari has offered observations on monetary policy via his twitter feed, without spelling out whether he would favor raising rates or delaying liftoff in the current climate. In an April 2013 comment he likened the Bank of Japan’s asset purchase program to “morphine. makes u feel better but doesn’t cure.”
“I don’t think we know that much” about Kashkari’s views on monetary policy, said Angel Ubide, a senior fellow at the Peterson Institute for International Economics in Washington. “My experience with people who get appointed is whatever they thought before and what they do later doesn’t necessarily correlate.”
Kashkari, 42, earned bachelor’s and master’s degrees in mechanical engineering at the University of Illinois at Urbana-Champaign, and an MBA from the University of Pennsylvania’s Wharton School. He began his career as an aerospace engineer at TRW Inc. in Redondo Beach, California.
Goldman Sachs
Kashkari’s appointment places another ex-Goldman Sachs banker at the helm of a regional Fed bank. Robert Steven Kaplan at the Dallas Fed and New York’s William C. Dudley are Goldman alums. Philadelphia Fed chief Patrick Harker previously served as a trustee at Goldman Sachs Trust and as a member of the board of managers of Goldman Sachs Hedge Fund Partners Registered Fund.
“We’re disappointed that yet another former Goldman Sachs insider has been elevated to a regional president position,” said Jordan Haedtler at the Center for Popular Democracy in Washington.
Such appointments need “more transparency and public input,” said Haedtler, who’s deputy campaign manager at Fed Up, a national coalition that’s calling for changes at the central bank and wants to keep rates low to boost employment.
Kashkari worked at Goldman in the early 2000s before accepting a post at the Treasury in 2006. He joined Pimco, then led by bond fund manager Bill Gross, in 2009 to help oversee an expansion into equities, an attempt to reduce the firm’s heavy dependence on the fixed-income market. When he left in 2013, the company’s equity unit had attracted $10 billion in assets, or less than 1 percent of the firm’s total assets at the time.
Bank Bailout
TARP, approved by Congress in October 2008, remains one of the more controversial measures taken during the financial crisis. It authorized the government to purchase up to $700 billion in troubled assets from financial institutions, in an effort to bolster global credit markets. The government ultimately used $475 billion, including $250 billion to stabilize banks, $82 billion to bail out auto makers and $70 billion to save insurer American International Group Inc., according to the Treasury’s website.
“Mr. Kashkari is an influential leader whose combined experience in the public and private sectors makes him the ideal candidate to head the Minneapolis Fed,” said MayKao Hang, incoming chair of the Minneapolis Fed’s board of directors and co-chair of the search committee.
Kashkari, a Republican, was defeated by incumbent California Governor Jerry Brown in November 2014, getting 43 percent of the vote to Brown’s 57 percent.
Presidents of the 12 regional Fed banks are appointed by a portion of their respective boards of directors, subject to the approval of the Fed Board in Washington. Reserve bank boards typically consist of nine members, including three bankers. The banking members are excluded under Dodd-Frank from participating in the selection of presidents.
Source: Bloomberg Business
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