Friday, March 28, 2014

An imagined Q&A between the Mayor of Seattle and a local reporter about inequality in Seattle -

Reporter:     Mayor Murray, you've established an
                    Inequality Committee to consider a 
                    $15/hour minimum wage in Seattle . . . 

Mayor:        Yes, that's right.  We’re determined to reduce the excessive inequalities of wealth and income in Seattle.

Reporter:     Well, if you’re really serious about reducing inequality, then why is the Seattle City Employees’ Retirement System planning to triple its investment in Private Equity?

Mayor:        Private Equity?  You mean the sort of thing Mitt Romney was involved in?

Reporter:     Yes, Private Equity is the province of the very wealthy, and Private Equity investors enjoy one of the most unjust loopholes in the Federal tax code.

Mayor:        Which loophole is that?

Reporter:     It's the so-called "carried interest" loophole that allows Private Equity investors to pay lower tax rates than most Seattle workers pay.  (See here and here).

Mayor:       That is unfair!  But the City of Seattle can't do anything about the Federal tax code.

Reporter:    Well, not directly, but Private Equity firms hire lobbyists to preserve this tax break, and Seattle invests money with these firms. (See here).

Mayor:        OK, I take your point.  But the Seattle Retirement System must act prudently, not politically, when it invests.

Reporter:    Yes, of course, but did you know that the Seattle Retirement System's largest investment in Private Equity, a $20 million bet on a Private Equity firm located in the Cayman Islands, is now worthless? (See here and here).

Mayor:       All investors make mistakes.

Reporter:    Granted, but according to the Retirement System’s own website (here), Seattle's Private Equity investments have underperformed their benchmark by 7.5%/year over the last five years, and by 1.5%/year since April 2007.  And these figures don't even include the high fees charged by Private Equity firms.

 Mayor:       (Sigh) That's depressing.  Have you talked the Retirement System's private financial advisors about this?

Reporter:    Oh, they love Private Equity.  But then they get much higher fees when Seattle invests in actively managed funds like Private Equity.

Mayor:        So, the upshot is that, by getting out of Private Equity, Seattle can make better investments and strike a blow against the unjust tax loopholes that benefit the very rich.

Reporter:     Well, many economists, including several Nobel Prize winners, think so. (See here).

Mayor:        Perhaps I should talk with Councilmember Licata; he's the Chair of the Seattle City Employees’ Retirement Board.

Reporter:    You’ve both said you want to address
            inequality.

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