C-44 must die: Bad timing for a bad constitutional amendment

Montanans received their voter information pamphlets in the mail recently, and as early voters head to the polls they’d do well to spend some time familiarizing themselves with what will be on the ballot.  Heading the top of the list when you open the pamphlet is C-44, the proposed constitutional amendment to allow up to 25 percent of all public funds to be invested in private corporate stocks. Given the present upheaval on Wall Street and the hundreds of billions of dollars in losses in the last week, C-44 should be an easy “No” vote for Montanans.

The concept of allowing public funds to be invested in stocks instead of stable, fixed-income investments has been around for some time now.  Driven by the theory that stocks can bring higher returns than bonds, members of the legislature from both parties have been trying to ease restrictions on state investment for more than a decade and have succeeded in allowing public retirement system and state compensation insurance funds to be invested in stocks. The bad news from those moves reared its ugly head this week with the top congressional budget analyst, Peter Orszag, saying pension plans have lost as much as $2 trillion in the past 15 months.

Reading the proponents’ and opponents’ arguments on C-44, which were written long before the stock market’s crash, it’s embarrassingly evident that the proponents are long on hope and woefully short on reality—especially as we have seen it manifested in the last few days.

Using simplistic metaphors for highly complex interactions, proponents want Montanans to think of investing our public dollars in stocks as a warning from grandmother to “not put all your eggs in one basket.”  What this means, or is supposed to mean, is that we need what proponents call “tools” available for state investment managers to use so that we can “earn greater returns for trust funds.” Playing the stock market, according to the proponents, will “increase investments for all” since, as they point out, from 1925 to 2007, “large company stocks” have returned, on average, 10.4 percent annually while bonds only brought in about half that at 5.5 percent annually. Using this economic construct, proponents claim that not being able to invest all public funds in the stock market has “cost us millions.”

It would be interesting to talk to those who wrote the proponent arguments this week and see what they have to say now. One wonders if state Sens. Vicki Cocchiarella and Dave Lewis and state Rep. Dave McAlpin have had any discussions with their investment brokers about the current state of their stock holdings.  It might also be interesting to see how many taxpayer billions will be going to rescue the very financial institutions upon which they would have us rely. In plain language, C-44 calls for investments “that a prudent expert acting in a fiduciary capacity and familiar with the circumstances would use.” Let’s see, would that be those prudent experts from Lehmann Brothers, Bear-Stearns, Washington Mutual and Merrill-Lynch? Oh wait, those firms were so prudent in their investments that they no longer exist—and the sole survivors only continue to exist, if you believe President George W. Bush and U.S. Sen. Max Baucus, because we paid $800 billion in taxpayer funds so they can prudently continue on. Or would our “eggs” be safer in the basket of any of the hundred or more other banks now on the edge of economic extinction?  The arguments by the proponents, viewed in the harsh light of the fiscal reality of Wall Street’s risky and unsupported penchant for the fast buck, now seem ludicrous.

The pre-crash arguments of the opponents, on the other hand, seem prescient, opening with: “Putting money into the stock market could hardly be considered an experience that is immune to loss; if it was, everyone would invest without fear.” Indeed, fear has permeated our nation in the last two weeks from the White House on down—fear so great that we have been told our financial system will literally collapse unless hundreds of billions, likely more than a trillion when all is said and done, are shoveled into the pockets of the Wall Street monsters. Oh, and it had to be done immediately, not in any measured, considered or prudent fashion, because a lot of eggs had tumbled out of a lot of the baskets C-44 supporters would have us believe were spill proof.

Uncannily, opponents to the measure predicted that if Montana’s public funds were invested in large corporate stocks, the end result would likely create “state-sanctioned monopolies” to keep those corporations—and the public’s investments—in business. Looking at the latest actions by the federal government to buy up bad investments by a whole host of large corporate players, the opponents hit the nail squarely on the head.  Moreover, we are already seeing efforts to “bail out” industries in Montana that have run into economic brick walls. The latest plan to save the timber industry comes to mind, calling for opening state and federal forests to ever greater logging despite the fact that the timber companies and mills have readily admitted recently that there is simply no market for their products.

At least one of the proponents, state Sen. Dave Lewis, has been straight up with his assessment of the situation, saying there could hardly be a worse time for C-44 to hit the ballot. He’s right, of course.

Perhaps, as the proponents posit, the market will one day go back up and continue to grow. But for now, with even more bailouts looming on the horizon, Montanans would be advised to give C-44 a quick and decisive death, and leave the riverboat gambling on stocks to private interests, not public funds.

Helena’s George Ochenski rattles the cage of the political establishment as a political analyst for the Independent. Contact Ochenski at opinion@missoulanews.com.
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