Public pension management by shakedown

Opinion Journal:

President Obama's auto fix-it man, Steven Rattner, is in the news as one of the Wall Street financiers hit up for big money as part of New York state's unfolding pension-kickback scandal. The White House says he's done nothing wrong, and there's no public evidence that he broke any laws.

But Mr. Rattner's high profile is nonetheless useful in drawing attention to the real story here, which is the growing evidence of corruption by officials who use their power over public pension funds to shake down private companies. This is the same political class that has been blaming banks for "greed" in the financial crisis. The pension fund scandal exposes the myth of the superior virtue of the public and nonprofit worlds. Greed is universal. And the opportunity for corruption is enormous when political discretion is tied to vast sums of public money.

New York Attorney General Andrew Cuomo and the Securities and Exchange Commission allege that investment firms paid politically connected "placement agents" in return for a piece of New York's $122 billion pension fund. The AG has indicted three politicos for kickbacks, but the media have focused on the private firms that hired some of these political agents. Thus the attention on Mr. Rattner, who as co-founder of the Quadrangle investment firm met with a consultant about paying a finder's fee for pension cash.

The motive and knowledge of these private investors need to be explored, but the main culprits are the public officials and their agents. Former New York Comptroller Alan Hevesi resigned in 2006 after pleading guilty to unrelated charges of defrauding the government. But his office served as exclusive manager for the pension fund that is one of the world's biggest institutional investors. What the New York scam is laying bare is the extent to which officials allegedly leveraged those taxpayer dollars to enrich themselves and increase their political power.

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This is a form of corruption regardless of the law. It is a distortion of the free market where the person with the best product at the best price gets the business. In this case it si the public getting the business from corrupt officials.

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