A Grandstanding Politician Investigates Wall Street
If grandstanding were an art form, Phil Angelides would be its Picasso.
During his tenure as California State Treasurer, an office which landed him a spot on the boards of the state's giant public pension funds, CalPERs and CalSTERs, Angelides pursued a highly political agenda that trumped his fiduciary responsibility to the taxpayers of the state, at times with disastrous consequences. He loudly promoted an agenda of "social investing" for the funds, helping to drive them into investment decisions urged by his political allies in the state's unions. Under him and his fellow board members CalPERs also pushed for state legislators to expand public sector pension benefits, a decision that pleased union allies but played a big part in the state's current financial woes. And while he boldly promoted corporate governance standards that sought to end conflicts of interest among investment firms, he and his fellow board members took political donations from firms that did business with the pension system and from companies that it invested in.
It might be possible, in short, to think of a more partisan and unsuitable person to lead an inquiry into wrongdoing on Wall Street (Eliot Spitzer, maybe?), but it wouldn't be easy.
And yet here is Angelides, apparently recommended by his fellow California Democrat, Speaker of the House of Representatives Nancy Pelosi, to chair the newly convened Financial Crisis Inquiry Commission, whose mission is to determine what caused the financial meltdown of 2008, and which (if any laws) were broken, and what should be done about it. But it will be difficult to swallow the findings of an Angelides-led commission.
Angelides' years at CalPERs and CalSTERS encompass a regime which should be a case study in how not to run public sector pension funds. Starting in 1999 the CalPERs board, nominally nonpartisan and supposedly tasked with ensuring the enormous fund is well managed, began to tilt more heavily toward a union-backed agenda. The tilt corresponded with his election as Treasurer and then the appointment to the board of former San Francisco Mayor Willie Brown and Sean Harrigan, a United Food & Commercial Workers union leader. Observing the changes, the New York Times commented that CalPERs now wore a "union label."
Angelides garnered attention for himself and the gratitude of political allies in labor when he began pushing CalPERs and also CalSTERs into more social investing, including demanding that the giant funds not buy the shares of companies located in countries that didn't live up to certain standards, including environmental standards promoted by U.S. unions. At the same time Angelides urged the funds to divest in tobacco companies. This social agenda, he argued, made good investing sense because socially responsible companies produced better returns. But Angelides anti-tobacco initiative, to take one example, backfired. In the year after CalPERs divested its tobacco stocks they rose vigorously, costing CalPERs alone some $110 million, according to an analysis by the Sacramento Bee.
During his time at CalPERs and CalSTERs Angelides also became a champion of reform in corporate governance, even while he and other members of the pension funds' boards didn't live up to the same standards they vociferously promoted for others. In 2002 he proposed new rules which demanded that investment firms severe links between their stock analysts and their underwriting operations to avoid the appearance of conflicts of interests. "It is our expectation that investment banks have to meet those standards or they will not be doing business" with us, said Angelides.
But at the very same time he was inveighing against Wall Street he continued to accept campaign contributions from these same players and others who did business with the California investment funds in a blatant appearance of conflict of interest. The Sacramento Bee estimated that Angelides received some $4 million in political contributions from companies with ties to CalPERs and CalSTERs. USA Today reported, for instance, that Angelides and Gov. Grey Davis garnered $355,000 in political contributions from Milberg Weiss, the controversial securities plaintiff's firm which CalPERs hired to represent it in several securities fraud cases. Four of the firm's partners eventually pled guilty to a series of charges stemming from a massive kickback scheme in which they paid plaintiffs to sue, then lied about it to federal investigators.
Meanwhile, Angelides accepted big donations from companies whose stock CalPERs and CalSTERs held, or who were seeking investments from the funds. That included a $43,000 contribution from California supermarket magnet Ron Burkle and his company, Yucaipa Cos. "Angelides later went on to back CalPERs investments in Yucaipa," the Sacramento Bee reported. Among the other publicly held companies that CalPERs invested in whose officers contributed to Angelides were Anheuser-Busch Co., King World Productions, and Univision, according to the Associated Press. Angelides defended contributions on grounds that they weren't illegal, although neither were the relationships between investment bankers and analysts on Wall St. that he deplored.
Still, if Angelides and his fellow CalPERs board members had merely used the pension funds to garnish their own campaign fundraising, California taxpayers would have gotten off lightly. Instead, in 1999 they urged that state legislators dramatically improve benefits in the state's public pension plans. The CalPERs board assured the state legislature that there was plenty of money to pay for the pension enhancements without dunning taxpayers.
They, the board members, were spectacularly wrong, and when the technology bubble burst in 2000 and the stock market crashed, CalPER's portfolio shrank dramatically. The fund has never completely recovered, of course, and meanwhile pension obligations toward state and local workers have continued to grow, prompting a series of financial crises in the state. As The San Diego Union-Tribune recently noted in an editorial under the headline, A Disastrous Decade: "California's march toward its present fiscal chaos began" with that fateful decision by the board in 1999. Nothing demonstrates the extent to which the pension board neglected its fiduciary obligations than the mess it left for California taxpayers.
Angelides has largely been out of the public eye since he lost the 2006 California gubernatorial race to Gov. Schwarzenegger. But rumors suggest he's looking to make a political comeback, and that this appointment to head the financial commission is a gift from Pelosi to help launch him anew.
You would think that Pelosi would know better. After Angelides got trounced by Schwarzenegger, Democratic strategist Garry South observed in the L.A. Times that Angelides was an unlovable politician who had "once referred to [Ronald] Reagan as a racist...compared Gov. [Pete] Wilson to David Duke, a former grand wizard of the Ku Klux Klan" and run ads in a 1994 primary suggesting that a Democratic opponent approved of the murder of abortion doctors.
Intensely partisan, vitriolic, adhering to double standards: That's just what the federal commission studying the financial crisis doesn't need in a leader. It makes you think they're really not serious about reform in Washington, where everything gets reduced to political maneuvering.
