Schwarzman Gets Billions; Taxpayers Get Bankruptcy

Schwarzman photoStephen Schwarzman is Chairman, CEO and Co-Founder of the Blackstone Group private equity firm. He is reportedly worth $8 billion. According to the Blackstone website, 36% of the money it manages is in public pensions, the largest single source.

On Wednesday, the Blackstone Group put out this statement:

Blackstone’s view on public employee pensions is clear and unambiguous: We believe a pension is a promise. Working men and women should not have to worry about their retirement security after years of service to their communities. We oppose scapegoating public employees by blaming them for the structural budget deficits that cities and states face. We at Blackstone are committed to helping public employees retire with confidence in the strength and reliability of their pensions.

What about people who pay taxes but who don’t work for the government? Aren’t they “working men and women,” too? And speaking of working people, we all know that Schwarzman is a man of the people. Who can forget his 60th birthday party? On that big day in 2007, Schwarzman reportedly spent $5 million to fete himself. Entertainment was provided by Rod Stewart, already north of sixty, who got a million bucks.

Of course, that gig was before the 2008 meltdown brought to us by Wall Street. Schwarzman began his career at Lehman Brothers, but we assume that not even he would do something so garish now. Instead, he can agonize over the “scapegoating” of public employees. The evil designs of Chris Christie, Andrew Cuomo, and Jerry Brown must be stopped!

I had no idea that the $1 to $3 Trillion in unfunded pension and benefit liabilities by state and local governments results from “structural budget deficits.” Silly me, I thought cities and states were broke because the union-supported politicians cut generous deals with the unions.

It sounds like Blackstone would prefer taxes to go up, rather than its clients share in any sacrifice. But it can only push this point so far. When Congress considered taxing carried interest as ordinary income, which would have meant a big tax hit for private equity, a riled-up Schwarzman got carried away. He reportedly said, “It’s a war. It’s like when Hitler invaded Poland in 1939.” Talk about agony.

Blackstone intones that “a pension is a promise.” Of course, there are other kinds of promises. Like when a private equity firm agrees to buy a company at a certain price, and later walks away when it realizes it promised too much. I guess that has never happened.

What prompted Blackstone to rally so suddenly to the cause of the oppressed government worker this week? It seems some unions have taken exception to Blackstone economist Byron Wien who last year had the audacity to state the obvious:

The retirement benefits for state workers, really not only in New York, California and New Jersey, but throughout the country, are very generous. Too generous. And it is very hard to change that. … But I think we have to be more realistic. We literally can’t afford the benefits we have given our retirees in state and local governments. And we have to change that.

Lots of people on Wall Street have gotten rich at the oftentimes-corrupt intersection of pensions, public sector unions, and state and local governments. Now that public employee salaries, benefits and pensions are getting more scrutiny, taxpayers must realize that the fight is also against the Schwarzmans of the world who will try to preserve the rotten status quo.