Wednesday, January 27, 2010

Not Ready for Primetime

I hate being lied to, don't you?

I hate it even more when candidates who frame themselves as reformers lie to us. Aren't we supposed to be different?

So why would Justin Oberman be lying to us?

I understand. The Oberman campaign did their oppo and found that going after the losses in Bright Start was the best wedge a 35-year old wannabe politician who is campaigning behind his father's legacy could have with an accomplished reformer and leader in Illinois who has been able to bridge all the various strata of Illinois politics. I get it.

But, frankly, it's disgusting. Oberman's ad quotes Robin (who I'd like to think of as a friend, and whose campaign has specifically asked me not to blog about these issues) saying, "We lost no money" after the ad mentions that Bright Start lost $150 Million.

But that's not what she said. Robin Kelly -- and her boss Alexi Giannoulias and the entire Treasurer's staff -- is proud of the fact that the Treasurer's office has MADE MONEY from the money that the taxpayers entrust in that office (which is different than the money that it holds for taxpayers for things like education). The State Treasurer reached out to Justin Oberman to explain the apparent confusion that Oberman had -- or, at least, was evidenced on the campaign trail. But Oberman refused to take the meeting.

I suppose that it would be harder to continue to make the charges under those circumstances. As if that would preserve some kind of political integrity.


The facts are these, as explained in detail by the terrific political blog, Progress Illinois:

Back in January, we learned that risky financial maneuvers by the Wall Street managers of Illinois' college savings program had led to a swift $85 million loss. The Prairie State wasn't alone in this situation -- Oregon, Texas, Maine, and New Mexico also included Oppenheimer's "Core Bond Fund" as an investment option for families saving for college and suffered steep losses as a result. Illinois State Treasurer Alexi Giannoulias, who oversees the program, was the first state official to accuse Oppenheimer of investing outside of the fund guidelines and pursue legal action against them. Others have since followed suit.

In the months since he entered litigation to recoup the $85 million...

Here's what we know (bear with us on this one):

By the time Giannoulias took office in 2007, the Bright Start college savings plan had amassed 180,000 portfolios and nearly $2 billion in assets. It had also been long-criticized for its high costs and limited investment options. Intent on lowering those administrative costs, Giannoulias selected Oppenheimer to manage the portfolio through a competitive bid process that year. The investment bank suggested Illinois invest in a series of their mutual funds, including the Core Bond Fund, which was billed as one of the company's most conservative investment strategies. The treasurer's office contributed $200 million to this fund and immediately saw its fortunes rise. By April of last year, Chicago-based investment rating group Morningstar had named Bright Start one of the top five college savings plans in the nation.

Unfortunately, things took a turn for the worse later in the year. It turned out that Oppenheimer's then-Senior Vice President of Fixed Income Angelo Manioudakis had decided to roll the dice with the fund. He not only invested it in risky mortgage-backed securities, but -- worse yet -- heavily leveraged the fund.

Once the housing market seized up and Giannoulias's office realized what Manioudakis had done, they immediately transferred all Bright Start monies allocated to Core Bond to short-term U.S. treasury debt. But that wasn't before investors lost 36 percent of the $200 million originally committed to the fund. The following month, the state served subpoenas on Oppenheimer under the Consumer Fraud Act. “Core Plus’ performance is unacceptable," Giannoulias wrote in a statement earlier this year, "and even more staggering when you consider that families thought they were investing in relatively conservative portfolios as their children neared college age." Speaking on WLS’ Don Wade and Roma earlier this week, the treasurer said he is "optimistic" that the state will ultimately recoup the families' money.

The lingering question is whether the extreme risks being taken by Oppenheimer were visible to Giannoulias -- as well as the broader community of investors and analysts -- and whether the treasurer should have been expected to act faster to protect Bright Start investors from the exposure...

While Oppenheimer might have disclosed the fact that it was investing in these particular types of instruments, even the Morningstar analysts in charge of keeping tabs on this fund weren't aware of the degree of leverage being employed... [Friday April 24th, 2009, 9:07am]

For those just getting caught up, six states, whose 529 college-savings programs were exposed to Oppenheimer Funds' Core Bond fund, experienced heavy losses last year when the bond sank 38 percent in the fourth quarter. Billed as a one of the Wall Street company's most conservative investment strategies, Oppenheimer's then-Senior Vice President of Fixed Income Angelo Manioudakis decided to invest a chunk of the bonds in risky mortgage-backed securities. Worse yet, he heavily leveraged the fund, a move that analysts in charge of keeping tabs on Core Bond did not even notice. A few months after the housing market seized up and the value of the fund plummeted, State Treasurer Alexi Giannoulias transferred all Bright Start monies allocated to Core Bond to short-term U.S. treasury debt and began negotiating with Oppenheimer to retrieve some of the cash. In February, the state also served Oppenheimer with subpoenas under the Consumer Fraud Act. And while Giannoulias reached a "handshake deal" in June that would return $77 million to the affected Bright Start accounts, there remained one large obstacle: the state of Oregon. [Monday November 23rd, 2009, 10:17am]

Lost in the coverage, however, was the centrality of leverage in the Bright Start controversy. Shortly after the fund tanked, a Morningstar analyst called it the "chief culprit" in the fund's poor performance and acknowledged that Oppenhemier made no disclosures in any legal documents about the degree of leverage they were employing. That's why it was good to see Madigan stress this point in her release:

Oppenheimer had marketed Core Plus as a conservative investment vehicle appropriate for beneficiaries who were at or near college age. Core Plus, however, contained risky investments and was highly leveraged by its Oppenheimer management team, which, in turn, resulted in excessive losses. The management team is no longer with Oppenheimer.
While Oppenheimer did disclose its investments in mortgage-backed securities, the Morningstar analysts in charge of keeping tabs on Core Bond expressed surprise at the degree of leverage being employed, largely through $1.4 billion worth of "swaps." A Morningstar article from April explains more about Oppenheimer's use of these instruments:

At the end of March 2008, the Core portfolio carried around $400 million in securities exceeding its then $2.2 billion in net assets via transactions that were effectively akin to margin borrowing. It also had roughly $800 million in long exposure to corporate credit via default swaps -- including American International Group AIG, Lehman Brothers, Wachovia WB, Washington Mutual, and Bear Stearns. It had around $600 million in total return swap exposure to a volatile slice of Barclays' AAA rated CMBS index. By normal reporting convention, all of these positions were not included on the fund's balance sheet and, thus, not in its net assets.

By the end of September, when the market sailed off into uncharted territory, Core Bond's credit exposure to those markets totaled more than 180% of net assets on a dollar basis. In other words, for every dollar of shareholder capital in the fund, it was exposed to the credit-driven movement of more than $1.80 worth of securities.

The message here isn't that derivatives are bad, though they can be dangerous if not well understood. Rather, it is that investors had little way of knowing that the funds were piling high extra layers of market exposure. Because most of this additional market exposure came from off-balance-sheet derivatives, the funds' portfolios didn't look highly leveraged. In a conventional accounting sense of leverage -- borrowing money against net assets and investing it -- they might have looked slightly leveraged. But in a economic sense, and as a mutual funds go, they were heavily leveraged.
In a sense, Justin Oberman is caught in a huge political dilemma. If he exploits this tactical advantage, then it appears that he either does not understand Big Finance or he's lying. Oberman claims that if he's the state Treasurer, "My office will conduct thorough research into every state investment that we make to insure minimum risk and maximum return." But Oberman's comments -- and the ad he's airing at the moment -- proves just the opposite. He didn't conduct thorough research into the Bright Start issue, and he refused to meet with the state Treasurer, who would have been happy to explain it to him.

Why would we trust him to do that if he can't do it now?

Oberman claims the reformer mantle that his father held. But then he goes on TV with a politically potent, but clearly false, accusation against a real reformer, a real progressive that has been building up impressive credentials ever since Justin Oberman was born.

I don't know about you, but I'm kind of tired of the Daley brand of political slugfest (even if I appear good at it). Robin Kelly doesn't deserve this kind of treatment, and, quite frankly, Justin Oberman ought to be ashamed of himself. These kinds of fabrications on the part of politicians are more typical of machine pols than reformers. Oberman damages the reformer brand with this kind of stunt. It's just disgusting...

Alan Cottrell has provided professional services to the Kelly campaign in the past, but is not currently connected professionally to the campaign...

Tuesday, January 26, 2010

Bloom Township Dem Committeeman Race Heats Up

If you're a Democrat living in Bloom Township, you probably received a very official looking piece of mail entitled "Voter Alert." While the voter alert was faked, voters in Bloom should have been alerted to one of the more interested contested primaries this cycle.

It sits at the bottom of the ticket. A place where fewer voters wander, after the long list of judges that one is supposed to vote for. If a voter chooses to vote on the computer (which most voters do), then you have to at least pass through the Democratic committeeman race. Voters who choose a paper ballot may ignore it altogether.

I'd like to argue that voters shouldn't ignore this race, but I won't (I won't suggest that you do ignore it, either). Because, well -- like that Facebook designation -- it's complicated.

You see, incumbent Democratic Committeeman Terry Matthews is running against challenger Joe Faso on the message that he (Matthews) is the "Real Democrat" in the race. You can see Faso's primary voting record here. There is no question about that. The Vote Builder logarithm characterizes Matthews as "Leaning Democrats," while it characterizes Faso as "Leaning Republicans." I've talked to Matthews about this race, and he said (basically) that I should support him because Faso is exactly the kind of Republican-turned-Democrat (Faso voted in the last Democratic primary, like all the other TJ Somer Republicans, to support Somer in his race for judge) of whom I've been critical. And he's right.

Except that it's complicated.

Because Matthews has made backing Republicans-turned-Democrats into a pattern that I (at least) can't ignore. Matthews appointed Republican-turned-Democrat Anthony DeLuca to George Scully's state representative seat (80th ILGA District). DeLuca voted in the same Republican primaries that Faso did (in 3/16/04 and 3/19/02), as well as in 2000 and 1998.

And Matthews has been the major promoter Republican-turned-Democrat TJ Somer in his race for judge. Somer was the former President of the Republican Party in Bloom Township (I've incorrectly said previously that he was the Republican committeeman), but Somer has admitted in the press that he has to be a Democrat to win a seat on the bench.

Somer voted in the Republican primary in 2006, 2004, 2002, 2000 and 1998.

But Matthews support of Republican-turned-Democrat TJ Somer is so great that, according to neighboring Democratic committeeman Tim Bradford, Matthews made a deal that he would support Democrat Toi Hutchinson for state senator in the vacant 40th District (Debbie Halvorson's former state senate seat) if Bradford would help slate Republican-turned-Democrat TJ Somer in the upcoming 15th subcircuit judicial race. Matthews is not just supporting Republican stalwarts in Bloom Township, he's getting other Democratic committeeman to do the same.

Politics is all about give and take, but it's hard to see how Democrats get stronger when their choice is between a Republican-turned-Democrat (like TJ Somer, Anthony DeLuca or Joe Faso) and a Democrat who goes out of his way to see that Republicans-turned-Democrats are placed into Democratic seats at every available opportunity. (Matthews couldn't have appointed a Republican-turned-Democrat to Debbie Halvorson's seat because there were other Democratic committeemen who had votes, too.)

So what's a Democrat to do in Bloom Township? Hard to say. This is, I am told repeatedly, not about Bloom Township but about the Chicago Heights mayoral race in 2011. And that's a shame. Because the Barack Obama campaign mobilized thousands of Democrats to work in the last election, and they must be disappointed with the performance of their local Democratic party (and the barroom brawl it's currently engaged in). "How can I vote for Faso," one newly activated Democrat asked me. (I just listened.) Another new Democratic activist admitted that she'd probably vote for Faso in the race given her disappointment with Matthews' appointment of Republican-turned-Democrat Anthony DeLuca, but it didn't sound like she would like it. Why should Democrats be holding their nose to vote for Democrats in the age of Barack Obama?

The unions have been asking that very question. In fact, the reason that Joe Faso (Republican-turned-Democrat) is in the race is apparently because he was recruited by the trade union officials to run against Matthews. The local unions have coalesced sufficiently around their choice that they convinced the Chicago Federation of Labor to endorse Joe Faso in this race. As far as I know, this is the only instance where the Chicago Fed has endorsed a non-incumbent in a party race.

Why have the unions turned against the "Real Democrat" to a Republican-turned-Democrat? This is less clear, but the anger is real. The unions in the South Suburbs had been the backbone of Democratic politics through the years when Republicans ruled Bloom Township. But when Democrats in Bloom got a little power -- and the ability to appoint a state senator and state representative, as well as slate the subcircuit judicial races is a little bit of power -- the locals felt ignored. There is a natural temptation to think that local Democratic politics is starting to resemble local Republican politics -- dictatorial, secretative, elitist. So again, one asks: Why should Democrats be holding their nose to vote for Democrats in the age of Barack Obama?

We are better than that. And we have better (and more loyal) Democrats than that. We really do...

Friday, January 22, 2010

Lisa Madigan Speaks to Team Obama in Flossmoor

On Tuesday, January 19th, Lisa Madigan spoke to "Team Obama" (now Team HOPE) at the Flossmoor Station about her work as Illinois' Attorney General. She is introduced by freshman state Senator Toi Hutchinson of Olympia Fields.

Lisa talked about her efforts to help solve the mortgage foreclosure crisis and her work with women's and children's issues. Then she took questions from the audience.

This video is 37:22 long. It can be downloaded by clicking here.

Team Obama was formed from the grassroots volunteers who were mobilized on behalf of Barack Obama's presidential campaign out of the South Suburbs and have chosen to "stay together and stay involved." Its meetings are open to the public and held on the second Tuesdays of the month at the Flossmoor Station Restaurant. The group does not make endorsements and encourages participation in the political process as participants see fit.

Thursday, January 14, 2010

Deborah Sims threatens taxpayers: "We've got to get that penny back"

We've been given fair warning. If Deborah Sims is re-elected, she will vote to raise our taxes (again) here in Cook County. "I think that penny -- we need to figure out how to get it back," she told the League of Women Voters candidate forum in Flossmoor on Wednesday night. "We've got to get that penny back." Despite the observation from Sims' opponent, Sheila Chalmers-Currin, that we "pay the highest sales tax in America," the current County Commissioner for the 5th district was completely unmoved. The increase of the penny sales tax was justified, and Sims made it very clear where she stood.

With Todd Stroger and raising our taxes.

Supporters of Deborah Sims passed out the flyer that Todd Stroger has been using to explain why the County's increase in our sales taxes shouldn't be a cause for alarm. Like Todd Stroger, Sims boasts that Cook County is "in good shape," one of the few governmental entities in the country that is completely unaffected by the worst recession most residents have ever seen. But the reason that Cook County can "afford" to pay for Deborah Sims' expensive Cadillac or her chauffeur or Stroger's relatives or contracts that go not to the lowest but the highest bidders (who just so happen to be political backers of Todd Stroger and Deborah Sims) is because Stroger and Sims raised Cook County taxes to a level that allowed excessive spending for their personal benefit.

But we aren't overtaxed, Sims told us. Nope, the County's portion of your tax bill is miniscle and more than justified. So much so that she pledged to add another penny to it!

"We've got to get that penny back," Sims told the crowded room in Flossmoor.

Sims' opponent couldn't have disagreed more with her intention of raising our taxes again. "We are taxed enough," Sheila Chalmers-Currin said last night. She noted that Sims' comments were a "perfect example of being out of touch with your constituents."

"This tax is too much," she concluded.

Wherein one of Deborah Sims' employees interrupted Chalmers-Currin, and was publicly admonished by the League of Women Voters' moderator.

Given additional time, Sheila Chalmers-Currin observed that "We can't afford four more years of the same." The back of the crowd erupted in applause.

Tuesday, January 12, 2010

Jones-Scully-Somer's Alliance breaks up CFL Block

Word on the street is that the "east end" deal that slated Linzey Jones, George Scully and T.J. Somer threatens the benefits that the Chicago Federation of Labor brings to the table in their own endorsement of Linzey Jones, George Scully and John Griffin in the 15th sub-circuit judge races. As I mentioned previously, the Chicago Fed expects its endorsees to support the other CFL-endorsed candidates -- and certainly not to actively oppose them.

But that was before the local Republican committee, Families United for Effective Leadership, started mailing to voters on behalf of Jones, Scully and Somer. F.U.E.L. is Somer's local campaign committee, started in 1998, and used to promote his favored candidates while he was the Bloom Township Republican committeeman.

The longtime Republican PAC paid $30,501.80 to The Public Response Group for the joint mailings. Word is that labor committees and labor supporters have expressed outrage to the Chicago Fed about the new mailing. How, people in the South Suburbs continue to ask, can anyone support the controversial former Republican committeeman T.J. Somer as a Democratic nominee for judge? As Supreme Court Justice Antonin Scalia made clear, there are dramatic differences between Republican and Democratic judicial philosophies and how people are treated from the bench.

The Chicago Fed apparently has had enough. The benefit of the Fed's endorsement was not simply a line-item on one's endorsement mailing, but its ability to mail on its own dime to union members and labor supporters (through the America Works program). The Chicago Fed could expect endorsees not to oppose one another simply because the Fed's mail program would ask that union supporters vote for all the CFL-endorsed candidates. As a result of the recent Republican mailer, the Fed appears likely to drop Jones and Scully from their GOTV efforts, in its mail program, robocalls and canvassing program. Today, the Chicago Federation of Labor pulled their listing of Jones and Scully off their website.

John Griffin -- having kept his word to support the other CFL-endorsed candidates -- will continue to be promoted by the Chicago Fed's campaign communications. He, alone, remains listed on the CFL endorsement list.

Friday, January 1, 2010