Thursday, February 16, 2017

Who Inherited a Mess?

Who Inherited a Mess?

America faces all sorts of problems and challenges in 2017, but which President “inherited a mess?”

(A)   Abraham Lincoln March 4, 1861
(B)    Franklin Roosevelt, March 4, 1933
(C)    Barack Obama, January 20, 2009
(D)   Donald Trump, January 20, 2017



(A)  The civil war began on April 12, 1861, five weeks after inauguration.  President Lincoln inherited a mess.

(B)  Unemployment was 24.9% in 1933 and the President had to declare bank holiday the day after his inauguration.  President Roosevelt inherited a mess.

(C)  Unemployment was 7.6% headed to 10% in January 2009 and the financial system was at a standstill.  President Obama inherited a mess.


(D)  Unemployment was at 4.8% and the stock market was at record highs in January 2017.  President Trump didn’t inherit a mess: he began making one.

Wednesday, February 1, 2017

CalPERS wants to crush internal dissent

CalPERS wants to crush internal dissent

A bit more than a year ago, I suggested that CalPERS had lost its way as a pension organization.  (see, http://meditationonmoneymanagement.blogspot.com/2015/12/from-leading-way-to-losing-its-way.html). A week ago the CalPERS board confirmed my suspicion at one of its periodic off-site meetings. It is now clear that CalPERS is poorly positioned to face the financial and investment challenges facing America’s largest public pension. 



The board held an annual peer review session, which would have been private, except that JJ Jelincic insisted on a public session and Naked Capitalism had the foresight to film it (normally CalPERS records its public sessions, but as you’ll read in a moment, they probably didn’t want a proper record of the meeting). Bill Slaton, chairman of the corporate governance committee, made an accusation against a fellow board member, which set the tone for the entire session:

Mr. Jelincic, I’m going to address you in this – that as I’ve observed, you’ve taken unilateral actions that to me are clear violations of fiduciary duty, and by implication placed our fiduciary duty as a board at risk, and the common theme is the disrespect for the governing rules of the organization.

To be more specific, I’m talking about the disregard for confidentiality of materials or decisions reviewed or made by this board…. [T]here are in my view only two possible solutions to protect the fund from the risk of continued fiduciary violations. The first would be for Mr. Jelincic to voluntarily resign his board position.

If he chooses to remain on the board, I ask the board president to place on the board agenda as soon as possible an action item regarding a sanction or sanctions to be imposed by this board, and one sanction I ask to be considered would prohibit Mr. Jelincic from attending any closed sessions conducted by any committee or the full board while he remains a member of this board due to his repeated unauthorized disclosure of confidential material.

Notice that Mr. Slaton begins by addressing Mr. Jelincic directly about so-called violations of fiduciary duty without providing any specifics.     Curiously, he shifts to the third-person in offering Mr. Jelincic the opportunity to resign or face sanctions.   This line of attack is completely inappropriate and puts the integrity of CalPERS at risk.

Mr. Jelincic has a healthy skepticism of the consultants, staffers and experts that appear before the full board and investment committee. Skepticism is what keeps pension plans and investment organizations from committing major mistakes. Moreover, Mr. Jelincic is knowledgeable about investments and does his homework.   In addition, he enjoys the confidence of the current and retired employees who have twice elected him to his seat on the board. 
If CalPERS has specific information that Mr. Jelincic violated any policy, that information should have been furnished to him in a proper manner. Instead, Mr. Slaton used a session of an off-site to impugn Mr. Jelincic’s integrity. I’m disappointed that Mr. Jelincic’s colleagues could only marshal a meek response to Mr. Slaton’s unfair innuendo. I suspect that this line of attack is intimidating the other members of the board.  After all, no board member would want to face the isolation, innuendo, or accusations being directed by Mr. Slaton against Mr. Jelincic.
Everyone from Governor Brown to the average California state employee or retiree should be paying attention to this attack because it is undermining the governance of the pension plan.  In the end, a reprimand or a resignation is warranted, but it isn’t Mr. Jelincic who should be facing those potential consequences.

For a more detailed analysis of this meeting, please read the post by Naked Capitalism or a post by William Black, former general counsel of Federal Home Loan Bank of San Francisco.  You can also view the video on YouTube.