Thursday, January 31, 2013

“Guns, Banks and Pensions – Overreach”

Sydney M. Williams

Thought of the Day
“Guns, Banks and Pensions – Overreach”
January 31, 2013

Rahm Emanuel will be forever known for his 2009 comment: “Never let a crisis go to waste!” Now, as mayor of Chicago, he has used the tragic killings in Newtown to encourage a pension fund for municipal employees to divest its holdings in three companies that manufacture weapons. Additionally, he has been strong-arming two of the biggest financial institutions in the country, Bank of America and TD Bank, to stop supporting gun manufacturers by providing them lines of credit, urging the banks to agree to “common sense reforms” on firearms. While, Mayor Emanuel has the right to express his opinion, as do we all, in his case, because he is the mayor of the nation’s third largest city, he should exercise restraint, as interference in bank lending practices can be tantamount to blackmail. Chicago is not alone in using pension assets to force social change.

The California State Teacher’s Retirement System decided to sell their investments in companies that manufacture guns and ammunition clips banned in the state. The California Public Employees Retirement System plans to review its holdings in the next few weeks. The Philadelphia City-retirement Pension Fund has adopted a set of “Sandy Hook Principles.” Those rules would apply not only to armaments’ manufacturers, but to retailers like Wal-Mart, unless they back gun control measures and universal background checks. Thomas DiNapoli, New York’s comptroller and sole manager of the New York State Common Retirement Fund, sold their holdings in Smith & Wesson, and is freezing investments in related businesses because the “national movement toward greater regulation of firearms manufacturers will impose significant reputational, regulatory and statutory hurdles that may affect shareholder value.”

The subject causes me to repeat a caveat I have used before. I neither hunt nor shoot. Apart from Army basic training fifty years ago and skeet shooting once even before that, I have never fired a weapon. That doesn’t mean I disapprove of them in the hands of law-abiding citizens and I recognize the value of the Second Amendment. But guns are just not important to my life. I would love a world without guns, criminals, psychotics or war. But that is ideal, certainly not reality.

There are at least two aspects to the impulsive reactions of states and cities to the Newtown massacre, like those mentioned above, that I find troubling. One is that politicians have no right to use assets that belong to current employees and retirees in order to promote social change. It is morally wrong, in that the assets do not belong to the politicians. It is fiduciarily wrong in that investment decisions should be determined solely on providing the owners of the funds the best risk-adjusted return their individual needs demand. To make a portfolio change because it accords to a social position can have unintended consequences. In the mid 1990s, politicians urged their state and municipal pension plans to divest their holdings in tobacco companies, which many did. Ironically but not surprisingly, since the end of 1995, Altria (formerly Philip Morris) has risen 385% while the S&P 500 is up 144%. Quick-fix, do-something/anything actions rarely accomplish what is intended.

The second troubling aspect of the aftermath of Newtown is that the emphasis on controlling which weapons can be purchased has detracted from a more meaningful focus on the criminal and psychotic behavior of the perpetrators. It is akin to blaming the Ax Manufacturers’ Association rather than Lizzie Borden for the 1892 killing of her parents. It is far easier to go after guns and gun owners than to enter the nether regions of psychological behavior. The problem is, naturally, it is only legitimate gun owners who will comply with any new laws. Criminals will find alternatives. Why, for example, does Chicago with some of the toughest gun laws in the country have one of the highest incidences of murders and shootings? Last year 62 school age children were murdered and 446 were shot, yet there was barely a whisper in the national press.

That raises the point that is almost always mass murders or multi-victim accidents that get our attention. Every day in the United States about 90 people are killed in automobile accidents, yet such accidents receive little attention. On the other hand a plane crash that kills 90 would be front page news. Twenty school children killed by a maniac with weapons provided by his mother, whom he also killed, has deservedly been front page news for a month and a half, yet 62 school age children killed in Chicago last year warrants barely a whisper. Why does one event shock us and the others are passed over? Mayor Rahm Emanuel can claim to be proud of Chicago’s gun laws, yet the facts tell another story. Connecticut has had one of the tougher gun laws in the nation; yet a mother in Newtown taught her mentally handicapped son to shoot. Would even tougher gun laws have prevented such a tragedy? I am not sure, but keeping guns out of criminal hands and a better knowledge, awareness and focus on those who have mental and emotional problems may make more sense.

It is, of course, understandable that when bad things happen politicians must be seen to be doing something, no matter what. But it is the consequences of their often ill-considered responses that are troubling and potentially counter-productive. State and municipal pension funds, in general, are woefully underfunded. Pressuring them to make investment decisions based on political motives can turn a bad situation worse. Similarly, decisions to ban certain weapons and cartridges on the premise that doing so will ensure that another Sandy Hook will ever again happen makes good press, but easy answers don’t always resolve complex problems.

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