Why is CalSTRS’ version of corporate skulduggery tolerated?

Why is CalSTRS’ version of corporate skulduggery tolerated?

enronlogoBeginning in the late 1990s and for about a decade afterward, corporate accounting scandals unfolded one after the other. Bipartisan outrage over CEOs and CFOs cooking the books gave way to mostly Democratic initiatives to impose much more sweeping rules on the private sector. Some Republicans thought there was vast regulatory overkill going on, but few disputed that there needed to be strong safeguards against accounting fraud at big institutions.

So how is it possible that in 2014, a struggling multibillion-dollar enterprise seeking a huge public bailout can send its top executive to a legislative hearing and offer a completely distorted account of his enterprise’s finances?

Because he’s from the public sector, where standards of the sort the SEC and Congress have imposed on Wall Street are nonexistent.

Which brings us to David Crane. Writing in Fox & Hounds Daily, the former Schwarzenegger administration official shreds the claim of California State Teachers’ Retirement System CEO Jack Ehnes that the main reason CalSTRS needs a huge public bailout is because of investment losses during the Great Recession of 2008 and 2009.

Crane looks at CalSTRS’ funding history and demolishes this claim. He also notes who agrees with him: CalSTRS’ own actuary, who reported “earlier this year that more than 70% of CalSTRS’s [$240 billion] deficit is attributable to other factors. ”

Taking a page from WorldCom, Enron, AIG

CalSTRSCrane says this shabby behavior must not be tolerated:

“Needless to say, any organization — especially a public organization run by public employees — seeking billions in public assistance should be completely forthcoming. CalSTRS is a huge financial intermediary, just like AIG was before its bailout in 2008, and no different than AIG’s CEO at that time, CalSTRS’s CEO must level with the authorities from which it seeks help.

“But that’s not the only reason CalSTRS should provide full and clear disclosure.  Unlike AIG – which paid back its public assistance, plus a profit — Californians will never get back the money they are being asked to provide CalSTRS. Instead, they’ll just avoid having to spend more money. That’s because if CalSTRS does not get its $240 billion, Californians will have to inject more than $600 billion at the time CalSTRS runs out of money.   Given those facts and that CalSTRS is seeking one of the largest injections of public assistance in U.S. history, one would expect its leadership to go overboard in providing the fullest possible explanation to the citizens of whom it is asking for such a large sacrifice.

“One way or another, CalSTRS must get its $240 billion.  If not, public education in California will not survive and the next generation will be thrown into chaos.  But first, citizens deserve the truth.  CalSTRS’s representatives must be completely forthcoming – and the sooner the better.”

One standard for business, another for government

Not for the first time, I pose this general question: Why are accounting standards so ridiculously lax in the public sector? Why are executives allowed to treat public funds so much more cavalierly than stockholder funds?

I don’t think it’s a partisan thing. I don’t know why any group would be part of a constituency that supports dishonesty from government.

Maybe it’s tolerated due to the low expectations we have of government. But that doesn’t make California’s government version of Enron any less appalling.

 

40 comments

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  1. Ted Steele, CEO
    Ted Steele, CEO 26 February, 2014, 18:10

    LOL Chris– another hyperbole victory comparing calstrs to enron! Congrats!

    You must not have to get up very early to write like this.

    Zzzzzzzzzzzzzzzzzzz

    Reply this comment
    • Chris Reed
      Chris Reed Author 26 February, 2014, 21:31

      Ted, why do you have to default to troll mode? The article made a specific point about CalSTRS CEO being deceptive about CalSTRS finances. It cited CalSTRS’ own actuary. Sheesh.

      Reply this comment
      • Rex the Wonder Dog!
        Rex the Wonder Dog! 26 February, 2014, 21:36

        Please don’t feed the troll….errrr..Ted 😉

        Reply this comment
      • Ted Steele, CEO
        Ted Steele, CEO 27 February, 2014, 07:07

        Sheesh?

        It’s not troll mode to point out the grand canyon ™ between your calstrs facts and Enron. Ken Lay (Founder and CEO), Jeffrey Skilling (CEO) and Andy Fastow (CFO) found that Enron wasn’t making money so what they did is implemented along with the approval of Arthur Andersen the “future value accounting.” This type of accounting was to predict the future profit that Enron was going to make and list it as part of there future profit to the shareholders.

        This creative accounting lead to Fastow to create “outside companies” that were directly involved with Enron to hide the losses the companies made. These companies were named after Star Wars characters.

        As Enron announced big numbers to Wall Street, people began to take notice of this company and started to buy shares of the company. Enron even encouraged their employees to buy shares of Enron and the price of Enron was going up to as high as $90. The craze of Enron stock was so huge within the company, they had a stock ticker running throughout the company so employees could keep track of Enron stock.

        Enron executives were bullies to the investment companies. When a financial adviser questioned their firms regarding Enron stock, Enron would pay the firm to get rid of the employee.

        As Enron got bigger, the company was collecting more losses and hiding them well. Things were getting so bad, Enron created the California Energy Crisis. They would tell the utilities in the state to shut down their power, re-route the power to Texas where they can sell the power back at a higher rate, basically screwing California out of billions of dollars (one reason why Arnold became Governor). Including the bad investments made in India (their plan was to over charge the customers, but didn’t work because nobody will pay for it).

        If Calstrs did half of that the hissy fit your ilk would properly throw would power a small city. CWD is a home of hyperbolic rhetorical alarm writing……because it is easy lazy writing. Your lunatic fringe fan base enjoys the red meat and I expect you do too. I just can’t believe that you don’t use Hitler, Manson or Satan more in your analogies.

        Your Ted

        Reply this comment
        • Rex the Wonder Dog!
          Rex the Wonder Dog! 27 February, 2014, 14:44

          Actually, what they did, what Fastow did, was keep expensed losses off the books, in off book partnerships, while at the same time exaggerated income…sort of what the governor, whomever is in office,does every year with the state budget.

          Reply this comment
  2. Queeg
    Queeg 26 February, 2014, 20:13

    The Ragwus hunters always come up empty. We have the most transparent investment portfolio out there compared to the globalist Wall Street barons.

    Reply this comment
    • Chris Reed
      Chris Reed Author 26 February, 2014, 23:14

      Groan. Crane’s criticisms aren’t over the investment portfolio and whether it’s transparent. They’re over how the CalSTRS CEO mischaracterizes the reasons for CalSTRS’ underfunding.

      Maybe I’m dumb to hope serious points will get serious responses, but that’s my hope.

      Reply this comment
      • Ted Steele, CEO
        Ted Steele, CEO 27 February, 2014, 07:10

        You’re not dumb Chris you’re just writing from the fringe, most reasonable people are not willing to follow your “logic”. The Fox News crowd is, the CWD slow learners are, and maybe the Nascar teabag crew, but that’s about it.

        Reply this comment
    • bubble-up
      bubble-up 1 March, 2014, 00:42

      15% of CalSTRS is invested in hedge funds, which are NOT transparent by any means. They also charge huge fees.

      Reply this comment
  3. Queeg
    Queeg 27 February, 2014, 08:06

    Calpers lives on racking up awesome transparent performance.

    These beater pension articles are incendiary for doomer fringe posters with uncontrollable outbursts of……you know…..the usual Donkey stuff.

    Reply this comment
  4. Chris Reed
    Chris Reed Author 27 February, 2014, 10:08

    Still no specific response to the specific point that CalSTRS CEO was deceptive about the reasons for CalSTRS’ underfunding.

    Just lots of name-calling and putdowns.

    Very constructive, y’all.

    Reply this comment
    • Ted Steele, CEO
      Ted Steele, CEO 27 February, 2014, 12:42

      My reply was to the tone of your reportage amigo. That’s fair game.

      Reply this comment
      • Donkey
        Donkey 27 February, 2014, 22:15

        TCS, you have lost your street-cred ! 🙂

        Reply this comment
      • SkippingDog
        SkippingDog 28 February, 2014, 20:11

        All of Reed’s “reportage” has that same tone. I’ll bet he tones it way down when he out in a bar somewhere, given all of the people who would undoubtedly do it for him under such circumstances.

        Reply this comment
        • Tough Love
          Tough Love 1 March, 2014, 07:43

          Oh, so you mean that the Public Sector workers are potentially violent bullies?

          Reply this comment
          • SkippingDog
            SkippingDog 1 March, 2014, 11:24

            Not at all, TL. What I meant was that anyone with a mouth like Reed certainly appears to have either learns to control his antagonistic tendencies in public places, such as bars, or soon finds an eager individual more than willing to curb them for him.

            Reed is the kind of snarky and annoying guy who mouths off at the local sports bar with some blatantly offensive statement, and then wonders how he ended up on the floor after getting cold-cocked.

            I suspect he’s learned when it’s safe to make his claims and when it’s not, but would enjoy seeing him interact with the same attitude some Friday evening at the local watering hole. It would be both amusing and satisfying.

        • Donkey
          Donkey 1 March, 2014, 17:06

          Give a coward a gun and all of a sudden he’s a tough guy, you sound just like a thug in a gang. I bet you were always the tough guy Skdog, as long as you had more than enough costumed killers around you. 🙂

          Reply this comment
          • SkippingDog
            SkippingDog 2 March, 2014, 22:46

            Not at all, Donkey. I’ve generally been able to resolve most problems without any use of force at all, and learned long ago that talking things out was far better than fighting them out. That’s why I’ve had a very successful career and avoided unnecessary injuries along the way.

    • S Moderation Douglas
      S Moderation Douglas 27 February, 2014, 13:18

      Got to agree with the big red Ted machine on this one.

      Comparison to Enron is beyond the pale.

      And I wouldn’t trust David Crane as far as Arnold could throw him. He is the one who started that “2,000% increase in pension costs” canard by cherry picking the data.

      In the Fox & Hounds article, Crane “analyzes” the 2004 to 2013 earnings data. Why didn’t he go back to 2000, like he did for the “2,000% increase”?

      There were TWO downturns this century, not just “the biggest recession since the great depression”

      CalSTRS independent actuary, Milliman:

      ” In April 2013, Milliman presented an analysis of the change in CalSTRS’ funded status from 2000 to 2012. The conclusion was that two-thirds of the decline during that period was due to investment-related asset performance.

      http://www.calstrs.com/blog-entry/principal-cause-calstrs-funding-shortfall

      And Teds first response was the correct one.

      Reply this comment
  5. S Moderation Douglas
    S Moderation Douglas 27 February, 2014, 18:18

    ” Also, he’ll have to explain how his claim squares with CalSTRS’s actuary reporting earlier this year that more than 70% of CalSTRS’s deficit is attributable to other factors.”

    According to the official Actuarial Evaluation from CalSTRS actuary, Milliman, on March 26, 2013

    “The projected revenue shortfall is due primarily to investment return experience averaging 3.8% per year since 2000, which is significantly less than the long-term actuarial assumption of 7.50% per year. ”

    So maybe the actuary can explain why they say one thing in their official report, and then say the opposite, according to Mr. Crane.

    Citation, please.

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 28 February, 2014, 07:33

    Rex….get back on your generic Walmart Meds…..pension articles elicit massive responses by bunker trolls while the fair and balanced posters get smothered and crticized.

    Recap. Calpers is very very very transparent. If the mgmt. were corrupt they would be ousted. If the returns were too low taxes would cover shortfalls at some point….pensions are sacred contracts keeping seniors from dumpster diving. There is no pension crisis. Never was. Never will be….

    What is so hard about these FACTS!

    Reply this comment
  7. Queeg
    Queeg 28 February, 2014, 07:49

    Poodle.

    What is wrong with Reds?

    All my vacation chums from Cuba and Bolivia and Venezuela are avid fisherman. We go fly fishing in Patagonia in unspoiled waters with scenery that leaves ya in awe…..we have talks on social and cultural policy……these guys have families, jobs, property and futures.

    You slam us, but we are for the little people getting ripped off by globalists, big box stores, corporate factory food processors, ball cap and apron service business masters. Of all people you should come fishing with us. Save up from your truck stop job. We would love to show you a better way to help the little people.

    Reply this comment
    • Ted Steele, CEO
      Ted Steele, CEO 28 February, 2014, 15:17

      Queeg!

      The Patagonian fly fisher– I can see it!—NOW I have a cool image to work with!!! Your legend only grows…

      Reply this comment
  8. Ted Steele, CEO
    Ted Steele, CEO 28 February, 2014, 09:03

    LOL— Oh my Queeg and Pack n Ship— I think your last posts should jack the doomers into “rant spit” ™ “tome drivel” overtime!

    Hurry Doomers!

    Reply this comment
  9. SeeSaw
    SeeSaw 28 February, 2014, 10:08

    I think the question should be, “Why do we tolerate the Legislature ignoring this issue, when CalSTRS is its “baby”? CalSTRS should be a line-item on the budget every year. Out-of-control school boards, that pay their administrators ten times more than the teachers are a separate issue that should be addressed. Just don’t call it, “Public Assistance”.

    Reply this comment
    • Tough Love
      Tough Love 2 March, 2014, 22:19

      Let’s makeit a line item when YOUR property taxes aren’t protected by Prop 13.

      Reply this comment
      • SkippingDog
        SkippingDog 2 March, 2014, 22:49

        It would be far better to give the CalSTRS Board the same authority for setting rates that the CalPERS Board now has. That would prevent the unnecessary politicization of what we all know will eventually happen anyway.

        Reply this comment
        • Tough Love
          Tough Love 3 March, 2014, 08:30

          No Skippy, it would be far better to reduce FUTURE Service pension accrual of all CURRENT workers to a level with a value (considering BOTH the richness of the formulas AND the provsions) no greater than those of reasonably comparable Private Sector workers.

          Doing so would fix the problem going forward ….. and stop digging the hole deeper each day.

          ONLY THEN should Taxpayers even consider addressing PAST Service accruals.

          If you won’t the FUTURE, them you’ll lose the PAST as well. If the retiree had any brains (i.e., financial common sense), they would SUPPORT Reed’s proposal.

          Reply this comment
          • SkippingDog
            SkippingDog 3 March, 2014, 09:57

            As you well know, TL, Reed’s proposal is nothing more than an attempt to get the camel’s nose under the tent. That doesn’t change the fact that CalSTRS has existing obligations to keep that will be funded one way or another.

            You make no more sense than the Teabillies who thought it would be a good idea to default on our national debt by refusing to increase the debt limit last year. Fortunately, cooler and saner heads prevailed on that issue, just as they will eventually do on this one.

          • Tough Love
            Tough Love 3 March, 2014, 13:12

            Skippy, when (not if) the money runs out, it won’t matter.

            Retiree could delay that impact if they acknowledge that current accruals are simply way too generous, unnecessary, and unaffordable …. and then support the material FUTURE-Service pension accrual rate reductions we so greatly need.

  10. Ted Steele, CEO
    Ted Steele, CEO 4 March, 2014, 06:52

    TL— You live in a dream world. What is the date Calpers is going to zero? If you can’t tell me you’re a fraud. Or unfamiliar with Mr. Math.

    Reply this comment
    • S Moderation Douglas
      S Moderation Douglas 4 March, 2014, 08:06

      Ha Ha!

      He knows “TL math”:

      *ASSUME* the average CalPERS retire retires at fifty with $100,000 per year, plus three percent COLA every year and $20,000 medical per year, for LIFE.

      It’s a wonder we’re not swamped already.

      Reply this comment
  11. Ted Steele, CEO
    Ted Steele, CEO 4 March, 2014, 06:53

    Good Morning girls!

    Reply this comment
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    Caroline 14 July, 2014, 05:50

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