Montag, April 20, 2009

The Face Of Corruption... America today is here.

The guy who is apparently set to become the AutoCzar is a fix-it-up kinda guy, it seems: the problem is that he fixes things so that he benefits.

This is the face of modern corruption in the US: it is the face of Chicago.

Let's review classic Chicago corruption. As the Socialist Worker puts it (I know, I couldn't resist using them...), Chicago is corruption king because, basically, two of the three pillars of government have been subverted: the executive and the judiciary, with representatives coming much closer (but given as they are produced by the system, perhaps the probability of someone not being corrupt just doesn't enter into the realm of the possible.

When judges are in collusion, not so much to put innocents away but much more to prevent the guilty from ever being sentenced, then you've got an enormous uphill battle that simply can't be won unless you can toss out all the judges - the good with the bad - and start anew with judges who want to put people behind bars.

Corruption is part and parcel of Chicago: there really isn't anyone who can meaningfully deny this. As one writer put it, cleaning up Chicago politics is like trying to clean grease off something using a sponge loaded with Crisco. Chicago has been corrupt for so long that no one can remember it not being corrupt.

The corruption we see here is both divide-and-conquer and the following shakedown. Divide & conquer means you divide neighborhoods up into ethnic/socio-economic ghettos in order to play one group off the other for financial and political gain: the key term here is "ward heeler", who would implant themselves into an ethnic enclave and then parlay government jobs and largesse into political power, aka votes. This subverts, of course, the idea of an independent voter choosing the best candidate for the job: when you know that your local politician got the money for your job, the chances of you voting him or her out are slim to none.

Now, one of the classic corruption forms is the shakedown: if someone wants to do business with the government, they have to "pay-to-play", make the right campaign contribution, hire the right people to "facilitate" business, buy their inputs from the right folks, and generally become part of the corrupt system. For some companies, it's just a way of doing business.

Now they're going after the public pensions.

New York Attorney General Andrew Cuomo and the Securities and Exchange Commission allege that investment firms paid politically connected "placement agents" in return for a piece of New York's $122 billion pension fund. The AG has indicted three politicos for kickbacks, but the media have focused on the private firms that hired some of these political agents. Thus the attention on Mr. Rattner, who as co-founder of the Quadrangle investment firm met with a consultant about paying a finder's fee for pension cash.

In other words, Chicago is expanding. It's now in New York.

For the record, it isn't illegal for investment firms to hire "placement agents." Hedge funds and private equity firms have long outsourced their marketing to companies whose job it is to reach out to potential investors and arrange roadshows. These placement agents are typically paid a percentage of the money raised.

In New York, however, the agents were also major political players. Hank Morris is a noted Democratic strategist and was a top adviser and chief fundraiser for Mr. Hevesi; Mr. Cuomo has indicted him for money laundering and bribery. Former Liberal Party boss Raymond Harding had aided in Mr. Hevesi's election. When men like these come knocking on investment-house doors, the message is pay to play.

Morris and others made $30mn providing access to sell investments to the New York public pension funds.

The real story here is ... the growing evidence of corruption by officials who use their power over public pension funds to shake down private companies. This is the same political class that has been blaming banks for "greed" in the financial crisis. The pension fund scandal exposes the myth of the superior virtue of the public and nonprofit worlds. Greed is universal. And the opportunity for corruption is enormous when political discretion is tied to vast sums of public money.

Let's reiterate that: the same poltical class that has been blaming the banks for being greedy is directly tied to corrupt practices in managing one of the holiest of holies in the US: the public pension funds.

The mechanism of corruption?

The indictment says Mr. Morris was aided by former deputy comptroller David Loglisci, who made clear to investment firms that they should hire Mr. Morris and who signed off on the subsequent pension fund investments.

In other words, pay to play: want to do business with us, you need to do us a ... few favors.

This scandal is only one example of how political actors leverage pension-fund cash for personal gain. The most routine and pervasive practice is the way officials like Mr. Hevesi tap hedge funds and private equity firms for campaign contributions. The Wall Street crowd knows that to refuse to pony up would limit their access to pension money.

This is direct abuse of power, aimed not so entirely at personal gain (indirectly of course), but much more trying to ensure that your party remains in power: failure to finance these folks means no business from the government pension funds.

It has also become routine for politicians to inject their pension funds into partisan debates that have nothing to do with the sound management of retiree money. Mr. Hevesi once used a pension-fund investment to threaten Sinclair Broadcasting into taking off the air a documentary critical of Senator John Kerry. Calpers, the California public pension fund, tried to bludgeon Safeway into capitulating to a striking union. The then-chairman of Calpers was executive director of the same food worker union that was striking. Safeway held firm.

This is the face of corruption in the US today.

Such misuse of pension dollars is increasing, and it was inevitable that it would lead to pay-to-play schemes. New York Governor David Paterson says he wants to end his state's practice of giving the comptroller sole control over the pension fund, and to move toward the system in which a board oversees the money. But as Calpers makes clear, any political board can also abuse its power. The real problem is the huge political temptation and leverage these public pensions create. The solution is to take these assets and the pension investment decisions away from political actors.


So, the man involved at the heart of this scandal, Steven Rattner, is now going to be the AutoCzar for government intervention into the Automobile industry.

Great. Just what that industry needs: pay-to-play for the auto industry. Want to survive as a parts supplier? Make sure that your union employees are happy. Want to survive as a parts suppler? Make sure that your political contributions are up to snuff. Want to survive as a parts supplier? Make sure that you support whatever it is your ward heeler wants.

Insidious, destructive and degredating.

Corruption is "impairment of integrity, virtue or moral principle; depravity, decay, and/or an inducement to wrong by improper or unlawful means, a departure from the original or from what is pure or correct, and/or an agency or influence that corrupts", according to Wikipedia.

Welcome to Chicagoland. President Obama is about as made a politician as you will find on this planet. Not necessarily the Italians, but most definitely the Chicagoans. What does a made politician do?

He steers things the way that his makers want him to. Push the country into massive deficits to benefit a few (we still don't know where the monies are going); don't let anyone get out of the deal when they realize what is happening (those silly banks, wanting to pay the money bank...the government decides when you're able to pay that money back, no one else); make sure that your backers get their payback (unions and pensions, the perfect marriage); above all, make sure that the monies keep on coming, pay to play.

Of course, when the entire economy turns that way, it's a tad hard to avoid beating it.

That's the face of corruption in America today: it's Chicago, the made men and those whe sent them...

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