STUMP » Articles » Senseless in Seattle: A Panoply of Stupidity » 18 May 2018, 18:25

Due to the power outage from Tuesday – Thursday at home, today’s Around the Pension-o-Sphere is getting preempted by something I noticed recently: multiple Seattle stories that touched on different topics I like to write about. [Also, I have internet access for only about a few minutes at a time, so Mornings with Meep will likely not happen this weekend.]

And that, in each case, Seattle is going all-out to show how idiotic it is.

I find it interesting that a city with association with high-tech stuff, and supposedly smart people, keep electing total idiots.

Guys, government is too important to leave to the “professionals” – aka professional politicians, who are generally total idiots when it comes to other people’s interests, but know their own interests very well.

Maybe.

AGAIN ON THE SEATTLE HEAD TAX

That golden goose needs to die! How dare it honk at us while we hold the axe!

In Seattle, Amazon Shrugs

We’re not yet halfway through 2018, but this year’s winner of the Chutzpah Award should probably go to Kshama Sawant, a member of the Seattle City Council. On Monday the city slapped large companies with a new employee head tax to address the city’s homelessness problem. Amazon employs more than 45,000 residents and will have to cough up millions for the privilege of doing so. It recently suspended construction on a new downtown office tower while the council deliberated.

Sawant called this “extortion.” This is a little bit like the guy who kills his parents and then pleads for mercy because he’s an orphan—only worse. It’s more like the guy who kills his parents and then accuses them of murdering him.

Seattle does have a huge homeless problem: More than 11,000 people have no place to live. Some people have tried to blame this on Amazon, claiming that “since 2010, when Amazon opened its first headquarters in the South Lake Union area of Seattle, housing costs have skyrocketed.” But while Amazon’s growth might have exacerbated housing costs, it hardly started the spike.
…..
So demand has skyrocketed. But supply has remained short, thanks to Seattle’s own policies: 69 percent of the city’s residential properties are single-family homes. In Boston, the comparable figure is 14 percent; in Brooklyn, it’s 20 percent. This is because the vast bulk of Seattle’s residential land is zoned for single-family homes, rather than apartments or condos. As Rosenberg explains: “Under the current laws, expanded housing is essentially banned in those … areas … because only single-family homes are allowed there, and there’s no room left to build more of them.”

Yeah, I don’t think the zoning regs are Amazon’s fault.

Naturally, Amazon—and many other companies, including Zillow—object to being asked to solve a problem they did not create. So Amazon pushed “pause” on a construction project that would provide work space for another 7,000 employees. For this, it has been subject to protests and accused of “extortion,” “holding Seattle hostage,” and “hardball tactics.”

Guess what: Amazon does not have to be in Seattle.

But more to the point: If Amazon declines to pay the tax, the city will take it to court. If Amazon continues not to pay, then it could be subject to liens on its property and, eventually, seizure of the property. Some people, such as actor Wesley Snipes, have even served time in prison for failing to pay their taxes, but it’s not clear if Amazon’s officers would face similar jeopardy over the head tax.

Extortion is simply obtaining money through force or the threat of force. So if anybody is practicing extortion in this case it is Seattle, not Amazon. Amazon isn’t threatening anyone with force, and it isn’t demanding money from anyone else. (At least not in Seattle; the company’s shameless gold-digging for its second headquarters, known as HQ2, is another story entirely.) Seattle is doing both.

In fact, by debating whether it will continue to grow in Seattle, Amazon is merely taking a page out of Ayn Rand’s Atlas Shrugged: It is, after a fashion, threatening to go on strike.

Not really, though.

They’re not going on strike – they’re just going to go somewhere else.

And Seattle will learn that being in the Pacific Northwest is not necessarily a big draw for the kinds of employees Amazon wants or needs in its HQ. We all thought that the Amazon HQ2 project may have been a sham.

Nope, and I wouldn’t be surprised if “HQ2” becomes “HQ1” and they allow the Seattle site to dwindle.

CITY GOES BACK TO OIL-(AND GUN-)LOVING BANK

Seattle returns to Wells Fargo because no other bank wants city’s business

Before I excerpt this – I thought this sounded like a satirical article, but jeez, that headline is so boring it had to be true.

Let’s check the details.

Seattle split with Wells Fargo a year ago over the bank’s investments in the Dakota Access Pipeline and a fraud scandal. But the two are together again after the city could find no other bank to take its business.

The city of Seattle will keep banking with Wells Fargo & Co. after it could get no other takers to handle the city’s business.

The City Council in February 2017 voted 9-0 to pull its account from Wells Fargo, saying the city needs a bank that reflects its values.

Council members cited the bank’s investments in the Dakota Access Pipeline, as well as a roiling customer fraud scandal, as their reasons to sever ties with the bank.

…..
The contract was set to expire Dec. 31, but as finance managers for the city searched for arrangements to handle the city’s banking, it got no takers, said Glen Lee, city finance director. That was even after splitting financial services into different contracts to try to attract a variety of bidders, including smaller banks.

In the end, there were none at all.
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The first sign that it would be hard to make the council’s wish a reality came soon after the vote when Wells Fargo too-hastily informed the city it could sever its ties immediately with no penalty for breaking the contract. The bank even promised to help the city find a new financial partner.

I dunno that I’d call it “too hastily” done. Sounds like if no other bank wanted the business, the contract should have been non-renewed long, long ago. Probably way too much trouble for too little profit.

The city finance office began briefing the mayor and council about the situation last February as it became clear the city would have no takers no matter how it sliced up the business.

The main piece of city business — handling depository services — could only be done by a large bank, and there were no takers in that limited class.

The city cycles about $3 billion a year through Wells Fargo — all the revenue the city receives, even from parking meters. The city’s average daily balance in the bank has been about $10 million, according to Wells Fargo.

Hmm, $3 billion in income… but an average daily balance of $10 million.

Think this through: the income-to-balance ratio is about 0.33%. There are probably loads of transactions… and the bank doesn’t even really get much to play with. I bet this isn’t terribly profitable business.

While other jurisdictions have punished Wells Fargo for its scandal over the practice of creating millions of fraudulent bank and credit-card accounts, Seattle was the first to make the Dakota Access Pipeline — fully operational since last June — a major reason for severing ties with the bank.
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Glen Simecek, president and CEO of the Washington Bankers Association, a trade association of banks across Washington, said he wasn’t surprised the city had a tough time attracting a new partner.

JPMorgan Chase has been targeted by multiple actions from opponents of the TransMountain Pipeline and fossil fuel development, including a demonstration at the Russell Financial Center last week that shut down Second Avenue in the heart of downtown for hours and resulted in 14 arrests.

“To see them shellacked like that and subject to such disdain by members of the City Council is unfortunate,” Simecek said of Wells Fargo and JP Morgan, a financier of the B.C. pipeline.

“It is a challenge, I don’t envy bankers trying to walk that line. They want to serve the city, but the challenge of an activist city council makes that harder to do.”

So, not very profitable business, and a city council that likes whipping up hatred against you. Sounds totally like a client you want.

Ha.

I think Wells Fargo “fires” them when the current contract is up with a “Sorry, it’s just business.”

SEATTLE PENSIONS: YUP, THEY SUCK, TOO

In something that should not be a surprise at all, Seattle pensions perform poorly.

Behind Seattle’s rising pension costs: Past mismanagement adds to taxpayers’ burden | The Seattle Times

The Seattle City Employees’ Retirement System had one of the worst investment returns of any large public pension over a decade, triggering higher costs for the city and taxpayers. Behind the system’s struggles: allegations ranging from mismanagement to misconduct.

In the summer of 2015, officials overseeing the city of Seattle’s retirement fund realized that one of their investments was in trouble.

By this point, the manager of the investment, Capital Point Partners, had been the subject of complaints and litigation in multiple states going back more than a decade. New Mexico authorities had accused him of leveraging his political clout to reap millions of public dollars. Yet officials at the Seattle City Employees’ Retirement System knew none of this.

Today that investment is worth less than what the retirement system paid for it roughly a decade ago. With $5.5 million on the line, it was the kind of lapse that Seattle’s $2.8 billion retirement fund could have shrugged off had it been an isolated one. It wasn’t.

This kind of reminds me of the investment failures in the Dallas Police & Fire Pension Fund.

I’m going to pull one more paragraph out of context:

Among the more exotic bets was the Epsilon Global Active Value Fund II, a Caribbean-based fund whose strategy included investing in “distressed or mismanaged companies,” according to a confidential fund document. SCERS also acquired a stake in Imperium Renewables, a biofuels firm with offices in Seattle that planned a public stock-offering to expand.

That is the sort of thing hedge funds do… and really, it should be being done by people who have skin in the game. (Yes, Taleb finally got me with that last slogan… “anti-fragile” almost got me, but “skin in the game” is super-important, I think.)

Here is a basic question: should public pensions be playing in this space at all?

There are lots of paragraphs like the above in the full article.

Some asked: why not just invest in index funds?

Q: Why doesn’t SCERS just invest in low-cost index funds instead of employing active fund managers?

“That’s a very good question,” says Alicia Munnell, director of the Center for Retirement Research at Boston College, which recently found that public pensions with lower investment fees have performed better than ones that pursued more private equity and hedge fund ventures. “The fancier you try to get, the worse you do,” she says.

Yup, I found there wasn’t much of a benefit, either.

But here’s a more cogent question from the article:

Q: If city officials invested pension funds poorly, why do taxpayers have to make up for it?

Seattle has what’s known as a defined-benefits retirement plan, which guarantees payouts to eligible employees based on their salary and years of service. The city (i.e. taxpayers) and its employees jointly contribute to the pension fund, which is invested to generate income that will cover retiree costs. While city workers contribute a maximum of 10 percent of their paycheck, the city’s agreements with labor unions call for it to pay “all necessary contributions beyond” that 10 percent. As investment losses eroded the value of the pension fund, the city’s share has exceeded 15 percent – more than $100 million a year – since 2015.

Mmmm.

You think more and more taxpayers might be asking “Why do we have to pay for y’all playing with fire?”

And they might do other than ask… they may say: “Nope. We’re not going to pay for this.”

Be warned.