Angelides commission report

Phil Angelides, California treasurer from 1999 - 2006, chaired the Financial Crisis Inquiry Commission that recently made its report on the financial meltdown, focusing on the real estate market. As treasurer, he was an ex-officio member of the boards of the California Public Employees' Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS), when combined the largest public retirement fund in the nation. In 1984, he was appointed president of Sacramento-based AKT Development Corporation, owned by Angelo Tsakopoulos. Two years later, Angelides formed his own company, River West, and developed a flood plain outside of Elk Grove in the Sacramento area. Angelo Tsakopoulos and his daughter, Eleni Tsakopoulous-Kounalakis, to Angelides various campaigns, including for governor of California in 2006. As California State Democratic Party chairman, Angelides was one of the main architects of the Party's takeover by corporate and union special interests.
Investments he urged CalPERS and CalSTRS to make when he was treasurer cost the pension funds billions of dollars.
Big surprise!
An even bigger surprise is that, judging from the Fresno Bee editorial below, Angelides' financial crisis commission blamed ever special interest involved in the largest financial fraud in history but institutional investors.

With yields plummeting, CalPERS sold off $16 billion of core assets and decided to shift $30 billion of the portfolio into "higher risk" real estate. At the same time, the fund, which represents California public employees, moved toward "a less formal authorization process," giving staff less control of the risky investments, according to a new report.
Kevin Brass,, 5-4-10.

We would have been closer to the truth about the real estate meltdown if Angelides had just stayed at home and written an honest political/financial biography.
The next time you hear the cries for blood to be taken out of public pension funds, it might be useful to ask why they are in such bad shape, who manages them and for what interests beyond the intended interest -- retirement funds for public employees.
Badlands Journal editorial board
CalPERS Fund Details Billions in Real Estate Losses
by Kevin Brass
In 2004, faced with a "flood of capital" into real estate markets, the directors of the CalPERS investment fund, one of the largest pension funds in the country, made a fateful decision.
With yields plummeting, CalPERS sold off $16 billion of core assets and decided to shift $30 billion of the portfolio into "higher risk" real estate. At the same time, the fund, which represents California public employees, moved toward "a less formal authorization process," giving staff less control of the risky investments, according to a new report.
Needless to say, the new strategy didn't go well.
After buying into the market as it peaked in 2005 and 2006, CalPERS was uniquely positioned to take a beating when the market collapsed. By Sept. 2009, the fund's commercial real estate portfolio had lost 48.8 percent of its value from a year earlier, according to a review of the fund's strategy.
Beyond simply buying into risky projects at the height of the market, CalPERS made some fundamental errors in gambling away its members' pension funds, notes a gentle study by Pension Consulting Alliance. Problems included increased leverage; concentrated investments in sub-markets, which increased the fund's risk; and an "increase in the number of manager relationships and commingled investment vehicles," the report says.
As detailed by former San Diego Union-Tribune reporter Ed Mendel in his Calpensions column, CalPERS made several massive, bonehead investments, including:

•Paying $970 million in Jan. 2007 for a majority stake in Lennar Corp., which was developing 15,000 acres near Los Angeles. The project went belly up 15 months later.
•  A $500 million investment in a failed plan to build apartments on 80 acres in New York City.
• In 2005 the fund paid $3.1 billion to acquire Centerpoint, a Chicago company. One analyst estimated the fund overpaid by $900 million, even before the value of the company plummeted.
• The fund invested $91 million in a controversial plan to build condos, hotel rooms and stores over the Massachusetts turnpike in Boston. The project was never built.

A Grandstanding Politician Investigates Wall Street
By Steven Malanga
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.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute
Fresno Bee
EDITORIAL: Answers still needed in housing crisis
A new report on the situation shows many players are to blame and it's far from over.
We shouldn't be surprised that the inflated housing market, especially in California and other states with sky-high prices, was at the center of the nation's financial meltdown. But a 547-page report brings us closer to understanding how the economic crisis and our budget problems are interconnected, and their root causes. Former California treasurer Phil Angelides and his colleagues on the Financial Crisis Inquiry Commission have just issued their report. There were many players in the crisis and it's far from over.
One key problem was the so-called housing affordability -- allowing people to get into homes with tiny down payments and monthly mortgages that their incomes couldn't cover. It was a recipe for failure from the start.
Unfortunately, the time-tested 30-year fixed-rate mortgage, with a 20% down payment, went out of style. Borrowers opted for exotic, high-risk mortgages to get a foothold in high-priced areas, such as California.
Too many naively trusted mortgage brokers "who earned more money placing them in risky loans than in safe ones." The practice of lenders holding loans, which provided an incentive to avoid making bad loans, also went out of style.
In the new era, lenders sold loans to Wall Street firms soon after borrowers signed the documents and picked up their keys. These firms in turn "packaged, sliced, repackaged, insured" and sold the loans "as incomprehensibly complicated debt securities" to investors.
Worse, these securities were stamped with triple-A ratings by the credit rating agencies (Standard & Poor's, Moody's and Fitch).
From beginning to end, no one had a stake in the success of these loans. All of this was legal.
But the financial crisis report also documents predatory lending and fraud: inflating home appraisals; increasing interest rates or switching loans from fixed to adjustable rates at closing; promising borrowers they could refinance with better terms in just a few months or a year.
And government regulators failed to rein it in. Everybody gets part of the blame, and the politicians from both parties aren't exempt. Unfortunately, the mess continues.
According to RealtyTrac data, a record 2.9 million homes received foreclosure filings in 2010, up from 2.8 million in 2009, and 2.3 million in 2008. The firm predicts filings will increase to more than 3 million this year. Bank repossessions also continue to increase.
The best way out of the current mess that avoids a taxpayer rescue is for lenders to modify loans -- keeping people in their homes.
But as the first House Oversight and Government Reform Committee hearing led by Rep. Darrell Issa, R-Vista, heard last week, that isn't happening. The Home Affordable Modification Program was supposed to encourage banks and other mortgage servicers to modify loans on a voluntary basis.
It's not working. Neil Barofsky, the special inspector general, told Issa's committee that the issue is "abysmal performance" of servicers -- repeated loss of paperwork, blatant failure to follow program standards, unnecessary delays. Stories of servicer negligence and misconduct are legion, he said.
Yet not a single servicer has been penalized. Barofsky called the whole thing "dispiriting" and concluded that without meaningful servicer accountability, "the program will continue to flounder." It's time to get tough on mortgage servicers.
The Angelides commission said the crisis was avoidable. Well, we're still mired in it. Many foreclosures continue to be avoidable. Congress must address that issue.