Why the Federal Reserve Needs To Go Beyond Interest Rate Policy
Why the Federal Reserve Needs To Go Beyond Interest Rate Policy
KIM BROWN, TRNN: Welcome to the Real News Network. Im Kim Brown in Baltimore. Interests rates will remain unchanged....
KIM BROWN, TRNN: Welcome to the Real News Network. Im Kim Brown in Baltimore.
Interests rates will remain unchanged. That coming out of this weeks meeting of the Federal Reserve in DC. The official word from the feds, per their own statement, was that job gains have been solid, that household spending has been growing strongly, and inflation is running below expectations. But does this mean that the economy is actually doing well or are we still in a recession dressed up to appear better than what it actually is?
Joining us today from New York City is Jerald Epstein. Jerald is the co-director of the Political Economy Research Institute. Hes also professor of economics at the University of Massachusetts at Amherst. Jerald welcome back.
JERALD EPSTEIN: Thanks a lot Kim.
BROWN: Jerald lets start with the basics and then we can delve a little bit deeper. If the economy is showing the signs of strength as the Fed has indicated, then why didnt they raise interest rates now and do you think that they are likely to do so at all this year?
EPSTEIN: Well I think Janet Yellen whos the chair of the Fed, is aware that even though its been showing strength and the economy has been growing moderately for several years now, that theres still much more room to go. That is that wage growth has gone up a tiny bit more than inflation recently, its still pretty stagnant, pretty flat line and she knows theres still a number of workers out that who are so discouraged that they havent joined the labor force. So Janet Yellen is concerned about the labor force and the growth of wages but the problem is twofold. First of all, its always dangerous to raise interest rates around election time. So traditionally the federal reserve, theyll try not to do that, move interest rates right around an election. So thats one factor leading them not to do anything.
The second factor leading them not to do anything is that keeping inflation under control is one of their main mandates. They have two. Maintaining inflation at a low rate and they have a 2% target, and reaching high employment. Inflation is still below 2%. Theres really no signs of inflation going up. So theres no compelling reason from the point of view of the macro economy to raise interest rates.
BROWN: Its funny that you mention that the Fed is less likely to raise interest rates or even mess with the interest rate around election time because the Republican nominee for president, Donald Trump has already accused Chairwoman Yellen of keeping the interest rates unchanged in order to appease the Obama administration. She of course has denied this. What are your thoughts?
EPSTEIN: Well I dont think she did it for Clinton or Obama. But it is I think a tradition and its common for Federal Reserves not to raise and certainly change interest rates right before an election. So she is in sort of a tradition of what the Federal Reserve typically does. And its also typical especially recently for politicians to make the Federal Reserve the whipping boy or girl for political reasons. Sometimes theres good reasons. For that.
But there was something kind of unusual for this meeting. In the recent meetings its been unanimous to keep interest rates the same or to mostly do what the Federal Reserve has done. But this time it was quite contentious. There were actually 3 people on the federal open market committee, the ones who make this decision who voted to raise interest rates.
This is kind of challenge to Janet Yellens leadership in this regard and it also shows what kind of pressure the Federal Reserve is under, particularly from the banks and the mutual fund industry, the insurance industry because with interest rates being so low, its very difficult for them to eek out much of a profit. And is typically the case when interest rates are very low for a very long period of time. Some sectors and very powerful important sectors of the financial industry push very hard for interest rates to be raised and they usually get a pretty good hearing at the Federal Reserve [be]cause the Federal Reserve has traditionally done pretty much what the banks have wanted them to do.
BROWN: Jerald it seems as if theres not enough agreement between the Federal Reserve and among every day Americans on how well this economic recovery is going. So lets unpack some of the elements of this. Starting with Chairwoman Janet Yellens comments on labor markets.
JANET YELLEN: Were generally pleased with the progress of the economy and the decision not to raise rates today and to wait for some further evidence that were continuing on this course is largely based on the judgement that were not seeing evidence that the economy is overheating and that we are seeing evidence that people are being drawn in in larger numbers than what I wouldve expected into the labor market and that thats healthy to continue.
BROWN: So the unemployment rate was under 5% in August and the caveat to that is more Americans are working part-time jobs. Plus, the gig economy is one way that people are surviving and supplementing their income. So is unemployment published monthly by the Bureau of Labor statistics, giving us an accurate figure on the number of Americans who are out of the labor force?
EPSTEIN: They dont have an accurate number. They have estimates and I think its true that theres still quite a few so called discouraged workers who are out of the labor force. Its also the case like we said in the beginning that wage growth has been stagnant. Look, the Federal Reserve has a real dilemma here. On the one hand and this is typically the case with Janet Yellen who I think does want to indicate that their policies have had some effect, otherwise nobody will want them to continue these policies. And she thinks that they have had some positive effect on employment and I think they have.
But on the other hand their policies cannot turn around the long run decline of our economy. We need much different kinds, much bigger, much more radical policies in terms of public investment to generate jobs, hiking the minimum wage to a living wage, providing much more in a way of a safety net for workers, protecting pensions and other investments. So the list is very, very broad and very deep. And the Federal Reserve has been pretty reluctant to go further down that list.
The Federal Reserve could do more. They could use different tools to invest directly in the economy. Theres a group called Fed Up which has proposed that they do this. But Janet Yellen and her committee want to stay pretty close to their broader toolkit that theyve developed and are really afraid to, I think take more radical action which they plausibly could take.
But in the end it really raises questions of the Federal Reserves legitimacy. Can they take some kind of really radical action without the broader government saying go ahead and do it? And until the political stalemate we have is resolved, Im afraid the Federal Reserve cant do much more and that means this kind of stagnation in wages and so forth is going to continue.
BROWN: Jerald you raise an excellent point about wage stagnation and how wages have largely remained flat going back 20, 30, and even 40 years depending on who you ask. But new census data this month says that household income jumped over 5% which is the largest such gain in decades but that top 1% of Americans saw an increase of around 7% rise in their income. If most of the economic recovery gained since the great recession of 2007, 2008--if most of these gains have gone to the top1%, does it still count as a recovery if its not being felt by the majority of Americans?
EPSTEIN: No it does and this has been a very lopsided so called recovery and yes there have been some modest gains for the middle class and some working class people. So the Federal Reserve actions have had some positive effect. But until you really change the structure, change the tax policies so that the wealthy have to pay more of their taxes so the multinational corporations cant park their earnings overseas and not pay any taxes like Apple and other corporations have been doing until you have much more aggressive jobs programs to bring about a Green transition and many other things. Were not going to have a real recovery. These kind of very small sorts of gains which are gains but arent enough are going to be the best were going to see.
BROWN: Jerald whats keeping inflation in check right now? Is it cheap oil prices?
EPSTEIN: Its several things. First of all, cheap oil prices and other commodity prices are one thing. But theyre also partially related to the headwinds in the global economy against economic growth. Chinas not growing as much so theyre not demanding as much oil and other commodities. Many other developing countries arent growing so fast. Europe isnt growing hardly at all.
So this really dampens the demand for all of these commodities and with these prices going down that does keep inflation in check. The other thing is, all of the forces that are keeping wages in check. That is, imports from China, the union busting thats been going on, the threat of multinational corporations to move abroad. All of these factors plus more are making it very difficult for workers to have their wages go up. Wages are a cost so that to some extent keep inflation in check as well.
And finally you have the retail industry thats subject to loss of competition that just keeps squeezing and squeezing and squeezing workers more and more. Until we get big increase in the minimum wage, until we get policies to put workers back to work at well-paying jobs, were not going to see real wages go up and were also not going to see prices go up very much at all.
BROWN: And lastly Jerald, the wealthiest Americans, the top 1% of Americans are fairing very well and we are experiencing income inequality probably at the largest gap since the Gilded Age. We have seen so many sickle economic bubble burst over the past 20 years with the tech bubble bursting in the late 90s and the housing bubble bursting in the mid 00s. Are we at risk of another such economic bubble burst on the horizon any time soon.
EPSTEIN: Yes, were always at that kind of risk. Its hard to see where exactly the bubble would come from. There are little bubblets going on all over the place that dont seem so broad and connected up with debt and the financial system that it seems as so were going to have a kind of bubble burst the way we saw in 2007, 2008 but we might have bubblets burst in the high tech industry and so forth. Whats more likely is this slow burn of stagnation and increases in distress effecting so many people in the United States except for the wealthy who will continue to do very well. Not only income inequality at all-time highs, wealth inequality, how much assets people own has grown and grow and grow and grown. If you look for example, if the net wealth, that is assets minus liabilities, minus debt of African Americans in this country. A report recently came out that said, the median net wealth of African Americans is zero. Theres no net wealth. So this system cannot continue to go in this form. It helps to explain a lot of the political disorder that were seeing. The political fighting up were seeing and its just going to keep going unless we have some fundamental changes in the economy.
BROWN: Indeed. Weve been speaking with Jerald Epstein. Jerald is a co-director of the Political Economy Research Institute. Hes also professor of economics at the University of Massachusetts at Amherst. Jerald as always, we appreciate you joining us here on the Real News.
EPSTEIN: Thank you very much Kim.
BROWN: And thank you for tuning in to the Real News Network.
End
DISCLAIMER: Please note that transcripts for The Real News Network are typed from a
recording of the program. TRNN cannot guarantee their complete accuracy.
Source
Activist With ALS Spearheads Campaign To Punish Lawmakers Who Voted For Tax Law
Activist With ALS Spearheads Campaign To Punish Lawmakers Who Voted For Tax Law
The campaign will involve using digital persuasion ads and get-out-the-vote efforts to vote out incumbents who...
The campaign will involve using digital persuasion ads and get-out-the-vote efforts to vote out incumbents who supported the tax law. Barkan and his team are still developing their strategy, but they plan to focus on congressional races in eight districts around the country. They will be campaigning in Arizona, California, New Jersey, Pennsylvania, Texas, and Wisconsin.
Read the full article here.
Middlesex County Decides Not to Honor Federal Detainers from ICE for Some Inmates
The Star-Ledger - July 10, 2014 by Sue Epstein - Middlesex County officials are no longer complying with a federal...
The Star-Ledger - July 10, 2014 by Sue Epstein - Middlesex County officials are no longer complying with a federal request to hold all immigrants suspected of being undocumented in the county jail for an additional 48 hours after their scheduled release.
In a policy change approved by Middlesex County freeholders last week and put into effect Tuesday, the detainee can be freed unless charged with a first- or second-degree crime, is identified as a known gang member and has been subject to a final order of removal by U.S. Immigration and Customs Enforcement.
Thomas Kelso, the Middlesex County counsel, said in a statement that people not meeting the serious offense criteria would continue to be released immediately after meeting the legal obligations.
"The policy was established after extensive review and consideration," Freeholder Director Ronald G. Rios said. "We need to be sensitive to the rights of individuals, but must protect our citizens from those with histories of violent crime. We believe that the policy that has been implemented in Middlesex County strikes a fair balance."
Although immigration rights groups applauded the change in policy, they contended that it did not go far enough.
Karina Wilkinson, co-founder of the Middlesex County Coalition for Immigrant Rights, said she wanted the county to stop honoring all 48-hour courtesy detainer requests from federal immigration authorities for county inmates.
"We are pleased to see Middlesex County moving in the right direction in ending their compliance with ICE detainers," Wilkinson said. "The county could still go further to respect the constitutional rights of everyone."
Wilkinson’s group began discussing the proposed policy change with county officials in December.
FIRST IN N.J.Wilkinson and Emily Tucker, an attorney for the Center for Popular Democracy, an advocacy group, said Middlesex County was the first county in the state to change its policy, joining more than 115 jurisdictions nationwide that have enacted similar changes. And of those 115, Wilkinson said, 90 have refused to honor any ICE detainers.
Tucker said the policy changes came on the heels of several federal court rulings that detainers are not legally binding, and that a federal court decision in Oregon said that honoring the detainers could open the jurisdiction to lawsuits.
"The courts have said ICE shows no probable cause to hold these inmates," Tucker said. "It is not the business of law enforcement to enforce immigration orders, it is the federal government’s job. The counties should not be holding anyone on behalf of ICE without a warrant."
Wilkinson said that in 2012, when a federal program known as Operation Secure Communities began in New Jersey, there were 330 detainers issued for inmates at the Middlesex County jail, making the county third in the state behind Essex and Hudson counties in the number of requests issued.
Tucker said the coalition of organizations that pushed Middlesex County to change its policy is working with Essex and Hudson counties in an effort to reach a similar outcome.
According to the ICE website, when a suspected undocumented immigrant is arrested the FBI forwards the fingerprints to the Department of Homeland Security to check against its immigration databases.
If the check shows that a person is undocumented or otherwise removable because of a criminal conviction, a 48-hour detainer is issued to the local jurisdiction.
Bryan Cox, a spokesman for ICE, said the agency remained "committed to working with our law enforcement partners and making our communities safer by protection public safety and national security, and the integrity of the immigration.
Source
Illinois African-American Jobless Rate Among The Nation's Highest
Illinois African-American Jobless Rate Among The Nation's Highest
The African-American unemployment rate in Illinois is improving, but it is still one of the highest in the nation, ...
The African-American unemployment rate in Illinois is improving, but it is still one of the highest in the nation, shows a recent analysis by the Economic Policy Institute (EPI).
The jobless rate among African Americans in Illinois declined to 11.5 percent in the second quarter of 2015, which covered April through June. The rate ticked down from 12.5 percent during the first quarter of 2015.
To put that 11.5 percent in perspective, the statewide unemployment rate in Illinois was 6 percent during the second quarter of 2015. In that quarter, African Americans in Illinois had the highest jobless rate followed by Hispanics at 7.9 percent, Asians at 4.8 percent and whites at 4.6 percent, according to EPI's review.
Illinois is one of only eight states in which African-American unemployment rates were at or below pre-recession levels in the second quarter of 2015. The other states were Michigan, Indiana, Ohio, Tennessee, Mississippi, Texas and Missouri.
But a closer look at the numbers shows that nearly all of those states had the highest African-American unemployment levels in the nation before the Great Recession hit.
For example, Illinois had an African-American jobless rate of 12.2 percent before the recession in the fourth quarter of 2007.
"African Americans are still unemployed at a higher rate than their white counterparts in almost every state," EPI economist Valerie Wilson, who conducted the unemployment analysis, said in a statement. "We need policies that look beyond simply reducing unemployment to pre-recession levels as an end goal."
EPI's analysis covered 23 states and the District of Columbia. Only two states, New Jersey and South Carolina, and the District of Columbia had higher African-American unemployments rates than Illinois in the second quarter of 2015.
Overall, the African-American unemployment rate was the highest in the District of Columbia, 14.2 percent, and the lowest in Tennessee, 6.9 percent. The rate was below 10 percent in 11 states examined by EPI.
Nationwide, the African-American unemployment rate dropped to 9.1 percent in July, the lowest level in seven years. Still, the jobless rate for African Americans remained about twice as high as the white unemployment rate of 4.6 percent.
EPI and the Center for Popular Democracy (CPD) are at least two groups that say African Americans would benefit greatly in terms of employment and wage growth if the country were to achieve full employment. They have called on the Federal Reserve to pursue "genuine full employment" before raising short-term interest rates.
At some point this year, the Fed could begin to raise the rates, which were cut to near zero percent during the Great Recession to support the economy.
In a recent statement on the full employment issue, CPD's director of strategic research Connie Razza stressed that "Black America is still in the middle of a Great Recession."
"When [Fed] Chair [Janet] Yellen and other Fed officials talk about raising interest rates in 2015, they are talking about intentionally slowing down the economy and job growth, which would make it harder for most Americans, and particularly Black workers, to find good paying jobs," she said. "The direct consequences of the Fed's projected interest rate hikes would harm millions of workers."
"Instead," Razza continued, "the Fed could continue to push toward a tight labor market, in which the number of people looking for work more closely matches the number of jobs available. A full-employment economy, as we saw in the late 1990s, shrinks racial inequity and will bring particular benefits to black workers, who are disproportionately unemployed, underemployed, underpaid, and endure more difficult scheduling circumstances in the workplace."
Source: Progress Illinois
Denver's rapid charter expansion yields underwhelming results
Denver's rapid charter expansion yields underwhelming results
Dive Brief: Twenty-seven new charter schools have opened in Denver in the last five years with six more set to open...
Dive Brief:
Twenty-seven new charter schools have opened in Denver in the last five years with six more set to open this summer, but critics point to data about underwhelming performance and examples of forced choice that parents don’t want.
An Alternet article reposted by Salon reports some of the charters that have replaced traditional school options practice harsh discipline disproportionately levied against students of color, and opponents argue a small, powerful circle of local leaders have pushed a charter agenda with the support of big money from outside of the city that has bought electoral support.
A report from the Center for Popular Democracy identified 38% of Denver’s charters as performing “significantly below expectations,” and some parents say they’d prefer more funding and support for neighborhood schools over new expenditures on charters.
Dive Insight:
Charter school performance across the country is mixed. There are high-performing charter schools that have impressive student outcomes that proponents can point to as evidence the charter sector should be expanded. At the same time, there are mediocre or low-performing charter schools that critics can point to as saying the sector does nothing more than siphon funding from traditional schools.
While the CPD study found 38% of Denver’s charters to be significantly underperforming, another found six out of eight of the city’s top schools to be charters. A report to the Colorado General Assembly based on data from the 2011-12 school year found similarly mixed results, where charters perform better on some metrics but not on others. Denver is not the only city engaging in this debate, which has become familiar in virtually every major urban area in the country.
By Tara García Mathewson
Source
Loan market shrugs off prison financing protests
Loan market shrugs off prison financing protests
Advocacy groups in New York gathered Wednesday near JP Morgan Chief Executive Officer Jamie Dimon’s apartment, calling...
Advocacy groups in New York gathered Wednesday near JP Morgan Chief Executive Officer Jamie Dimon’s apartment, calling on the bank to stop lending to private prison and immigration detention companies, according to the Center for Popular Democracy, one of the protest organizers.
Read the full article here.
Another Study Finds Unaccountable Charter Schools Dogged by Corruption
Moyers & Company - October 6, 2014, by Joshua Holland - In today’s Washington Post, Jeff Bryant, director of the...
Moyers & Company - October 6, 2014, by Joshua Holland - In today’s Washington Post, Jeff Bryant, director of the Education Opportunity Network, writes about the promises that were first offered by advocates of the charter school industry:
When former President Bill Clinton recently meandered onto the topic of charter schools, he mentioned something about an “original bargain” that charters were, according to the reporter for The Huffington Post, “supposed to do a better job of educating students.”
A writer at Salon called the remark “stunning” because it brought to light the fact that the overwhelming majority of charter schools do no better than traditional public schools. Yet… charter schools are rarely shuttered for low academic performance….
In a real “bargaining process,” those who bear the consequences of the deal have some say-so on the terms, the deal-makers have to represent themselves honestly (or the deal is off and the negotiating ends), and there are measures in place to ensure everyone involved is held accountable after the deal has been struck.
But that’s not what’s happening in the great charter industry rollout transpiring across the country. Rather than a negotiation over terms, charters are being imposed on communities – either by legislative fiat or well-engineered public policy campaigns. Many charter school operators keep their practices hidden or have been found to be blatantly corrupt. And no one seems to be doing anything to ensure real accountability for these rapidly expanding school operations.
But in May, BillMoyers.com looked at a report issued by Integrity in Education and the Center for Popular Democracy — two groups that oppose school privatization. The study examined charter schools’ performance in 15 states, and revealed $136 million in fraud, waste and abuse in those states. The authors of that study wrote that, “where there is little oversight, and lots of public dollars available, there are incentives for ethically challenged charter operators to charge for services that were never provided.”
Last week, they released a follow-up study of charter schools in Pennsylvania. It found that “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. Indeed, the vast majority of fraud was uncovered by whistleblowers and media exposés, not by the state’s oversight agencies.
The authors found that while the auditing techniques used by Pennsylvania regulators could identify inefficiencies, oversight agencies don’t use tools “specifically designed to uncover fraud.” It also found that oversight agencies were understaffed and underfunded. “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,” write the report’s authors.
They also noted that their findings weren’t unique:
Numerous government entities have raised the flag about the risk of fraud nationally and in Pennsylvania. Reporting in 2010 on the lack of charter-school oversight in states throughout the country, the Office of the Inspector General for the U.S. Department of Education raised concerns that state-level education departments were failing “to provide adequate oversight needed to ensure that Federal funds [were] properly used and accounted for.” Also in 2010 in Philadelphia (which educates 50 percent of all Pennsylvania charter-school students), the Office of the Controller performed a “fraud vulnerability assessment” of the city’s oversight of charter schools and reported that the Charter School Office… made the city’s more than $290 million paid to charter schools “extremely vulnerable to fraud, waste, and abuse.” A 2014 follow-up report found that the School District of Philadelphia continues to provide “minimal oversight over charter schools except during the charter renewal process.”
You can download the entire report on Pennsylvania charter schools at The Center for Popular Democracy.
Here's Why The Movement For Black Lives' Demands Came At The Perfect Time
Here's Why The Movement For Black Lives' Demands Came At The Perfect Time
Last week, the DNC took over Philadelphia, television sets, and social media platforms around the country. Viewers...
Last week, the DNC took over Philadelphia, television sets, and social media platforms around the country. Viewers tweeted quotes and zingers from prominent elected officials, and celebrity actors alike. For the most part, it was a vibrant convention with many celebratory acknowledgements for Hillary Clinton becoming the first woman major-party presidential nominee. But here's why The Movement For Black Lives demands, released on Monday, actually came at the perfect time. There's still a long road ahead for full equality, and every political party should continue to be challenged – even during the "glass ceiling"-shattering historic moments.
Many supporters of Vermont Sen. Bernie Sanders and Green Party candidate Jill Stein (or those simply anti-establishment) exercised their right to protest at the DNC, but even still, the underlying message last week was clear: Unite to stop Donald Trump. The Republican presidential nominee poses a real threat to already-marginalized communities in America should he be elected President – but he's not the only threat. For black lives particularly, police violence, and economic freedom are some of the lingering systemic issues that have long oppressed black communities. And it's a deep-rooted problem that continues to need attention – especially as candidates in the general election are eagerly vying for the trust of American citizens from now until November.
The Movement For Black Lives is a collective of more than 50 organizations that represent Black people across the United States, including Black Lives Matter. The collective released a comprehensive platform of demands that aim to combat the systemic marginalization of black communities:
“Black humanity and dignity requires Black political will and power. Despite constant exploitation and perpetual oppression, Black people have bravely and brilliantly been the driving force pushing the U.S. towards the ideals it articulates but has never achieved. In recent years we have taken to the streets, launched massive campaigns, and impacted elections, but our elected leaders have failed to address the legitimate demands of our Movement. We can no longer wait.”
The process to create the demands took one year – beginning last year when 2,000 people gathered in Cleveland to discuss ideas for the movement, the site read. In a breakdown of one the platform demands for political power, the collective called for an end to super PACs, and "unchecked corporate donations" that influence political elections, along with ensuring voting rights, and an increase in funding for HBCUs.
What's especially interesting about the platform, is that some of the demands, like, reparations, are often viewed unfavorably and do not make the conversation in major-party platform settings like the DNC. But some polls suggest that significant percentages of black Americans support reparations – therefore making it an important conversation, at the very least, for all political candidates.
In an interview with The New York Times, Marbre Stahly-Butts, a leader in the Movement for Black Lives Policy Table, explained why the demands "go beyond individual candidates."
"On both sides of aisle, the candidates have really failed to address the demands and the concerns of our people," she said.
And as police violence continues to disproportionately affect Black lives, among other systemic issues, it continues to be important to push for justice, during and after the general election.
By KIMBERLEY RICHARDS
Source
A 'striking lack of diversity' at the Fed distorts economic policy in ways most people don’t consider
A 'striking lack of diversity' at the Fed distorts economic policy in ways most people don’t consider
In a new report from the liberal-leaning Fed Up, a coalition of community groups advocating for continued low interest...
In a new report from the liberal-leaning Fed Up, a coalition of community groups advocating for continued low interest rates from the Fed with a view to helping the country's poorer families enjoy some of the benefits of the recovery, the group says a lot of work remains to be done despite recent progress on diversity under Yellen's tenure.
Read the full article here.
Room for Debate: The Public Pension Problem
Bring Financial Managers in House The New York Times - December 5, 2013, by Connie Razza - This past year, investment...
The New York Times - December 5, 2013, by Connie Razza - This past year, investment management fees on New York City pensions increased 28 percent. Over the past seven years, they have more than doubled to $472.5 million annually. The city pays very high fees even in years when the funds lose value.
Internal control of pension fund assets for public workers will help rebalance a city's relationship with Wall Street.
These fees unduly burden the funds and add to the uncertainty with which our city's retired and current employees face the future. The rapid rise in pension fund fees is just one of many symptoms of our badly broken financial system, which fails to serve the broader economy and promote general prosperity. Instead, it promotes and exacerbates inequality. As part of the New Day New York Coalition, the Center for Popular Democracy has proposed a sweeping solution. New York should create a highly skilled in-house financial management team for pension fund assets. Even with salaries high enough to attract top quality managers, the city would not pay the typical "2 percent of assets under management, plus 20 percent of profits" that hedge funds, private-equity firms and real-estate firms typically charge. The profit motive of in-house managers will be fully aligned with city employees and they will be better situated to ensure that investments are financially responsible, contributing to our broader economy and to the funds' bottom line. The creation of the in-house financial team would save the pension funds hundreds of millions of dollars a year. As significant a change as this would be, it is an idea that the city's former chief investment officer has advocated, and that incoming city comptroller Scott Stringer has expressed interest in. Also, pension funds in Alaska, California, Wisconsin and Ontario, Canada, already do this, to varying degrees. All of these funds also rely on outside managers for some of their investments, but insourcing much of the pension investment management would give the city funds meaningful leverage when working with outside management firms. Building an internal capacity to manage the pension fund assets of city workers is an important step toward rebalancing the city's relationship with Wall Street.
Source
3 days ago
3 days ago