Chair of Financial Inquiry Committee Assails Wall Street’s Continuing
'Breaches of Ethics'
On the very day that Goldman Sachs executive Greg Smith announced his resignation in revulsion over how the firm is callously “ripping their clients off,"
Phil Angelides, chair of the nation’s Financial Crisis Inquiry Commission, expressed his continuing disgust with how Wall Street has become “a casino floor as big as New York, New York,” after wiping away $9 trillion of household wealth “like a day trade gone bad.” Speaking at a Responsible Investment Forum of investors, pension fund managers and union and community leaders, convened in Los Angeles by Heartland Capital Strategies (HCS), Angelides assailed the financial system centered on Wall Street for “becoming a conduit for speculation rather than productive investment.”
Citing HCS as “a clearinghouse for what’s good in investment,” Angelides asserted that four years after the market collapse, “the financial crisis is still metastasizing.”“The ultimate tragedy of the past decade,” he said, “is that we created $13 trillion in mortgage securities—many of which were destructive—rather than deploying that capital in ways to make us a global leader in renewable energy or in rebuilding our infrastructure.”
The forum, the second of four sponsored by HCS in collaboration with the Blue Green Alliance, focused on the need to revitalize the real economy through value-added investments in the nation’s infrastructure and by developing new sources of clean energy. Recalling President Harry Truman’s condemnation of Wall Street financiers as “gluttons of privilege” in their pursuit of power, Angelides said that “widespread breaches of ethics” have continued to drive maldistribution of the nation’s wealth.“
Since May 2009,” he pointed out, “92 percent of the nation’s economic growth has gone to corporate profits and zero to wages” while also noting that we now have the lowest ratio of wages to GDP since the Great Depression. Calling the implosion of financial markets “in many respects a crisis by design,” resulting in large part from the push for deregulation, Angelides averred that the need exists to “remake the contours of our economy, not just restart it.” “There isn’t a better time to talk about how to mobilize capital and create wealth in our economy,” he concluded.
Angelides also moderated a panel of fund managers and pension consultants engaged in making value-added investments in renewable energy and energy efficiency that bring first-rate returns, as well as contributing to the economy and the community at large. Jim McDermott, managing director of the US Renewables Group and formerly the owner of a successful online postage business, explained that in addition to earning solid returns, unlike IT, “renewables touch people in many ways every day: engineering to design them, labor to build them and facilities to sustain them. So they breed a long-term relationship with the community.” He advocated an investment approach that draws on the global best-of-class intellectual properties in tech being developed in American universities, scaling them up for domestic production and exporting these products, as Germany is successfully doing to great advantage.
“When people say that clean tech does not pay, it’s just not true,” he added. “Only those that were too highly leveraged failed.” Ed Smeloff, a project developer for SunPower and former chair of the Sacramento Municipal Utility District, asserted that “clean tech is not a niche market, it is going to be the transformative technology for the remainder of the century, since more greenhouse gases will go into the air in first 20 years of the 21st century than in the entire 20th century.” Public policy has always driven the utility industry, he said, adding that what’s needed now is access to the integrated network of the grid—the high voltage transmission system—as well as “credit worthy off-takers of the system.” “What has enabled the market to take off in the U.S.,” he concluded, “is tax policy for renewables,” which led him to hail the extension of the Investment Tax Credit until 2016.
When Angelides asked if there has been a recalibration of return expectations by Taft-Hartley pension funds, Sarah Bernstein, a principal with the Pension Consulting Alliance (PCA), replied that since the 2008 crisis, “Everybody is lowering their perception of necessary returns. Everybody is looking at risk.” A lively discussion ensued among the 33 participants in the forum about how best to package proposals to investors to ensure their value-added qualities are recognized and compelling in the context of the current trepidation about risk.
John Williams, CEO of Impact Investments LLC, suggested that the goal should be to provide a level of due diligence beyond Taft-Hartley, a protocol that builds the U.N. principles for Responsible Investment into proposals in order to give investors the ability to compare projects, which will encourage them to select those with the most sustainable returns, including the added value of advancing environmental, social and governance principles. Williams said his firm is developing metrics that will make such a protocol available for fund managers and pension trustees alike to use in assessing the value-added components of proposed investments.
