Risk Is Its Own Reward. If You’re a Corporation

by Steve Kreisberg  |  August 14, 2012

Starting today, we’ll periodically feature analysis of the day’s news, by experts from inside and outside AFSCME. This entry comes from Steve Kreisberg, AFSCME’s Director of Collective Bargaining.

It’s just not fair.

So says Assured Guaranty, a Bermuda-based insurer of municipal bonds that is set to take a haircut (that’s finance-speak for lose a lot of money) as a result of Stockton, Calif., defaulting on its bonds as part of a bankruptcy plan. Of course the company is smarting from the potential loss of more than $100 million as a result of Stockton’s default. But their reaction to the loss is interesting and says a lot about Assured’s sense of entitlement. In a prepared statement, the company whined:

Stockton’s attempt to transfer the cost of lucrative, above-market employee wages and benefits granted when tax revenues were flush to capital markets creditors by haircutting bond principal is unprecedented.

Assured Guaranty is irked because Stockton plans to continue to pay its required contributions to the statewide pension fund, CalPERS. It argues that Stockton should renege on the pension payment, in the interest of fairness. To recap, Assured wants the city to put its employees’ future retirement security at risk because the company wants its $100 million.

Of course Assured made no statement on Stockton’s 25-percent reduction in the number of police officers in the crime-riddled city; nor has it complained about the 30-percent reduction in city firefighters or the overall reduction in city staff by more than 40 percent. And the 9- 23-percent pay cuts imposed on those city workers who still have jobs goes unnoticed by the company.

The titans of finance, exemplified by Assured’s largest stockholder, billionaire investor Wilbur Ross, often boast of their savvy risk-taking and claim their brilliance justifies their ample financial rewards, which, of course, should never be taxed. But when the risks turn sour, they are quick to point a finger, demand a bailout, or, as was the case in the Sago Mine disaster, avoid responsibility. (Sago was operated by Ross-owned ICG.)

Assured complains that the deferred compensation due to employees for services already rendered is “similar” to the bond payments owed by the city. But they’re wrong. Assured was handsomely compensated for taking risk. On the other hand, employees are compensated for providing services. Risk never enters into the employment transaction. Accordingly, we should rightfully expect that the party that got paid for doing nothing other than taking risk would suffer the most when that risk turned out to be a bad bet.

That, indeed, would be fair.

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