When independent auditor Tracey Rash reported to Bethlehem City Council on the sad state of Bethlehem's finances, she noted that the Callahan administration completely missed its $2 million pension fund payment in 2009. She also called attention to two "unusual investments." She told Council Prez Bob Donchez, "I can't address the risks associated with the investments. What I can say is that it caught my eye because it isn't a typical investment."After a little digging, I realized that these "unusual" investments were in hedge funds. What's wrong with that? For one thing, they make up 12% of the pension fund, which is a pretty high percentage. Another problem is that they are so risky that only a handful of Counties will invest in them. Hedge managers usually get 20% of whatever profits are earned, giving them an incentive to gamble with your money. Most troubling of all was learning that Bethlehem actually has invested in "life settlements," an unregulated industry that buys life insurance policies from senior citizens and then waits for them to die ahead of schedule, like ghouls.
Why would Mayor John Callahan, whose City is floating into a financial abyss, agree to these bizarre investments? A reader has answered that question. A Morning Call report lists the securities firm handling the pension - Barroway Topaz Kessler Meltzer Check, LLP - as Callahan's biggest Congressional campaign contributor. As of the end of June, individuals at that firm had kicked in $29,317, with another $4,800 from the firm itself.
This firm also gave $10,000 to Callahan's state campaign fund in 10/8/08.
Oh yeah, Callahan wants to reform Wall Street.
Callahan is one of the sleaziest politicians the area has ever seen.
ReplyDeleteCallahan is doing what every municipal official is doing and that's trying to get as much return for pension funds that have been underfunded for decades. Why not attack the municipal unions, primarily fire and then police for their outrageous pension checks. And the legislature for not addressing this STATEWIDE problem. Where was Dent when he was in the State House???
ReplyDeleteWhen the market crashes, what is in a Pension fund in the state and private sector will be irrelevant.
ReplyDeleteI'm not going to judge John to hardly on this.
I will say in the past 2 years since the crisis has unfolded neither side seems that particularly interested in fixing the situation that caused the problem.
"Callahan is doing what every municipal official is doing and that's trying to get as much return for pension funds that have been underfunded for decades."
ReplyDeleteYeah, I can see that return on his campaign finance reports.
"I will say in the past 2 years since the crisis has unfolded neither side seems that particularly interested in fixing the situation that caused the problem."
ReplyDeleteSenator Browne does have legislation to address this issue, but it's not going anywhere.
"When the market crashes, what is in a Pension fund in the state and private sector will be irrelevant."
ReplyDeleteDo you have any idea what you're talking about? It's very relevant bc any shortfall muist be made up by taxpayers. The l;ast thing Bethlehem needs is a pension fund that is loaded with goofy hedge funds like life assurances.
Bethlehem Mayor John Callahan announced he will make a "special announcement" on the steps of City Hall early Tuesday evening.
ReplyDeleteThe vague news advisory indicates he will make a proposal for a new commission but does not say with what the commission would be charged.
Callahan will be joined by local community leaders, educators and business owners.
The announcement is scheduled for 5:30 p.m.
Bernie,
Maybe you can attend?
Callahan is done.
ReplyDeleteEverybody knows it. What looked like an interesting race is now looking increasingly like a blowout, advantage Dent.
Shades of the Bethlehem Area School District and their adventure with derivatives -- for which the taxpayers are already being 'asked' to make amends.
ReplyDelete"Bernie,
ReplyDeleteMaybe you can attend?"
I'm thinking of going and asking a few questions.
Where's Sam Bennett when the party needs her again?
ReplyDeleteI miss Sam Bennett.
ReplyDeleteBernie, you still either do not get it, refuse to get it, or are simply playing on fear tactics. I say this because you have discussed this before and apparently have not gone further than wikipedia for your ideas on investing.
ReplyDeleteHedge funds are not "unusual" or "bizarre" investments, and 12% invested in this asset class is not an overweight by any means. And unlike most mutual fund managers, any hedge fund manager worth his weight has the majority of his/her net worth tied up in the funds they manage. This is a pretty big incentive to not "gamble" with the assets managed.
The 2/20 fee schedule is actually a nice incentive for a manager to continue to make money for his/her clients as the 20% incentive is only paid above the high water mark on the fund. In other words, if your investment on 12/31/07 is worth $1,000,000 and falls to $500,000 like your Vanguard S&P 500 index fund did during the crisis, the hedge fund manager would not get paid an incentive until your investment was worth $1,000,001. Your mutual fund manager would still be getting paid, albeit on a much smaller amount of investment dollars.
When you quote Tracey Rash on the "unusual investments" your implication appears to be that they are "bad" and "risky." And you do this with no information on exactly what the investments are, other than a claim that some of the monies are invested in life settlements.
Do you have any information on the risk assessment of the specific investments? Do you have some proof to back your claim of life settlements?
I would be more than happy to help you assess the investments if you really want to get to the bottom of what the actual risks are that the pension board has taken on.
You may take some of what I say as harsh, but if there are real issues there they need to be brought out in the public. And that is not just in Bethlehem, but everywhere. If you are interested, I can do some research and kick the tires. Just post that you would like some help and I'll send you an email address you can send the information to me via the back door.
Someone Who Knows
Bernie,
ReplyDeleteMy point is when the next market crash happens, blue chips will fall as much as life settlements.
Frankly the next phase of the deflationary debt crisis is starting. A share of Google is about as good as a Life Settlement when it hits. Both are pieces of paper that are about to have some extreme impairment.
The country is broke and the emperor has no clothes.
If this was 2007, I'd have a hissy fit, no one is getting their pensions without an inflationary pension bailout from the Feds. That is just the reality unless the pension fund is invested in T-bills and Gold.