Rich DeColibus: The donkey's not paying attention

From Rich DeColibus, July 11, 2009
Subject: Re: Read this eight

(Written in response to an e-mail from Mario Iacone, which I don't have at the moment. KBB)

Mario,

Your research seems impeccable and your argument irrefutable. I need to think about this, not in terms of the facts, but in terms of the facts becoming relevant to STRS, which they obviously aren't at this point in time. Like you, I have tried logic and reason, and have gotten exactly as far as you have. My brother (unrelated to education but a wise market observer) nailed it on the head when he said STRS's first priority was preservation of capital, the exact responsibility they failed completely on.

One of the problems is our viewpoint eliminates the need for the investment staff (or most of it anyway), something you've made excruciatingly crystal clear and I agree with. It seems obvious management isn't going to throw 80 people it has worked with for years out onto the street, even though that's what needs to happen (or severely restrict their ability to put our money in risky stuff). At this point, I'm not sure what dents their castle wall; certainly nothing I have said seems to have mattered much.

Hard to understand how the OEA and OFT seem oblivious to the obvious, but it's clear we're not getting any institutional support, and that seems to me to be a malfeasance of their obligation to watch out for their members' interests. The active teachers are assuming somebody's looking out for them and I'm not convinced much besides Kathie's blog (thank heaven for that) is airing any worthwhile data which impugns STRS's disinformation. It isn't hard to disseminate absolutely true facts and have it completely envelop an issue in fog. Whoever writes STRS's updates belongs on the national scene writing scripts for whomever is running for Senate or President; I admit a grudging admiration.

I sense the root issue and highest priority is the employment of the investment department; what it should be is the preservation of our capital. STRS can probably afford them, but what we can't afford is for them to keep on doing what they're doing, namely attempting to maximize their bonuses by hoping to get lucky with risky investments (risky relevant to the preservation of capital rule). They like to point to the exceptional nature of the current recession and if it hadn't been for that, it would have been all sunshine and roses. What they neglect to take into account is the fact we live in a very dangerous world. Who knows what natural or intentional catastrophe will happen tomorrow or the next day? The market does indeed outperform bonds, BUT only when things are going swimmingly well. Is there someone in STRS who is sure there's not another housing-like bubble ready to burst and carry the market to new lows?

But, I'm preaching to the choir. We'll keep in touch. Again, congratulations on outstanding research; what we need is a 2 X 4 to hit the donkey in the head with, because it's deliberately not paying attention.

Rich D.